R.B. Day (613) 957-2136
MAR 30 1988
XXXX
We are writing in response to your letter of February 22, 1988, wherein you requested our views as to whether or not convention expenses, paid by a commission salesman, would be deductible in computing income pursuant to paragraph 8(1)(f) of the Income Tax Act (the "Act").
Our understanding of the hypothetical situation as set out in your letter, is as follows.
An individual is employed by a company as a salesman and his remuneration is calculated almost exclusively by reference to the volume of sales made. Under his contract of employment, he is required to pay his own expenses, is ordinarily required to carry on the duties of his employment away from his employer's office, and is not in receipt of an allowance for travelling expenses that was, by virtue of subparagraph 6(1)(b)(v) of the Act, not included in his income.
This individual, once or twice per year, attends a convention sponsored by the Master Franchisor of his employer. At this convention, held in a location that is consistent with the territorial scope of the organization, the individual establishes contacts with other sales people in order to obtain business referrals, is introduced to new products and services to sell, and obtains training in new and/or improved sales techniques. The individual pays all costs associated with his attendance at such conventions.
It is your understanding of paragraph 8(1)(f) of the Act that such costs, subject to the provisions of section 67 of the Act, would be deductible by the individual in the year in which they were incurred, subject also to the overall expense limitation contained in paragraph 8(1)(f) of the Act.
We are unable to confirm your understanding for the following reasons.
Convention expenses are considered to be capital expenditures that would not, except for subsection 20(10) of the Act, be deductible in computing income from a business. "Business", as defined in subsection 248(1) of the Act, does not include an office or employment.
Since the individual described above is an employee, no deduction would be available to the individual under subsection 20(10) of the Act.
In addition to the above, subparagraph 8(1)(f)(v) of the Act prohibits the deduction of "outlays N/A or replacements of capital". As a consequence, the convention expenses would not be deductible under paragraph 8(1)(f) of the Act.
The above position is consistent with the guidelines set out in paragraph 6 of IT-131R .
Yours truly,
ORIGINAL SIGNED ORIGINAL SIGNÉ PAR R08ERT H. JOYCE for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch