2014-0553081E5 Paragraph 67.1(2)(a)

Principal Issues: Whether meals and entertainment are excluded from the 50% limitation imposed by subsection 67.1(1) pursuant to paragraph 67.1(2)(a)

Position: Question of fact.

Reasons: See below.

Author: Robinson, Katie
Section: 67.1(1), 67.1(2), 67.1(3), 149(1)(l)

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                                                                                                                                                       2014-055308
                                                                                                                                                       K. Robinson

November 21, 2014

Dear XXXXXXXXXX:

Re: Paragraph 67.1(2)(a)

We are writing in response to your letter of October 24, 2014, requesting our views on whether meals and entertainment could be excluded from the 50% limitation imposed by subsection 67.1(1) of the Income Tax Act (“Act”) pursuant to paragraph 67.1(2)(a).

You cite the decision in Pink Elephant Inc. v. The Queen, 2011 TCC 395 (“Pink Elephant”), wherein the Tax Court of Canada (“TCC”) found that the exception in paragraph 67.1(2)(a) was applicable to certain food and beverage expenses incurred by the taxpayer.  In Pink Elephant, the taxpayer was in the business of providing information technology training courses to its clients and the food and beverages were consumed by its clients during such training.

Specifically, you are asking whether a taxpayer whose business includes organizing, promoting, and supplying “buying expositions” for compensation which includes providing food, beverages and entertainment will also qualify for the exception in paragraph 67.1(2)(a).

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation.  It does not confirm the income tax treatment of a particular situation but is intended to assist you in making that determination.  The income tax treatment of transactions will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, “Advance Income Tax Rulings”.

Subsection 67.1(1) provides, for the purposes of the Act, except sections 62, 63, 118.01, and 118.2, an amount paid or payable in respect of the human consumption of food or beverages or enjoyment of entertainment is deemed to be 50% of the lesser of the amount actually paid or payable and the amount that would be reasonable in the circumstances. Subsection 67.1(2) provides exceptions to the application of the general rule in subsection 67.1(1).  Pursuant to paragraph 67.1(2)(a), the 50% limitation does not apply, where the amount is paid or payable for food, beverages or entertainment provided for, or in expectation of, compensation in the ordinary course of a business carried on by that person of providing the food, beverages or entertainment for compensation.  As stated in paragraph 5 of IT Bulletin IT-518R, “Food, Beverages and Entertainment Expenses,” the exemption only applies to amounts expended for food, beverages, and entertainment that form part of the taxpayer’s product or service.

In Pink Elephant, the TCC determined that the exception in paragraph 67.1(2)(a) was applicable to the taxpayer.  This case was heard under the informal procedure and therefore has limited precedential value.  However, in technical interpretation F2012-0452491E5 we indicated that the Canada Revenue Agency will follow the TCC’s decision in Pink Elephant in similar fact situations.

Whether an amount paid or payable for food, beverages or entertainment by a taxpayer meets the exception in paragraph 67.1(2)(a) or any of the other exceptions in subsection 67.1(2) remains a question of fact that can only be determined after a review of all the facts and circumstances applicable to a particular situation.  However, where all or part of a taxpayer’s ordinary business includes putting on one or more events, such as a trade exposition, for compensation and food, beverages or entertainment is provided to its customers as part of such an event, it is our view that such a situation would be similar to Pink Elephant.

We trust that these comments will be of assistance.

Yours truly,

Michael Cooke, C.P.A., C.A.
Manager
Business Income and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate

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