23 June 1994 External T.I. 9403465 - SEMINAR EXPENSES

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

A training seminar is held during the course of a European ocean cruise. To what extent will costs (air fare, accommodation, and meals) be deductible where "holiday time" is also involved?

Position TAKEN:

Costs are only deductible in respect of the seminar to the extent that costs would have been incurred if the seminar had been set out in the usual manner (i.e., the seminar would normally be held in hotels). However, meals, etc. are also subject to the provisions of section 67.1.

Reasons FOR POSITION TAKEN:

The position is consistent with comments in IT-357R2.

			940346
XXXXXXXXXX		M. Eisner

Attention: XXXXXXXXXX

June 23, 1994

Dear Sirs:

Re: Seminar Expenses

This is in reply to your letter of February 7, 1994 in which you requested our views on the deductibility of seminar expenses incurred by self-employed individuals. We regret the delay in providing you with a response.

The situation outlined in your letter appears to relate to contemplated transactions. Confirmation of the tax consequences of proposed transactions will only be provided in response to a request for an advance income tax ruling following a review of the relevant facts and documentation. The procedures for requesting an advance income tax ruling are set out in Information Circular 70-6R2 and the related Special Release dated September 30, 1992. We are, however, prepared to provide you with the following general comments.

Our Comments

In the following comments unless otherwise stated, all statute references are to the Income Tax Act S.C. 1970-71-72, c.63 as amended consolidated to June 10, 1993 (the Act).

Your enquiry concerns the type of situation where self-employed professionals are required to spend a certain amount of time each year on professional development with respect to their professional status. The professionals normally satisfy this requirement by attending seminars recognized or sponsored by the professional organization to which they belong. A fee is charged to each participant who attends a seminar. Attendance at seminars is monitored and each participant is provided with a certificate for the purposes of establishing that he or she attended the seminar. The seminars are normally conducted in hotels. However, one of the seminars will be held during a twelve day European cruise. The seminar would last four days and would, subject to the location, otherwise be conducted in the same manner as other seminars.

The issue concerns the deductibility of the costs of attending the seminar during the cruise. In your letter you suggest an allocation of total cruise costs that would classify the return airfare in full as well as a proportionate amount of accomodation, meals and entertainment, on the basis of the number of days during which the seminar is held, as a business expense.

The Department's general position on training is set out in Interpretation Bulletin IT-357R2 "Expenses of Training". As indicated in the summary comments of this bulletin, training costs are not deductible if they are capital expenditures. However, for the purposes of our response, we have assumed that the seminar costs relate to training described in paragraph 4(a) of the bulletin and treated as a current expense.

On the basis that the costs would be higher than those which would be incurred if the seminar were to be held at a more common venue (i.e., at hotels), we have referred to comments which are set out in the summary of the bulletin as well as two statements found in paragraph 5 of that bulletin under the heading "Location of Course":

"Any portion of costs related to training which is either personal or unreasonable in the circumstances may not be deducted. In deciding whether any portion of these costs is personal or unreasonable, the duration and location of the course should be considered, as well as the days on which no training is taken."

"As a rule, expenses of attending a training course outside the taxpayer's general geographic locale are considered unreasonable to the extent that they exceed what they would have been had a similar course been attended locally, if available."

"Claims in connection with a training course held outside the territorial limits of a sponsoring professional organization or business association are generally considered to be unreasonable to the extent that they exceed what they would have been had that course been held within such territorial limits."

The above comments would be considered in respect of each of the participants. Pursuant to those comments, it is our general view that an amount in respect of the seminar would only be deductible by a participant, subject to the further limitation set out below in respect of food, beverages and entertainment, to the extent that it does not exceed the amount that would have been incurred if the seminar had been held in the usual manner in a locale where the participant normally attended such seminars. This approach is also consistent with the Court's determination in Zakoor v. M.N.R. 64 DTC 392. In this case, the president and controlling shareholder was provided with the use of a Cadillac each year with the vehicle being used primarily for business purposes. The Court decided that the taxpayer had received a benefit in respect of the luxury element involved in addition to a benefit (based on actual personal use) in respect of the capital cost (net of the luxury element that constituted a benefit in the taxpayer's hands) and operating costs of the Cadillac. In view of this decision, it is our view that a Court would preclude the deductibility of a participant's expenses to the extent previously mentioned on the basis that they are unreasonable for the purposes of section 67 of the Act or are personal expenses for the purposes of paragraph 18(1)(h) of the Act.

As you have recognized in your calculation the deductibility of the cost of food, beverages, or entertainment, that are otherwise deductible, would be further limited to extent provided in section 67.1 of the Act. We also refer you to comments in paragraph 4 of Interpretation Bulletin IT-131R2 "Convention Expenses" which addresses the deductibility of food, beverages, and entertainment in relation to section 67.1 of the Act where such costs form part of the overall cost of an event but are not identified and would otherwise be deductible under the Act. While these comments were made in respect of a convention, they are also relevant in respect of the seminar described above. In addition, we note that Federal Budget material released on February 22, 1994 ("Tax Measures: Supplementary Information" - Page 60), includes a proposal that section 67.1 of the Act be amended so that after February 1994, the limitation set out in that provision will be 50% rather than 80%.

The Department would not generally proceed to deny the deduction of the seminar costs by virtue of paragraph 18(1)(l) of the Act. However, we also wish to emphasize that notwithstanding the above assumption concerning the deductibility of the seminar costs, it remains a question of fact with respect to a particular participant as to whether any such costs were incurred for the purposes of gaining or producing income from a business. If this test was not considered by the Department to have been satisfied, no seminar costs would be deductible by virtue of paragraph 18(1)(a) of the Act. In addition, as suggested in paragraph 5 of IT-357R2 under the heading "Location of Course", the Department would likely proceed to question the deductibility of seminar costs where the seminar is held during the course of a cruise.

We trust that our comments will be of assistance to you.

Yours truly,

J.A. Szeszycki
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch