| Mr. Alain Dudoit | |
| Director General | |
| Trade Communications | File No. 5-8834 |
| Bureau (B T D) | A.W. Larochelle |
| Department of External Affairs | (613) 957-2140 |
| Ottawa, Ontario | |
| K1A 0G2 | |
| November 24, 1989 |
Dear Mr. Dudoit:
This is in reply to your letter of October 3, 1989, concerning the proper treatment for income tax purposes of contributions of goods and services by 24(1)
Generally, whether an expenditure is a deductible expense for tax purposes must be determined on the specific facts of each case. Particularly where it is the reasonableness of an expenditure which is in question, a determination can only be made once all the circumstances are known. For this reason, questions of reasonableness are usually dealt with after the fact.
Our initial reaction is that expenditures such as those described in the attachment to your letter would likely be deductible either as advertising expense or as gifts to Her Majesty in right of Canada provided the conditions set forth in the attached Interpretation Bulletins IT-297R and IT-487 are complied with. In regard to the former Bulletin we would particularly draw your attention to paragraphs 1 and 4. We note also that, in the case of a gift to Her Majesty, it is the fair market value of the property at the time of the gift which is relevant for income tax purposes, rather than the cost of the property to the taxpayer. An official receipt must be issued.
In view of the fact that arrangements between your Department and the various sponsors have not as yet been finalized we would suggest you advise the sponsors that if they have any concerns regarding the deductibility of their contribution they contact this Department directly. It will be necessary for the sponsor to provide us with complete details of the goods and services to be provided along with any other information pertinent to the matter in order to assist us in making a proper determination.
You might also refer your sponsors to the enclosed Information Circular 70-6R which provides information regarding the issuing of advance income tax rulings and opinions by our Department. We draw your attention to paragraph 14(1) of the Bulletin.
In the event that certain of the sponsors have already contributed money or services with respect to the 24(1) and have concerns regarding their contributions we would suggest they discuss the matter with officials of their local District Taxation Office.
We would like to take this opportunity to wish your Department every success with 24(1) . If we can be of any further assistance in resolving tax problems in connection with this undertaking please feel free to contact us.
Yours truly,
B.W. DathDirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch