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: Whether paragraph 67.1(2)(f) of the Act applies is respect of an event held for individuals who are not employees of the particular person.
Position: No.
Reasons: Paragraph 67.1(2)(f) of the Act requires that the individuals consuming the food or beverages or enjoying entertainment be employed by the person.
April 28, 2004
Moira Sargent HEADQUARTERS
Appeals Division Randy Hewlett, B.Comm.
Ottawa Tax Services Office 613-957-8973
2004-007262
Paragraph 67.1(2)(f) of the Income Tax Act (the "Act")
We are writing in response to your request for our opinion on the application of paragraph 67.1(2)(f) of the Act in the situation described below.
Facts
Our understanding of the relevant facts is as follows:
? The Taxpayer is a sales manager who is employed as a commissioned salesperson.
? The Taxpayer is directly responsible for XXXXXXXXXX. The Taxpayer is indirectly responsible for XXXXXXXXXX. All of these individuals (hereafter referred to as the "individuals") are employed by the Taxpayer's employer. The Taxpayer's commissions are partially based on the individuals' performance.
? The Taxpayer also has nearly XXXXXXXXXX clients under direct management.
? In computing employment income, the Taxpayer deducted 100% of the cost of an "awards dinner" that he held for the individuals.
? The Taxpayer contends that the cost of the awards dinner is not subject to the application of the 50% rule in subsection 67.1(1) of the Act, by virtue of the exception in paragraph 67.1(2)(f).
You inquired whether paragraph 67.1(2)(f) of the Act would permit the Taxpayer to deduct 100% of the cost of the awards dinner given the fact the individuals are not employed by the Taxpayer.
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. Subsection 67.1(1) applies for all purposes of the Act, including limiting deductions under section 8 for commissioned employees.
Subsection 67.1(2) of the Act provides exceptions to the application of the 50% rule. Paragraph 67.1(2)(f) of the Act exempts "an amount paid or payable by a person in respect of the consumption of food or beverages or the enjoyment of entertainment where the amount ... is in respect of one of six or fewer special events held in a calendar year at which the food, beverages or entertainment is generally available to all individuals employed by the person at a particular place of business of the person and consumed or enjoyed by those individuals."
In the situation described above, we are of the view that because the Taxpayer does not employ the individuals for whom the awards dinner was held, the exception in paragraph 67.1(2)(f) of the Act does not apply. Therefore, subsection 67.1(1) restricts the actual amount deductible to 50% of the amount paid.
We trust our comments are of assistance.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the CRA's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
Randy Hewlett, B. Comm.
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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