Principal Issues: Whether the CRA is prepared, by administrative position, to allow a commission employee to deduct an amount equal to 50% of his meal despite the 12-hour rule under subsection 8(4)?
Position: No.
Reasons: There is no provision in the Income Tax Act that allows the CRA to not apply subsection 8(4) in such a situation. The situation described in the statement of the question and our response will be brought to the attention of the Department of Finance.
FEDERAL TAX ROUNDTABLE 5 OCTOBER 2018
2018 APFF CONFERENCE
Question 8 - Meal expenses and restrictions under subsection 8(4)
On the one hand, subsection 8(4) provides that an amount expended in respect of a meal consumed by a taxpayer who is an officer or employee shall not be included in computing the amount of a deduction under paragraph 8(1)(f) or 8(1)(h) unless the meal was consumed during a period while the taxpayer was required by the taxpayer’s duties to be away, for a period of not less than twelve hours, from the municipality where the employer’s establishment to which the taxpayer ordinarily reported for work was located and away from the metropolitan area, if there is one, where it was located.
On the other hand, subsection 67.1(1) provides that, for the purposes of the Income Tax Act and subject to certain exceptions, 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 the amount actually paid or an amount in respect thereof that would be reasonable. It should be noted that with the adoption of the February 1994 budget, the federal government announced that it was changing the rate in subsection 67.1(1) from 80% to 50% in order to take into account the element of personal consumption included in these expenses.
It appears that employees, particularly commissioned employees, have for many years been denied the entire expense of their own meal where it is consumed with a client within the metropolitan area where the employer's establishment is located and the twelve-hour rule is not satisfied. In addition, the expense of the client's meal is allowed at a 50% rate, as provided for in subsection 67.1(1).
The joint application of the rules in subsections 8(4) and 67.1(1) in respect of a meal taken by a commission employee in the employee’s metropolitan area in the company of a client has the effect of reducing the deduction for the bill to 25% of that total bill, that is, 50% of the meal consumed by the client. It should be noted that a self-employed worker having taken a meal with a client in the same circumstances may deduct 50% of the total bill.
It appears to us that this situation does not correspond to the tax policy underlying subsections 8(4) and 67.1(1) and creates discrimination between types of taxpayers. Moreover, in its March 2008 budget, the Québec government recognized that the rule provided for in section 65 of the Taxation Act (the equivalent of subsection 8(4) ITA) no longer met the reality of commissioned employees. Thus, the Government of Quebec has amended the wording of section 65 of the Taxation Act to provide an exception where a commissioned employee takes a meal with a client and the 12-hour rule is not satisfied. In such a case, the commissioned employee can still deduct 50% of the total bill (including the employee’s meal) in computing the employee’s income.
Questions to the CRA:
a) Is the CRA prepared to recognize, by administrative position, that a meal consumed by a commission employee, where that employee is with a client, is not subject to the 12-hour rule in subsection 8(4), so as to allow such an employee to deduct an amount equal to 50% of the employee’s meal?
b) If the answer is no, would the CRA recommend that the Department of Finance Canada amend the Act to provide, as is the case in Quebec, an exception for cases where the meal of a commissioned employee is consumed in the company of a client so that it results in tax fairness for all types of taxpayers (employees, self-employed or corporations)?
CRA Response to Question 8(a)
Paragraph 8(1)(f) provides that a taxpayer who was employed in the year in connection with the selling of property or negotiating of contracts for the taxpayer’s employer, may deduct in computing the taxpayer’s income amounts expended by the taxpayer in the year for the purpose of earning income from the employment subject to certain conditions provided for in that paragraph.
Furthermore, subsection 8(4) provides, in particular, that amounts expended by an employee on a meal of the employee may not be deducted under paragraph 8(1)(f) unless the meal was consumed during a period while the taxpayer was required by the taxpayer’s duties to be away, for a period of not less than 12 hours, from the municipality where the employer’s establishment to which the taxpayer ordinarily reported for work was located and away from the metropolitan area, if there is one, where it was located.
There is nothing in the Income Tax Act that allows the CRA to not apply subsection 8(4) where an employee's meal was not consumed during a period while the taxpayer was required by the taxpayer’s duties to be away, for a period of not less than 12 hours, from the municipality where the employer’s establishment to which the taxpayer ordinarily reported for work was located and away from the metropolitan area, if there is one, where it was located
CRA Response to Question 8(b)
Responsibility for the development of tax policies and amendments to the Income Tax Act is the responsibility of the Department of Finance. At the request of the APFF, the situation described in the statement of the question and the response of the CRA will be brought to the attention of that Department.
Anne Dagenais
5 October 2018
(613) 670-9050
2018-076879