16 June 1994 External T.I. 9407275 - CONVENTION 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.

							5-940727
XXXXXXXXXX						F.B. Fontaine

Attention: XXXXXXXXXX

June 16, 1994

Dear Sirs:

Re: Subsection 20(10) of the Income Tax Act (the "Act")

This is in reply to your letter dated March 15, 1994 wherein you requested the Department's interpretation of certain expressions included in subsection 20(10) of the Act.

The particular circumstances outlined in your letter appear to be actual transactions involving specific taxpayers. As mentioned in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990, as amended by Special Release dated September 30, 1992, it is not the practice of this Department to provide opinions with respect to proposed transactions other than in the form of advance income tax rulings. On the other hand, the tax consequences of completed transactions are best determined by our District Offices in the course of tax audits. This Directorate is therefore not in a position to give a definitive response to your inquiry. However, we are prepared to offer the following general comments which may be of some assistance. Unless as otherwise stated, all references to the Act are to the Income Tax Act, S.C. 1970-71-72, c. 63 as amended and consolidated to June 10, 1993.

The deductibility for income tax purposes of expenses related to an event (convention, training course or business meeting) depends upon each taxpayer's particular set of circumstances and can be determined only after his income tax return is filed and all relevant facts are determined. The costs in connection with attending or organizing a convention or a business meeting can receive different tax treatment from the costs of attending or organizing a training course. A distinction should therefore be made between a training course and a convention or a business meeting.

It is the Department's position that intracompany meetings, seminars, courses, etc. will not be regarded as "conventions" as far as employees of a company are concerned. Thus, in this regard, subsection 20(10) of the Act will not be applicable but an amount may be deductible under section 9 of the Act and the "reasonable" rule provided in section 67 of the Act will apply both to the amounts and the locale of the particular event (see paragraph 11 and paragraph 7 of Interpretation Bulletins IT-131R and IT-357R2, respectively).

Furthermore, paragraphs 9 and 10 of the Interpretation Bulletin IT-357R2 comment on the distinction to be made between a training course, a convention and a business meeting.

Paragraph 1 of IT-131R2 states that a convention may be defined as a formal meeting of members for professional or business purposes. However, by virtue of the comments in paragraphs 7 and 11 of IT-131R2 and paragraphs 9 and 10 of IT-357R2, it is a question of fact whether a particular meeting could be described as a convention for the purposes of subsection 20(10) of the Act. Any such determination, in our view, would depend on circumstances including whether (i) the participants are members or employees of the sponsoring organization and (ii) the particular meeting was for the purpose of training or business-related education. IT-357R2 provides the Department's position in respect of costs of training including the requirement that they are reasonable with regard to amount and to the territorial limits of the sponsoring organization.

From the limited information outlined in your letter, our initial impression would be that the proposed meeting would be considered a business meeting and the expenses related to that meeting would be deductible, subject to the limitations of paragraph 18(1)(a) and sections 67 and 67.1 of the Act. Unfortunately, this Directorate does not have any established guidelines with respect to the determination of whether an expense related to a business meeting would be "reasonable in the circumstances". The reasonableness of any expense must be considered on a case-by-case basis.

The location of a meeting may have an impact on its cost. Thus, the location may indirectly have a certain influence on the reasonableness of the expenses. However, it would be considered reasonable if a meeting of an organization was held within its territorial scope.

In your letter you specifically requested the Department's guidelines in determining the territorial scope of an organization and the meaning of "national in character". The Department does not have any specific guidelines at this time other than the comments provided in paragraph 2 of the Interpretation Bulletin IT-131R2:

"Subject to the provisions of the Canada-United States Income Tax Convention discussed in 3 below, subsection 20(10) provides that deductions can be made only for expenses paid for attending conventions at locations consistent with the territorial scope of the sponsoring organization. The term "territorial scope" refers to the geographical area in which the particular organization ordinarily conducts its activities. Accordingly, this generally requires that a convention sponsored by a Canadian business or professional organization be held in Canada where the organization is national in character, or in the particular province, municipality or other area in Canada where the activities of the organization are limited to such area."

Based on the comments in paragraph 2 of IT-131R2, again it is a question of fact to be determined on a case-by-case basis as to whether, by virtue of the extent of the activities of an organization carried on in a specific area or a number of specific locations, the particular organization would be considered to be national in character.

Notwithstanding paragraph 9 of Article XXV of the Canada-U.S. Income Tax Convention (1980) (the "Tax Convention"), the expenses related to a business meeting should be reasonable if a taxpayer wishes to claim a deduction in respect thereof for income tax purposes. Paragraph 9 of Article XXV of the Tax Convention provides that expenses in respect of a convention should not be disallowed in computing income of a taxpayer resident in a contracting state only because the convention took place in another contracting state. However, that paragraph does not affect the application of subsection 67(1) of the Act providing that in computing income, no deduction shall be made in respect of an outlay or expense except to the extent the outlay or expense was reasonable in the circumstances. For more comments on the application of paragraph 9 of Article XXV of the Tax Convention, we refer you to the Technical Explanatory notes to the Tax Convention drafted by the U.S. Government and, more particularly, on the following comments:

"Paragraph 9 provides that expenses incurred by citizens or residents of a Contracting State with respect to any convention, including any seminar, meeting, congress, or other function of similar nature, held in the other Contracting State, are deductible for purposes of taxation in the first-mentioned State to the same extent that such expenses would be deductible if the convention were held in that first-mentioned State. Thus, for U.S. income tax purposes an individual who is a citizen or resident of the United States and who attends a convention held in Canada may claim deductions for expenses incurred in connection with such convention without regard to the provisions of Code section 274(h). Section 274(h) imposes special restrictions on the deductibility of expenses incurred in connection with foreign conventions. A claim for a deduction for such an expense remains subject, in all events, to the provisions of U.S. law with respect to the deductibility of convention expenses generally (e.g., Code sections 162 and 212). Similarly, in the case of a citizen or resident of Canada attending a convention in the United States, paragraph 9 requires Canada to allow a deduction for expenses relating to such convention as if the convention had taken place in Canada."

This Department is in agreement with the above comments made by the U.S. Government authorities. Thus, the above comments are applicable mutatis mutandis to a Canadian resident attending or organizing a convention (including a meeting) held in the United States. (See also the comments provided in paragraph 3 of Interpretation Bulletin IT-131R2).

To conclude, expenses related to the organization of a business meeting will be deductible only to the extent they are reasonable under the circumstances. This should include the location of the meeting and the territorial scope of the body organizing the meeting.

We have enclosed, for your information, a copy of Interpretation Bulletins IT-131R2 and IT-357R2.

We trust these comments will be of assistance to you.

Yours truly,

for Acting Director
Manufacturing Industries,
Partnerships and Trusts Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch

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