Principal Issues: [TaxInterpretations translation] Are expenses incurred for the operation of a fitness centre made available to employees by a corporation considered to be "entertainment" expenses and subject to the application of subsection 67.1(1) of the Act?
Position: no
Reasons: In the context presented, it is not entertainment.
December 13, 2004
Laval Tax Services Centre Headquarters
Audit Division N. Deslandes, CGA
(613) 957-8961
Attention: Mr. Denis Fleury
2004-009793Application of subsection 67.1(1) of the Income Tax Act
This is in response to your memorandum of September 30, 2004 in which you requested our opinion on the above subject.
You presented us with the situation of a corporation that makes available to all its employees a fitness centre that it operates on the premises of its place of business. To do so, the corporation incurs costs such as labour, maintenance, etc.
You asked whether those expenses are subject to the limitations imposed by subsection 67.1(1) of the Income Tax Act (the "Act").
OUR COMMENTS
Subsection 67.1(1) provides that, for the purposes of the Act, other than sections 62, 63 and 118.2, an amount paid or payable in respect of the human consumption of food or beverages or the enjoyment of entertainment shall be 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.
Paragraph 67.1(4)(b) specifies that, for the purposes of section 67.1, entertainment includes amusement and recreation. However, these terms are not defined in the Act.
In our view, in the context presented, the primary purpose of a corporation that makes available to its employees a fitness centre is their fitness and well-being, not their entertainment. Subsection 67.1(1) therefore does not apply to this situation. However, we recognize that there are situations where costs for the use of sports facilities, as set out in paragraph 18 of IT-518R, Food, Beverages and Entertainment Expenses, could be considered entertainment expenses.
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We hope you find these comments are of assistance. If you require any further information regarding the content of this document, please do not hesitate to contact us.
Ghislaine Landry, CGA
Manager
Individuals, Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate