28 May 1998 External T.I. 9812705 - DEDUCTION FOR RENT PAID INSTEAD OF HOTEL ACC.

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 expense for renting an office/suite in other cities in lieu of travelling expenses and hotel costs for sale representatives would be deductible. Expenses would be accommodation/office costs, including parking, meals, etc.

Position:

Rent and parking expenses would be deductible to the extent they are reasonable and relate exclusively to the business. Furniture purchased to furnish the office/suite is a capital expenditure on which capital cost allowance may be claimed. Meals would be deductible as provided for by section 67.1, provided they are for business purposes.

Reasons:

On the basis of Ozvegy v. MNR, 78 DTC 1772, there would be no difference between paying an hotel accommodation and rent for an apartment used for business purposes. With respect to parking and meals, the expense is deductible if it is incurred to earn income - paragraph 18(1)(a) of the Act. Additional restrictions apply to meals under section 67.1. Finally, the cost of the furniture is a capital expenditure and cannot be deducted by virtue of paragraph 18(1)(b) of the Act. However, capital cost allowance may be claimed under paragraph 20(1)(a) of the Act.

XXXXXXXXXX 								981270
N. Mondou, M.Fisc.

May 28, 1998

Dear Madam, Sir:

Re: Rental of Office/Suite in lieu of Hotel Costs

This is in reply to your letter dated May 12, 1998, in which you requested our views as to whether the expense for renting an office/suite in other cities, in lieu of hotel costs for sales representatives would be deductible. You also mention that additional costs for furnishing the office/suite as well as for parking and meals will be incurred.

The situation outlined in your letter involves an actual fact situation. To the extent that it relates to a past transaction you should contact the appropriate tax services office, since the review of such transactions falls within their responsibility. We can however offer the following general comments.

Rental expenses are deductible if they are incurred in lieu of hotel accommodation expenses that would otherwise be deductible. Therefore, if the office/suite is used exclusively for business purposes and the amount of the rent is reasonable in the circumstances in accordance with section 67 of the Income Tax Act (the "Act"), a deduction would be available for the rent.

The costs incurred to furnish the office/suite are capital expenditures and are not as such deductible by virtue of paragraph 18(1)(b) of the Act. However, capital cost allowance may be claimed in their respect under paragraph 20(1)(a) of the Act, to the extent the office/suite is used for business purposes. Reasonable parking expenses are deductible if they are incurred to earn income from a business. On the other hand, the deduction that is available for reasonable costs of meals incurred to earn business income is generally restricted by virtue of subsection 67.1 (1) of the Act, to 50% of the amount of the expense, unless the meals are provided in the circumstances listed in subsection 67.1(2) of the Act. We are enclosing a copy of Interpretation Bulletin IT-518R ("Food, Beverages and Entertainment Expenses") which will provide you with more information in this respect.

We trust that these comments are of assistance but caution you that they do not constitute an advance income tax ruling and, accordingly, are not binding on the Department with respect to any particular transactions.

Yours truly,

P. Spice
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch