Principal Issues: 1. In the given situation, whether reasonable meal allowances can be considered as an amount paid or payable for which the taxpayer is « compensated » within the meaning of paragraph 67.1(2)(c).
2. Whether the note on the interim invoices indicating the amount of cumulative reasonable meal allowances paid or payable on a specific date meet the condition that the amount be « specifically identified in writing » in paragraph 67.1(2)(c).
3. Whether the accumulated amount of reasonable meal allowances on a given date mentioned in a note on the interim invoices constitutes a payment for the purchasers for food or beverages for the purposes of subsection 67.1(1).
Position: 1. Yes. When purchasers make payments to the taxpayer based on interim invoicing for the purchase of goods in accordance with the contract signed by the parties, the payments are intended to pay or reimburse the taxpayer for the costs incurred by the taxpayer in fulfilling the contract, which includes reasonable meal allowances paid by the taxpayer to its employees for travel purposes.
2. Yes.
3. Yes.
Reasons: The expression « contre un paiement » and the terms « dédommagée » and « compensated » are all used in the sense of « payé ou remboursé ».
2. We are of the view that a note on the interim invoices indicating the amount of cumulative reasonable meal allowances paid or payable on a specific date allows purchaser to determine the amount of reasonable meal allowances included in the total amount invoiced.
3. On the broad interpretation of the expression « in respect of » in the English version of subsection 67.1(1), the amount of reasonable meal allowances mentioned in a note on interim invoicing relating to the performance of contracts is an « amount paid or payable in respect of the human consumption of food or beverages » for the purposes of subsection 67.1(1).
February 21, 2025
Large Business & Dedicated Specialist Team Income Tax Rulings Directorate XXXXXXXXXX L. Allaire
Attention: Claudia Lavoie
XXXXXXXXXX
2021-090287
Paragraph 67.1(2)(c) of the Income Tax Act
This note responds to your memo of July 8, 2021 in which you requested our interpretation of paragraph 67.1(2)(c) of the Income Tax Act (the “Act”) in the following particular situation.
Essentially, you indicated that XXXXXXXXXX (the “Taxpayer”) carries on a business that includes the manufacturing and sale of XXXXXXXXXX (the “Goods”). The sale of the Goods includes, among other things, their installation and maintenance. Delivery of the Goods takes several months or even years, so that the Taxpayer's model sales contract provides for a fixed total sale price payable by the purchasers in instalments according to a schedule. To this end, the Taxpayer issues interim invoices to the purchasers of the Goods in accordance with the schedule set out in the sales contract.
The Taxpayer pays reasonable meal allowances to its employees when they travel in the performance of their duties in connection with the sale of the Goods (for example, for installation purposes). However, the sales contracts do not explicitly deal with those reasonable meal allowances. The only mention of those reasonable meal allowances is on interim invoices where a note indicates, for information purposes only, the cumulative amount of reasonable meal allowances paid or payable on a given date.
All legislative references herein are to the provisions of the Act.
Questions
Since the amount paid or payable for reasonable meal allowances is incurred by the Taxpayer in the particular situation in the performance of contracts that do not explicitly provide for the payment of such allowances and since that amount is not charged to purchasers of the Goods separately and in addition to the fixed overall selling price, you asked whether the reasonable meal allowances can be considered an amount paid or payable as “compensation” for the purposes of paragraph 67.1(2)(c).
If so, you asked whether the note on the interim invoices indicating the cumulative amount of reasonable meal allowances paid or payable on a given date meets the condition that the amount must be “specifically identified in writing” set out in paragraph 67.1(2)(c).
Finally, you asked whether the cumulative amount of reasonable meal allowances on a given date referred to in a note on the interim invoices constitutes, for the purchasers of the Goods, a payment for food or beverages for the purposes of subsection 67.1(1).
Our Comments
Under subsection 9(1), a taxpayer’s income for a taxation year from a business or property is the taxpayer’s profit from that business or property for the year. In general, a taxpayer may deduct reasonable outlays and expenses of a current nature incurred by the taxpayer to earn business income where the deduction is not otherwise restricted, in particular by the application of section 67.1.
Subsection 67.1(1) generally provides that an amount paid or payable in respect of the human consumption of food or beverages that would otherwise be deductible is deemed to be 50% of the lesser of the amount actually paid or payable and an amount that would be reasonable in the circumstances.
