Principal Issues: [TaxInterpretations translation] (1) Does paragraph 18(1)(l) take precedence over paragraph 67.1(2)(f) in a situation where the event is offered to all employees? (2) Is the food offered at the golf club after the golf game covered by the exception in paragraph 67.1(2)(f)?
Position: (1) Yes. (2) Yes, probably.
Reasons: (1) Wording of the Act. (2) Wording of the Act and previous CRA publications on the interpretation of the term "facility" in subparagraph 18(1)(l)(i).
January 22, 2009
Quebec Tax Services Office Income Tax Rulings Directorate Technical Tax Interpretation Service Pierre-Luc Meunier Attention: Louise Laroche 2009-034697
Special event held at a golf club
This is further to your email of November 6, 2009 in which you asked for our opinion on the above subject.
Specifically, you described a situation where a company organizes a golf day for all its employees. The company pays for the green fees, the rental of golf equipment, and the food provided to the employees. The amount for food is shown separately on the invoice.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
Questions
(a) Does paragraph 18(1)(l) take precedence over paragraph 67.1(2)(f) in a situation where the event is offered to all employees?
(b) Is the food offered at the golf club after the golf game covered by the exception in paragraph 67.1(2)(f)?
Our Comments
(a) Paragraph 18(1)(l) does not permit a deduction in computing income from a business in respect of any expense incurred for, inter alia, the use of a golf course or golf facility.
Subsection 67.1(1) deems, for the purpose of computing income from a business, 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 per cent of the lesser of
(a) the amount actually paid or payable in respect thereof, and
(b) an amount in respect thereof that would be reasonable in the circumstances.
Subsection 67.1(2) provides that subsection 67.1(1) does not apply in certain circumstances. Paragraph (f) of that subsection provides that subsection 67.1(1) does not apply where the amount is in respect of one of six or fewer special events held in a calendar year at which the food is provided to all employees.
Subsection 67.1(1) has the effect of limiting the amount that would otherwise be deductible in computing the income of a taxpayer who incurs such expenses. Consequently, although paragraph 67.1(2)(f) applies to clarify that subsection 67.1(1) does not apply, it does not permit the deduction of an expense that is not deductible under paragraph 18(1)(l), such as amounts paid for the use of a golf course.
(b) In 1998, the Canada Revenue Agency amended its policy dealing with the purchase of food and beverages at a golf club by changing the scope of the term facility used in subparagraph 18(1)(l)(i) (Endnote 1). Consequently, a facility does not include a golf club's dining room, reception rooms, conference rooms, lounges or bar so that the deduction of expenses incurred for the purchase of food and beverages at a golf club is no longer prohibited by subparagraph 18(1)(l)(i).
Thus, assuming that the expense in respect of the food provided to all employees on the golf day is made for the purpose of earning business income, is reasonable in the circumstances and is part of one of six special events held in the year by the business, the exception in paragraph 67.1(2)(f) would apply. Consequently, subsection 67.1(1) would not apply to such an expense.
Access to Information
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency'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, the electronic library version can be provided. Alternatively, the client 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 Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
We hope that these comments are of assistance.
Best regards,
François Bordeleau, LL.B.
Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.
ENDNOTES
1 Income Tax—Technical News No. 12 (February 11, 1998).