29 March 1995 Internal T.I. 9501617 - TRAINING EXPENSES

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 Department.

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

Principal Issues:

The issue is the extent that the cost of an ocean cruise is deductible by self-employed professionals. Seminars will be held during the cruise.

Position TAKEN:

The issue was considered on a general basis. Two possible approaches were suggested. The first is that the cost, subject to the further limitation in respect of food, beverages, and entertainment (section 67.1), would be deductible to the extent that it does not exceed the amount that would have been incurred if the seminar had been held in the usual manner in the locale where the participant normally attended seminars. The second is that only the costs of the seminars themselves would be deductible if it can be established that a participant attended primarily for the purposes of a vacation.

Reasons FOR POSITION TAKEN:

The first approach is consistent with file 940346. The second approach has been suggested on the basis that the circumstances are consistent with decision of the Tax Court in Rovan v. MNR, 86 DTC 1797.

		March 29, 1995

	Belleville Tax Services	Headquarters
Mr. Jeff Kingdon	Income Tax Rulings and
	Client Assistance Directorate	  Interpretations 		Directorate
M. Eisner
(613) 957-8953

950161

Training Expenses

This is in reply to your memorandum of January 17, 1995 in which you provided us with a brochure promoting a "tax deductible" ocean cruise with professional seminars provided to individuals during the cruise. You have requested our comments on the income tax implications of the cost of the cruise and seminars.

Our comments on this situation have been made in respect of self-employed professionals as the brochure seems to have been prepared in respect of such individuals. In addition, the determination of the amount that is deductible for training under paragraph 18(1)(a) of the Income Tax Act (the Act) can only be determined following a review of the relevant facts and information involved with respect to a particular participant. As we have not reviewed any particular situation, our comments must be construed as being of a general nature and are based on the information set out in the brochure.

The information available in respect of the training is set out below:

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One consideration with respect to the seminars is whether the cost thereof is capital in nature with the result that the seminar costs and other related costs (travel) would not be deductible as a consequence of paragraph 18(1)(b) of the Act. In the case of the topics in 2(b) (c) and (d), it seems to us that they may relate to seminars undertaken by a certain self-employed professionals for the purposes of maintaining, updating, or upgrading existing skills. Accordingly, consistent with the comments in paragraph 2 of IT-357R2 which set out the Department's general position on training expenses, it seems that the cost of these seminars are not in the nature of capital. In the case of (a) and (d), it seems that the topics relate to the manner in which a self-employed professional would carry out his or her practice on an ongoing basis with the result that it seems that the costs in respect of these seminars would also not be of a capital nature. Our comments set out below are based on the assumption that the cost of all the seminars are not of a capital nature.

For the purposes of determining the extent that the cruise costs of a self-employed professional are deductible, we have considered two general approaches. The first approach involves comments in IT-357R2 and relates to a determination of the costs that would be incurred if the seminar were to be held at a more common venue (e.g., at hotels) where it is expected that such seminars would normally be held. In considering this approach we have assumed that the costs of the seminars aboard a cruise ship would be higher than those which would be incurred in a common venue and that the courses would be held on a concurrent basis. The second approach is broader in scope and concerns whether the purpose of the cruise is primarily a vacation. We also note that since only the cost of the seminars would be deductible with respect to this approach, it may be of particular relevance to a participant who normally travels with respect to training courses and incurs expenses such as accommodation and meals.

Seminar Costs Held in a Common Venue

The Department's general position on training is set out in Interpretation Bulletin IT-357R2 "Expenses of Training". In relation to the above situation, we made reference to the following comments set out in the summary of the bulletin as well as two statements found in paragraph 5 of that bulletin under the heading "Location of Course":

"Any portion of costs related to training which is either personal or unreasonable in the circumstances may not be deducted. In deciding whether any portion of these is personal or unreasonable, the duration and location of the course should be considered, as well as the days on which no training is taken."

"As a rule, expenses of attending a training course outside the taxpayer's general geographic locale are considered unreasonable to the extent that they exceed what they would have been had a similar course been attended locally, if available."

Pursuant to those comments, it is our general view that an amount in respect of the seminar would only be deductible, subject to the further limitation set out below in respect of food, beverages and entertainment, by a participant to the extent that it does not exceed the amount that would have been incurred if the seminar had been held in the usual manner in the locale which the participant normally attended such seminars.

The cost of food, beverages, or entertainment that are otherwise deductible, would only be allowable to the extent provided in section 67.1 of the Act. We also refer you to comments in paragraph 4 of Interpretation Bulletin IT-131R2 "Convention Expenses" which addresses the deductibility of food, beverages, and entertainment in relation to section 67.1 of the Act where such costs form part of the overall cost of an event but are not identified and would otherwise be deductible under the Act. While these comments were made in respect of a convention, they are also relevant in respect of the seminar described above. In addition, we note that pursuant to Bill C-59 which received first reading on November 24, 1994, it is proposed that section 67.1 of the Act be amended so that after February 1994, the limitation set out in section 67.1 of the Act will be 50% rather than 80%.

Primary Purpose of Trip - Business or Pleasure

With respect to this approach, we have referred to the Tax Court decision in Rovan v. MNR, 86 DTC 1791 which involved a legal convention in Monte Carlo that lasted 6 days excluding the day of arrival and departure. The Court, in upholding an assessment in which the costs of attending the convention were disallowed in their entirety, concluded that the taxpayer attended the convention primarily for the purposes of a vacation rather than for business purposes. For the purpose of determining the main purpose of such a trip, the Court set out criteria (see page 1795) which included the cost of the trip in relation to the time devoted to business activities (the convention programme comprised a maximum of 12 hours), and the distance travelled. In addition, the convention site and its climatic allure was also considered to be relevant where the convention was oriented towards attracting pleasure seekers. In the circumstances of that case, the amount of the expenditure incurred by the taxpayer and the extent of information concerning the conference agenda that was available at the time the taxpayer made his decision to attend also indicated that the trip was intended primarily as a vacation.

In relation to the above comments, the itinerary and other information in 3 above (i.e., the seminars have been structured around the ports of call) indicate that the primary purpose of the trip is a vacation. The fact that no mention has been made in the brochure of the times the seminars will be presented also indicates that such is the case. Of course, a final decision can only be made following a review of the seminar agenda and other relevant information. As a further comment, we are mentioning that while no amount was considered to be deductible in the circumstances of the Rovan case, it seems to us that it would be reasonable to allow the cost of the seminars themselves if this approach is applied. However, it is our view that no other costs would be deductible.

If it is considered appropriate to apply this approach, it would also be useful to compare the manner in which these seminars are conducted with a training course where education also appears to be the focus and the course can be regarded as being held at an exotic location. In this regard, we have enclosed a copy of the brochure entitled

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We also note that the Rovan case can be contrasted with the decision of the Exchequer Court in Philp et al. v. MNR, 70 DTC 6237. In this case, one of the appellants was an employee of a corporation whose supplier provided a trip as a reward for the achievement of a certain sales levels. Even though the trip involved a good number of vacation activities, the court decided that the trip was a combination of business (50%) and pleasure (50%). While we believe that the Court gave the benefit of doubt to the taxpayer in the Philp case on the basis, inter alia, that business promotion on the part of the supplier was involved, we do not believe that this would be the case with respect to the above situation.

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Should you require further technical assistance, we would be pleased to provide our views.

P.D. Fuoco
Section Chief
Personal and General Section
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch