Revenue Canada Taxation
Head Office
G. Thornley (613) 957-2101
XXXX
NOV 22 1988
Dear Sirs:
Re: Business Meals and Entertainment
This is in reply to your letter of October 25, 1988 addressed to Mr. Don Joy requesting information with respect to segregating costs on itemized receipts when the function organizer does not apply the $50 restriction referred to in subsection 67.1(3) of the Income Tax Act (the "Act").
Our Comments
Subsection 67.1(3) of the Act provides a rule for the treatment of meal, beverages and entertainment expenses which are included in fees for a conference, convention, seminar or similar event. Where a fee is paid or payable for attendance at such an event and entitles the participant to food, beverages and entertainment (other than incidental beverages and refreshments, such as coffee and muffins, made available during the course of meetings or receptions) and a reasonable portion of the fee has not been allocated or identified by the organizer of the event as pertaining to the food, beverages and entertainment, $50 for each day of the event during which food, beverages and entertainment is provided by the organizer shall be deemed to be the amount paid or payable in respect of food, beverages and entertainment. The fee for the event itself is treated as being reduced by the same amount.
Subsection 67.1(3) is applicable with respect to amounts incurred after June, 1988. Accordingly, attendees of conferences, etc. held during the first six months of 1988 are not subject to the 80% limitation of subsection 67.1(1) in respect of food, beverages and entertainment purchased with their fees for such events unless the organizer of the event has allocated a reasonable portion of the fees to such food, beverages and entertainment. If such costs have not been segregated, the 80% limitation in subsection 67.1(1) will apply to the organizer for such events.
With respect to segregating costs, where the organization sponsoring the conference arranges with a third party to supply the food and beverages, the costs would be whatever was agreed with that third party. If the third party in these circumstances was supplying, on a lump sum basis, rooms for the conference as well as meals, beverages and entertainment, then the amounts charged for the relevant items would have to be segregated from the total paid by the sponsor of the conference to the hotel or convention centre. Where this is not done the taxpayer paying the fee for such a conference will be exposed to the $50 restriction referred to in subsection 67.1(3) of the Act.
Where on the other hand the sponsor of the conference does its own cooking, preparation and serving of meals and beverages then it is our view that such organizers must, as a minimum adopt a method similar to the direct costing method referred to in paragraph 8 of Interpretation Bulletin IT-473 . Essentially this means that the cost of food, preparation costs and service costs will have to be included in the calculation of "cost" for purposes of subsection 67.1(3) of the Act.
We trust this is the information you require.
Yours truly,
for Director Small Business and General Division Specialty Rulings Directorate Legislative and intergovernmental Affairs Branch