3 November 1995 External T.I. 9515935 - FOOD, BEVERAGES AND ENTERTAINMENT - FUND RAISING

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:

Whether expenses incurred for a charitable golf tournament are deductible.

Whether an amount paid by a participant in or by the host corporation of the tournament to a registered charity is a gift.

Position:

Expenses for green fees or the use of the recreational facilities of the golf club are not deductible. Expenses for meals, beverages, entertainment or the use of the dining room or banquet hall would be subject to the limit provided in subsection 67.1(1), unless the tournament is a fund raising event the primary purpose of which is to benefit a registered charity.

It is a question of fact whether any gifts have been made. The full amount paid by a participant may not represent a gift and subsection 4(4) would prevent the double deducting of any amounts paid.

Reasons:

Previous positions on subparagraph 18(1)(l)(i) and the meaning of facility. The exception provided in subsection 67.1(2)(b).

The meaning of a gift.

		951593
XXXXXXXXXX	B. Kerr

Attention: XXXXXXXXXX

November 3, 1995

Re: Expenses related to a Charitable Golf Tournament

This is in response to your letter of June 5, 1995, wherein you requested our views on the deductibility of expenses incurred by a corporation in respect of a golf tournament established solely for its clients.

All clients invited to play would be required to pay an amount of $100, which would represent a donation to a specified charity. The corporation would incur all expenditures related to the tournament, including green fees, meals and clubhouse charges. All monies raised by the corporation would be used to make a donation to a registered charity.

You are concerned with whether the provisions of paragraph 18(1)(l) of the Act would apply in the light of the decision of the Supreme Court in the Sie Mac Pipeline Contractors Ltd. case (93 DTC 5158). You also requested confirmation that the expenses would be excluded from the limit provided under subsection 67.1(1), by virtue of paragraph 67.1(2)(b) of the Act.

Our Comments

At the 1984 annual conference of the Canadian Tax Foundation, the Department announced that, where property of a type described in subparagraph 18(1)(l)(i) of the Act is used for business purposes, which purposes do not include the entertainment or recreation of clients, suppliers, shareholders or employees, the Department will not consider that the related expenses, provided they are reasonable, fall within the provisions of paragraph 18(1)(l). At the 1993 conference we announced that this position was being reviewed. The review has been completed and the 1984 position will continue to be followed by the Department. This position will allow the deduction of expenses for genuine business meetings held at such properties. However, no deduction is available in situations like the Sie Mac case; that is, where there may be some business meetings involved however the main activity is recreation.

Clearly, green fees are for the use of a "golf course" and would be disallowed under the provisions of subparagraph 18(1)(l)(i) of the Act.

In our view the word "facility" as used in subparagraph 18(1)(l)(i) is intended solely to extend the words "golf course" to include all recreational amenities provided by a golf club, such as a health club, swimming pool, curling rink or tennis courts. Therefore, expenses for the use of the recreational facilities of a golf club would be disallowed.

Expenses incurred for food and beverages at a golf club or for the use of the dining room, lounge, banquet halls or conference rooms of a golf club will not be subject to subparagraph 18(1)(l)(i). In administering this position, we would require each expense to be clearly itemized. In other words, an all-inclusive charge that is not broken down would not be acceptable. Such expenses would of course be subject to the provisions of paragraph 18(1)(a), section 67 and section 67.1 of the Act. However, with respect to section 67.1, paragraph 67.1(2)(b) provides an exception to the limit in subsection 67.1(1) on an amount payable in respect of the consumption of food or beverages or the enjoyment of entertainment where the amount relates to a fund raising event the primary purpose of which is to benefit a registered charity. Whether the primary purpose test has been met is a question of fact that can only be determined after a complete review of all the circumstances relating to a particular situation.

In addition, in our view the full amount of the $100 paid by a client to play or the amount paid by the corporation to a registered charity would not represent a gift. A portion of the amount paid by a client may qualify if it is paid to a registered charity. In this regard we would refer you to Interpretation Bulletin IT-110R2 for the Department's views on whether a gift has been made, and if so, the portion of the amount so paid that would qualify and for greater certainty subsection 4(4) would apply to prevent the double deducting of any amounts paid.

As stated in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990, the opinions expressed in this letter are not rulings and are consequently not binding on the Department.

We trust that these comments will be of assistance.

Yours truly,

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch