21 August 2002 External T.I. 2002-0157765 - M&E EXPENSES STAFF PARTIES

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Application of paragraph 67.1(2)(f) to two situations.

Position: See below

Reasons: See below.

XXXXXXXXXX 							2002-015776
R. Hewlett, B.Comm.
August 22, 2002

Dear XXXXXXXXXX:

Re: 50% Limitation For Food, Beverages and Entertainment

We are writing in response to your letter dated August 2, 2002, wherein you requested our opinion with respect to the above-noted issue.

In your letter, you indicate that your company has two types of functions each year as follows:

(1) Annual Christmas Party - a dinner and dance that costs $25 per person. The party is open to all employees of the company. Each employee contributes $10 towards the cost of the party.

(2) Over 25 Year Club - once per year the company invites all current and retired employees who have 25 years of service to a dinner. The cost is $30 per person and the company pays the entire amount.

You indicate that the company only deducts 50% of the cost of the annual Christmas party by virtue of subsection 67.1(1) of the Income Tax Act (the Act). However, after reviewing Interpretation Bulletin IT-518R, Food, Beverages and Entertainment Expenses, you query whether both of these functions are exempt from the 50% limitation in subsection 67.1(1) of the Act.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office (TSO). However, we offer the following comments.

Subsection 67.1(1) of the Act provides that amounts paid or payable in respect of the human consumption of food or beverages, or the enjoyment of entertainment are deemed to be 50% of the lesser of:

(a) The amount actually paid or payable in respect of these items; and

(b) An amount that would be reasonable in the circumstances to pay for them.

Subsection 67.1(2) of the Act provides several exceptions to this 50% limitation. Under paragraph 67.1(2)(f) of the Act, the 50% limitation does not apply if the expenditures are "in respect of one of six or fewer special events held in a calendar year at which the food, beverages or entertainment is generally available to all individuals employed by the person at a particular place of business of the person and consumed or enjoyed by those individuals."

Our views on each event you describe are as follows:

(1) Annual Christmas Party - this event will meet this exception, if it is one of six or fewer special events held in the calendar year.

(2) Over 25 Year Club - this event would not qualify for this exception because it is not available to all employees of the company. However, if the event were available to all employees, and it was one of six or fewer special events held in the calendar year, the expenditures with respect to the current employees would be covered by this exception. The expenditures in respect of the retirees will never qualify for the exception provided in paragraph 67.1(2)(f) of the Act since the company does not currently employ these individuals.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch