18 May 1988 Income Tax Severed Letter

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.

2. Tax Reform - Limitation on Business Meals and Entertainment

QUESTION

The White Paper on Tax Reform proposes an 80% limitation on the deductibility of business meals and entertainment costs:

(a) Can the disallowed 20% expense be included in the cost of a depreciable capital property or as a scientific research and experimental development expenditure?

(b) Is the 20% expense deductible if it is included as part of a larger bill for services rendered (such as an airplane ticket) or as part of a bona fide non-arm's length management or administration fee charged by a non-resident?

ANSWER

(a) Since proposed subsection 67.1(1) applies for all purposes of the Act other than sections 62, 63 and 118.2 and deems the expenditure to be 80% of the lesser of the actual amount or a reasonable amount, it is the Department's view that the disallowed portion of the expenditure can not be included in the cost of a depreciable property or as a scientific research and experimental development expenditure.

(b) Subject to the exceptions provided in proposed subsection 67.1(2) and the provisions relating to conference and convention fees in proposed subsection 67.1(3), it is the Department's view that proposed subsection 67.1(1) will apply where an amount "in respect of the human consumption of food or beverages or the enjoyment of entertainment" is included as part of a larger bill for services rendered or as part of a bona fide non-arm's length management or administration fee charged by a non-resident.