Cases
International Nickel Co. of Canada Ltd. v. MNR, 71 DTC 5332, [1971] CTC 604 (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).
Locations of other summaries | Wordcount | |
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Tax Topics - General Concepts - Accounting Principles | 90 | |
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Lessening of Competition | 145 | |
Tax Topics - Income Tax Act - Section 37 - Subsection 37(1) | s. 37 permits deduction of capital expenditures on research | 114 |
Tax Topics - Income Tax Regulations - Regulation 1204 - Subsection 1204(1) | 145 | |
Tax Topics - Statutory Interpretation - Interpretation Act - Section 16 | 59 |
See Also
Perron-Ali v. The Queen, 2021 TCC 6 (Informal Procedure)
The taxpayers (who were spouses) were conceded by the Crown to have deductible losses from a rental business in 2012. In 2011 they had not begun to seriously look at acquiring properties, but claimed approximately $34,000 in charges of a corporation (“Tigrent”), which provided some intensive three-day weekend training sessions that were focused on different strategies for investing and dealing in real estate, as well as “mentoring” services and over-the-phone coaching. Before going on to find that these charges were capital expenditures that came within the definition of eligible capital expenditures, Jorré DJ stated (at paras. 66-67):
The payments to Tigrent for training, mentoring and coaching are in the nature of an educational expense. Such expenses are of a capital nature and are not normally deductible. …
While the law has made a distinction where someone in business is simply maintaining or somewhat extending existing knowledge and skills by, for example, taking a continuing education course within their existing field, that distinction has no application here given that the Appellants were not previously involved in real estate … .
Locations of other summaries | Wordcount | |
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Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 14.1 | training expenses were eligible capital expenditures | 114 |
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."
Locations of other summaries | Wordcount | |
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Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Lessening of Competition | 93 |
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.
Locations of other summaries | Wordcount | |
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Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Lessening of Competition | 103 |
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
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 | |
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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 | 118 |
22 October 2012 External T.I. 2012-0452491E5 F - Repas fournis dans le cadre d'une formation
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 | |
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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 | 212 |
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 | 86 |
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) | 114 |
28 April 2010 External T.I. 2009-0347581E5 F - Frais de formation
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 | |
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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 |
7 April 2006 External T.I. 2005-0152801E5 F - Remboursement de frais de scolarité
In finding that the payment by a corporation of the expenses (tuition, accommodation and travel) for Bob, its sole employee and sole shareholder, to attend an executive MBA (EMBA) program was an eligible capital expenditure rather than a currently deductible expense, CRA stated:
The CRA considers training costs to be current expenses where the costs are incurred to maintain, update or upgrade an existing skill or qualification. Some examples of this are listed below:
- a professional development course required or recommended by a professional association to ensure professional standards are met;
- a tax course taken by a lawyer or accountant who is already qualified to work in the tax field, even if he or she has not been actively involved in tax work;
- a course on building materials, taken by an architect;
- a course on electronic ignition taken by the owner of a car repair shop.
At the same time, training costs constitute capital expenditure if the training provides an enduring benefit to the taxpayer, i.e. where a new skill or qualification is acquired. For example:
- a general practitioner who is upgrading to a specialist;
- a lawyer taking engineering courses not related to the lawyer’s practice;
- a taxpayer taking a university or other course to obtain a degree or other certificate;
- a university professor taking a course during a sabbatical to acquire a new skill needed for a sideline business.
In this case, the facts you have provided indicate that Bob has a strong XXXXXXXXXX background. We have assumed then that the skills Bob has acquired through the EMBA program will be new skills that will provide the corporation with a lasting benefit. We do not believe that the training expense in this case represents a current expense as it does not serve to maintain, update or upgrade improve an existing skill or qualification of Bob.
Locations of other summaries | Wordcount | |
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Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) | paying costs for its sole shareholder to get an MBA was not a taxable benefit | 149 |
25 May 2004 External T.I. 2003-0051291E5 F - Formation et croisière
Are expenses incurred by members of an Association respecting conventions, symposia and seminars held during a cruise deductible from their income?
CRA noted that IT-357R2, para. 9 indicates that training is aimed at learning a subject in accordance with a formal course of study, whereas a convention is a formal meeting of members of an organization for professional or business purposes, and that para. 2 indicated that where the taxpayer takes a training course merely to maintain, update or upgrade an already existing skill or qualification respecting the individual’s business or profession, expenses incurred in connection with such a course are not considered to be capital in nature. CRA then indicated that if the costs were training costs that were current expenses, they could be deductible up to the amount that it would normally have cost if the training were provided in the taxpayer's geographical area. However, if the personal element was predominant and the cruise was more like a holiday, only the course fees themselves would be deductible.
If the costs were incurred in connection with a convention, nothing would be deductible because an ocean cruise is considered to occur outside Canada
Locations of other summaries | Wordcount | |
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Tax Topics - Income Tax Act - Section 20 - Subsection 20(10) | costs of cruise, if not viewed as training, would be non-deductible as they were incurred outside Canada | 194 |
28 June 2001 External T.I. 2000-0060465 F - déductibilité - frais d'internet
Before finding that the cost of subscribing to Internet services, including the cost of renting a modem, incurred to access financial information on market trends in order to help manage investments were not deductible under s. 20(1)(bb), CCRA indicated that they were capital expenditures, as supported by the cases involving subscription fees for financial magazines and newspapers (Beadle 79 DTC 775, Goodhall-Gunn 85 DTC 663, Young 89 DTC 5234 and Vatcha 91 DTC 653), which regarded such subscriptions as giving rise to an enduring benefit.
Locations of other summaries | Wordcount | |
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Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(bb) | internet costs incurred for investment research purposes were not deductible under s. 20(1)(bb) | 49 |