13 August 2010 External T.I. 2010-0367971E5 - Taxable Income of Tour Hosts

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.

Principal Issues: What are the tax consequences relating to travel costs paid on behalf of, and other amounts paid to, tour hosts?

Position: A question of fact. Likely taxable business income in this situation.

Reasons: Whether tour hosts are considered employees or self-employed individuals is a question of fact. Where they are not employees and there is sufficient activity and commerciality in their activities, it would be appropriate to treat amounts received as business income. The tour host would be entitled to business deductions subject to the limitations in the Act such as the 50% limitation in subsection 67.1(1) of the Act.

XXXXXXXXXX
								2010-036797
								Brenda White
								519-645-5454
August 13, 2010

Dear XXXXXXXXXX :

Re: Taxable Income of Tour Hosts

This is in response to your letter of May 3, 2010 wherein you asked for clarification of the tax implications of compensation received by you and your wife, including the provision of travel, accommodation and basic meals ("travel costs"), from XXXXXXXXXX ("the Company") in exchange for your services as international tour hosts.

You have advised that as part of your role as tour hosts, you are required to promote the tour in order to recruit travelers. This includes advertising, sending newsletters and holding information sessions. The Company refers inquiries from potential customers to you. While on a tour you are generally responsible for making sure the travelers' needs are met throughout the trip. This includes ensuring all tips are paid, overseeing luggage handling, travel comfort and acting as liaison with local representatives. You generally ensure that the travelers are kept informed, entertained and comfortable, which can also involve attending to issues arising from health or accommodation concerns. Provided a minimum of XXXXXXXXXX travelers are confirmed on a particular excursion, as consideration for the foregoing services, the Company will pay the travel costs on behalf of one tour host. If you recruit at least XXXXXXXXXX travelers, the Company will pay the travel costs for both of you. In addition, as a tour host couple you receive an additional payment calculated as a fixed per-traveler amount for each traveler participating on a particular excursion in excess of XXXXXXXXXX .

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advanced Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following comments in respect of the issues that you raised. Please note, however, that these comments are of a general nature only and are not binding on the CRA.

Generally, an amount paid to an individual as consideration for services rendered will be taxable either as income from an office or employment or as income from a business depending on the particular circumstances. As explained in the CRA Guide RC 4110 "Employee or Self-Employed", it is important to first determine whether a worker is an employee or a self-employed individual. This is always a question of fact. Where either the worker or payer are not sure of the worker's employment status either party can request a ruling to have the status determined by completing Form CPT1 "Request for a Ruling as to the Status of a Worker Under the Canada Pension Plan and/or the Employment Insurance Act". This form can be obtained on the CRA website at www.cra.gc.ca/forms or by calling 1-800-959-2221.

Further to our conversation (White/XXXXXXXXXX ) the following comments are based on your assumption that you are not employees of the Company. The question, therefore, is whether you are engaged in a business. The CRA's Guide T4002 "Business and Professional Income 2009", for self-employed business persons or professionals states that generally, a business is an activity that an individual intends to carry on for a profit and there is evidence to support that intention. This general statement comes from a principle established by the Supreme Court of Canada in a case called Stewart v the Queen. In Stewart, the court recommended a two-stage approach to determining whether a taxpayer's activities constitute a source of income under the Income Tax Act (the "Act"). The first stage is to determine whether the activity of the taxpayer is undertaken in pursuit of profit, or if it a personal endeavour. If there are elements which suggest that the activities could be considered a hobby or other personal pursuit, but the venture is undertaken in a sufficiently commercial manner, the venture will be considered a source of income for the purposes of the Act. The second stage then categorizes the source of income as either business or property.

While always a question of fact, in the situation described it appears that there is an element of profit to your activities, which are undertaken in a sufficiently organized and commercial manner to suggest that you are engaged in business. Accordingly, the value of all consideration received for services provided to the Company should be treated as business income.

Under subsection 9(1) of the Act, a taxpayer's income from a business is the "profit" therefrom for the year, subject to various specific rules. For example, paragraph 18(1)(a) of the Act provides that no expense is deductible in computing the income of a taxpayer from a business unless it was made or incurred for the purpose of gaining or producing income. Further, paragraph 18(1)(h) of the Act denies the deduction of personal or living expenses incurred by a taxpayer, other than travel expenses incurred by the taxpayer while away from home in the course of carrying on business. We note that such deductions would be subject to various specific limitations in the Act such as being reasonable in the circumstance and the 50% limitation in subsection 67.1(1) of the Act. Subsection 67.1(1) of the Act provides that an otherwise deductible amount paid or payable in respect of the human consumption of food or beverages, or the enjoyment of entertainment, is restricted to 50% of the lesser of the amount actually paid or payable and an amount that is reasonable in the circumstances. This is discussed further in the above-mentioned Guide T4002, as well as in Interpretation Bulletin IT-518R, "Food, Beverages and Entertainment Expenses".

We trust these comments will be of assistance.

Yours truly,

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch