Principal Issues: [TaxInterpretations translation] Whether expenses incurred by a taxpayer for food and beverages in the course of the taxpayer’s restaurant review business are deductible under the general rule at 50% or rather if they fall within the exceptions and are deductible at 100%.
Position: The food and beverages expenses are deemed to be 50%.
Reasons: No exceptions to subsection 67.1(2) apply.
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2009-033348
J. Gibbons, CGA
June 1, 2010
Dear Sir,
Subject: Request for technical interpretation
Application of paragraphs 67.1(2)(a) and 67.1(2)(b) of the Income Tax Act (the "Act")
This is in response to your email of July 22, 2009 in which you requested our opinion on the above subject. In particular, you are interested in knowing whether expenses incurred by a taxpayer (the "Taxpayer") for food and beverages in the course of the Taxpayer’s food critic business are subject to the restriction in subsection 67.1(1) of the Act or whether they are instead 100% deductible because they fall within one of the exceptions provided for in subsection 67.1(2).
Unless otherwise indicated, all legislative references herein are to the provisions of the Act.
Facts
1. The Taxpayer, who is resident in Canada, carries on a business specializing in food criticism.
2. Restaurant visits can take place at any time of the day and are done on a regular basis, i.e. 3 to 5 lunches per week and 2 to 4 dinners per week.
3. When visiting restaurants, the Taxpayer analyzes, inter alia, the service, atmosphere, presentation, quality of the food and beverages and their cost.
4. Following these visits, the Taxpayer prepares written reviews of the various restaurants.
5. The reviews are then disseminated through various media that are the source of income for the Taxpayer's restaurant review business.
6. As a business expense, the Taxpayer fully deducts the cost of food and beverages paid for visits to restaurants for the purpose of writing reviews.
Our Comments
The situation you indicated in your email is an actual situation that concerns a specific taxpayer. As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is our practice not to issue written opinions on proposed transactions otherwise than by way of advance income tax rulings. Furthermore, when it comes to determining whether a completed transaction has received adequate tax treatment, that determination is made first by our tax services offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope may be helpful to you.
Subsection 67.1(1) provides that, for the purposes of the Act (other than sections 62 (moving expenses), 63 (child care expenses) and 118.2 (medical expense tax credit)), an amount paid or payable in respect of the human consumption of food or beverages or the enjoyment of entertainment is deemed to be 50% of the lesser of the amount actually paid or payable in respect thereof, and an amount in respect thereof that would be reasonable in the circumstances. However, subsection 67.1(2) provides exceptions to the application of that rule.
The purpose of subsection 67.1(1) is to limit the deductibility of expenses for business meals and entertainment since these expenses necessarily include an element of personal consumption. In this case, since there is no exception in subsection 67.1(2) that would allow the Taxpayer to avoid the application of subsection 67.1(1), we are of the view that expenses incurred by the Taxpayer for food and beverages paid for during restaurant visits should be subject to the restriction in subsection 67.1(1).
Best regards,
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate.