Know-How and Training

Cases

International Nickel Co. of Canada Ltd. v. MNR, 71 DTC 5332 (FCTD)

The taxpayer made continual outlays on scientific research carried out by its personnel in order to identify improvements to its methods for processing ores. In accepting the taxpayer's position that these expenditures (which were deducted by it under s. 72 of the pre-1972 Act) were not deductible from its resource profits for purposes of the depletion allowance. After asserting that "if a patent is obtained the patent will represent a capital asset" (p. 5349), Cattanach J. went on to state that he was "unable to distinguish between an expenditure on scientific research which results in a patent and a similar expenditure which does not result in a patent but does result in the accumulation of a store of new knowledge upon which the appellant can draw and does draw to keep itself to the forefront of the particular trade in which it is engaged" (p. 5349).

See Also

Setchell v. The Queen, 2006 DTC 2279, 2006 TCC 37 (Informal Procedure)

Before going on to find that an individual who had been making serious and continuing efforts to establish a business of providing for personal software services (albeit unsuccessful to date) was entitled to deduct the costs of a four-week course she took with an enterprise software company in order to upgrade her skills, Woods J. stated (at p.2281):

"The general principle is that training costs will be deductible as a current expense if they are incurred to maintain, update or upgrade an already existing skill or qualification."

Shaver v. The Queen, 2003 DTC 2112, 2004 TCC 10

Expenses incurred by the taxpayer, an Amway distributor, in attending "business training seminars" (characterized by the court as conventions) in Canada and the U.S. were found to be on capital account given that "the acquisition of new skills and increased knowledge by the attendees forms an integral part of those seminars" (p. 2119).

Shaw Flexible Tubes v. MNR, 68 DTC 443 (TAB)

The taxpayer agreed with a U.S. corporation ("Moore") that in consideration for an exclusive licence for the use in Canada by the taxpayer of Moore's technical information respecting methods for manufacturing and producing flexible tubes, the taxpayer would pay $25,000 on signing plus an additional formula royalty based on its sales from the related products. In finding that the $25,000 initial payment was a capital expenditure, Mr. Davis noted that no portion of this amount was refundable by Moore if the agreement were terminated, and that it was clear that the payment was not based on the use made of the information.

British Sugar Manufacturers, Ltd. v. Harris (1937), 21 TC 528 (C.A.)

The taxpayer agreed to pay 20% of its net profits to other corporations in consideration for their provision of managerial services and advice on technical matters. In finding the payments by the taxpayer to be deductible as "money wholly and exclusively laid out or expended for the purposes of the trade", Sir Greene, M.R. noted that although where a person purchases a share of profits, a payment of profits to that person will not be deductible, here "it is not cash that passes in exchange for these profits; it is services, and the badge of such a contract is remuneration for services ..." (p. 546).

Administrative Policy

6 October 2017 APFF Roundtable Q. 12, 2017-0709111C6 F - Dépenses relatives à un congrès

convention expenses "historically" viewed as capital expenditures

CRA stated:

Where a taxpayer has incurred expenses related to a convention in order to earn income from a business and such expenses are not capital expenditures, such expenses may be deductible in computing its business income without reference to subsection 20(10).

Historically, the CRA's position with respect to convention expenses is that such expenditures are generally capital expenditures to which paragraph 18(1)(b) applies.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 20 - Subsection 20(10) non-capital convention expenses incurred as business expense may be deducted without refererence to s. 20(10) - but “historically” convention expenses viewed as capital expenditures 107

22 October 2012 External T.I. 2012-0452491E5 F - Repas fournis dans le cadre d'une formation

training expenses deductible (subject to s. 67.1(1)) provided that no new skill or qualification is acquired

As part of the carrying on of its training business, the taxpayer provides breakfast and dinner, as well as a coffee break. Respecting the deductibility of the charges to the trainees, CRA stated:

[T]he CRA considers that training expenses are capital expenditures where the training results in a lasting benefit to the taxpayer, i.e., where a new skill or qualification is acquired. …

[W]here training is undertaken to maintain, update or upgrade a skill used in the course of a business, the exercise of a profession or a commercially viable activity of a participant, the costs of registration for a training, which may include travel and meal expenses, is deductible as a current expense. However, expenses attributable to food, beverages or entertainment would be subject to the limit in subsection 67.1(1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 67.1 - Subsection 67.1(2) - Paragraph 67.1(2)(a) Pink Elephant followed/potential exception for training business where it breaks out meals on its invoices 185
Tax Topics - Income Tax Act - Section 67.1 - Subsection 67.1(1) trainees required to break out meal portion of their invoices even if not separately identified 77
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(h) deductibility of meal portion of training charges may be denied under s. 18(1)(h) 100

28 April 2010 External T.I. 2009-0347581E5 F - Frais de formation

distinction between training and convention expenses/luncheon seminar fees on case law generally are professional deductions

When asked whether expenses for attending a convention, seminar, luncheon meeting or other meeting incurred by an individual in the course of operating a business or an immovable are deductible, CRA stated:

Training costs are not deductible as current expenses and are considered to be capital expenditures under paragraph 18(1)(b) if the training course to which they relate provides a lasting benefit to the taxpayer. Paragraphs 2 and 3 of IT-357R2 provide some examples of training expenses that are considered to be a capital expenditure.

As stated in paragraph 9 of IT-357R2, a training course should be distinguished from a convention. Unlike a training course, which generally has a classroom format for teaching a subject in accordance with a formal course of study, a convention does not normally have a classroom format and those attending are normally not expected to study text-books, prepare assignments or take tests. In addition, a convention does not become a training course when some of its sessions take the form of workshops. Although convention expenses may provide a lasting benefit to the taxpayer, the taxpayer may deduct these expenses in computing income under subsection 20(10), subject to the limitations contained in that subsection. …

[W]here a source of income exists, either property or business income, reasonable training expenses incurred by a taxpayer to earn income from that source are generally deductible to the extent that they do not produce a lasting benefit to the taxpayer.

Regarding a luncheon registration fee paid by a lawyer for a conference on recent case law, CRA stated (before going on to refer to the s. 67.1 limitations):

Generally, the registration fees incurred by an individual in connection with a luncheon seminar are deductible in computing income from a profession under subsection 9(1) provided that they are incurred to maintain, update or upgrade a skill for the purposes of that profession and are reasonable in the circumstances.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose expense incurred in course of operating real property need not have a direct effect on profit 386
Tax Topics - Income Tax Act - Section 20 - Subsection 20(10) convention expenses providing an enduring benefit may be deducted within the s. 20(10) limitations 185

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