However, subsection 67.1(2) provides for certain exceptions to the application of this general rule. Thus, the 50% limit provided for in subsection 67.1(1) does not apply in the circumstances provided for inter alia in paragraph 67.1(2)(c), which reads as follows:
“(c) is an amount for which the person is compensated and the amount of the compensation is reasonable and specifically identified in writing to the person paying the compensation;” (emphasis added)
The French version of this paragraph reads as follows
“c) le montant est payé ou payable contre un paiement raisonnable indiqué de façon précise par écrit à la personne qui fait ce paiement;” (Emphasis added)
Expression “contre un paiement” [“compensated” in the English version] used in the French version of paragraph 67.1(2)(c)
The expression “contre un paiement” used in the French version of paragraph 67.1(2)(c) is not a literal translation of the term “compensated” used in the English version. Similarly, paragraph 7 of the French version of Interpretation Bulletin IT-518R - Food, Beverages and Entertainment Expenses uses the term “dédommagée” [“compensated” in the English version] instead of the expression “contre un paiement” used in the French version of paragraph 67.1(2)(c). On the other hand, the English version of that Interpretation Bulletin uses the term “compensated”, as does the English version of paragraph 67.1(2)(c). In our view, however, the expression “contre un paiement” and the term “dédommagée” are all used in the sense of “paid or reimbursed”.
In the given situation, the purchasers of the Goods make payments to the Taxpayer based on interim billing for the purchase of the Goods pursuant to the contract duly signed by the parties. We are of the view that these payments are intended, among other things, to pay or reimburse the Taxpayer for the costs it incurs in the performance of a specific contract, including reasonable meal allowances that the Taxpayer pays to its employees in connection with their travel in the performance of the contract.
Consequently, we are of the view that the mere fact that the amount of the reasonable meal allowances is specified in a note on the interim invoices without being provided for in the contracts or billed to the purchasers of the Goods separately and in addition to the overall fixed selling price does not prevent the application of the exception provided for in paragraph 67.1(2)(c) in the given situation.
Expression “specifically identified in writing” in paragraph 67.1(2)(c)
Generally speaking, we are of the view that the amount paid or payable for food or beverages is “specifically identified in writing” for the purposes of paragraph 67.1(2)(c) where a note on an invoice allows a person to determine the amount for food or beverages that is included in the total amount invoiced.
In the given situation, we are of the view that the note on the interim invoices stating the cumulative amount of reasonable meal allowances paid or payable on a given date allows the purchasers of the Goods to determine the amount for food or beverages that is included in the total amount invoiced on the interim invoice. In our view, the inclusion of certain information such as the date and place where the amounts for food or beverages were incurred or the details of all amounts relating to each reasonable meal allowance is not necessary for purchasers of the Goods to be able to determine the amount for food or beverages that is included in the total amount invoiced on the interim invoice.
Consequently, the note on the interim invoices in the given situation meets the condition that the amount be “specifically identified in writing” set out in paragraph 67.1(2)(c).
Expression “somme payée ou payable pour des aliments” [“an amount paid or payable in respect of the human consumption of food or beverages”] in subsection 67.1(1)
According to the June 1988 Explanatory Notes (footnote 1) , the purpose of the exception provided for in paragraph 67.1(2)(c) is to allow the full deduction of the amount paid by a taxpayer for food or beverages when another person is required to pay for such expenses, so that this other person is subject to the limit in subsection 67.1(1) instead of the taxpayer.
In effect, that other person is subject to the subsection 67.1(1) limit because the amount it paid or reimbursed to the taxpayer for food or beverages is generally “an amount paid or payable in respect of the human consumption of food or beverages” for the purposes of subsection 67.1(1). That determination is a question of fact that can only be determined by taking into account all the relevant facts.
However, the English version of the expression “la somme payée ou payable pour des aliments” used in subsection 67.1(1) is “an amount paid or payable in respect of the human consumption of food or beverages”. The expression “in respect of” was interpreted broadly by the Supreme Court of Canada in Nowegijick v. R. (footnote 2):
“The words "in respect of' are, in my opinion, words of the widest possible scope. They import such meanings as "in relation to", "with reference to" or "in connection with". The phrase "in respect of" is probably the widest of any expression intended to convey some connection between two related subject matters.”
In light of this broad interpretation of the expression “in respect of”, we are of the view in the given situation that the cumulative amount of reasonable meal allowances paid or payable on a given date referred to in a note on interim invoices that relate to the performance of contracts is “an amount paid or payable in respect of the human consumption of food or beverages” for the purposes of subsection 67.1(1). Thus, the 50% limit in that subsection generally applies to purchasers of the Goods in respect of the cumulative amount of reasonable meal allowances paid or payable on a particular date referred to in the interim invoice note.
Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency”s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of the taxpayer. The taxpayer may ask for a version that has been severed using the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca. A copy will be sent to you for delivery to the taxpayer.
Best regards,
Isabelle Landry
Section Manager
For the Acting Director of the Division
Business and Employment Income Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
cc Jagdeep Mann, Manager, Enforcement Services Section 1, National Tax Division, Compliance Programs Branch
FOOTNOTES
Due to the requirements of our systems, the footnotes contained in the original document are reproduced below:
1 CANADA, Department of Finance, Explanatory Notes to the Income Tax Act, June 30, 1988.
2 (1983) 1 SCR 29.