(c)-(r)

Awards for non-economic loss or future economic loss received under the Workplace Safety and Insurance Act (Ontario) would be considered to be workers compensation under s. 56(1)(v) rather than pension income under s. 56(1)(a).

A portion of the purchase price paid for the acquisition of a business of the Seller by the Purchaser was allocated to the actuarial surplus in a defined benefit pension plan (the “Plan”) for which the Seller was the sponsor and employer, with the Purchaser being assigned the Seller’s obligations under the Plan.

Although, in fact, the acquisition occurred before 2017, the Rulings Directorate also addressed what would have happened on a post-2016 acquisition, and concluded that the amount allocated to the actuarial surplus would not have qualified as the cost of a Class 14.1 property, and instead would have been a non-deductible capital expenditure. As part of its reasoning in so concluding, it found that having regard for the exclusion for an amount that is not deductible by virtue of a specific provision other than s. 18(1)(b), such amount was excluded by s. 18(1)(e), which prohibited the deduction for a reserve (“described by the courts as something set aside that can be relied upon for future use”) given that “any actuarial surplus in this case can be applied as a contribution holiday to relieve the Purchaser from its future contribution obligations.”

the correspondent noted that under the GAAP that prevailed in 2008 (contained in Section 3855 of the CICA Handbook) taxpayers whose financial liabilities were incurred for trading purposes were required to revalue those liabilities at fair value, and referred in particular to situations where such liabilities were revalued at a year end as a result of a change in prevailing interest rates.

CRA indicated that the income or loss arising for accounting purposes from such annual adjustments due to fluctuations in interest rates would not be recognized for purposes of the Act. Although CRA accepted the Canadian General Electric case, that "decision does not apply to the revaluation of a debt due to interest, credit or other adjustments." Furthermore, s. 18(1)(e) "specifically denies a deduction for reserves and contingent liabilities."

The contracts for sales by a book publisher to its customers provide that books which have not been sold within 12 months may be returned. Would a reserve for returns be available? After indicating that no reserve under s. 20(1)(m) was available, and confirming its position in IT-215R, para. 13, CRA stated:

[A] clause permitting the return of goods not sold by customers is not a clause contemplated by paragraph 13 … where title passes to the purchaser upon delivery, well before the expiry of the time limit for the return of goods.

A "true" clause providing for the return of unsold goods is a clause under which ownership of the goods does not pass to the buyer and under which there is no obligation to pay for the goods until the goods are sold or until a certain period of time has elapsed.

In a consignment sale situation or a sale under a "true" return of unsold goods clause, the taxpayer is not required to recognize, for tax purposes, the income from the sale of the goods before title passes to the purchaser. Thus, where the taxpayer still reports income at the time of delivery of the goods, the CRA considers that the taxpayer can claim a reasonable deduction for goods that are returned after the end of the taxpayer's taxation year.

A maintenance obligation to landlords did not give rise to a current deduction since no contractual obligation with specific counterparties had been entered into. The Directorate stated:

The Fédération des Caisses populaires Desjardins and Canadian Pacific Limited cases are not applicable to the circumstances of this case. In both cases, there was a party who was to receive the amounts. In the first case, the obligation was payable to employees. In the second case, the obligation was payable to the “Workmen's Compensation Board.”

In 2001, the U.S. government began imposed countervailing and anti-dumping duties ("CADD") on the export of softwood lumber products from Canada, including by the Corporation, and required that the duties be paid - or that a bond be posted equivalent to such duties, which the Corporation did. Under its agreements with its lumber suppliers, the price it paid was reduced according to the applicable CADD rate that was being imposed, but it was further agreed that if the CADD was reversed, that amount would be refunded to the suppliers.

After a finding by the International Trade Tribunal that there was not a current material injury to the US lumber producers, the Corporation was released by the US government from its potential obligations regarding the CADD for the years 2001 and 2002, in 2002, it repaid an amount corresponding to the CADD in question to its suppliers.

In finding that the Corporation was not entitled to a deduction in 2001 by virtue of s. 18(1)(e), the Directorate stated:

[T]he current case differs from these two judgments [in Samuel F. Investments and Dibro Investments], in that the eventuality at issue in the present case is far from certain. For example, the possibility that the CADDs would never be paid to the relevant US government authorities was real in the year in question since, in fact, all of the CADDs at issue in 2001 were found to be inappropriate on the basis that there had been no injury to the US lumber industry.

The answer to the question concerning the deduction of adjustments to purchases from suppliers that arose in XXXXXXXXXX 2002 as a result of the ITC's decision to cancel CADDs required prior to May 16, 2002 should be consistent with the tax treatment adopted for the CADDs discussed above.

Thus, we are of the view that this expense to the Corporation's suppliers could not have been incurred prior to the ITC's decision regarding the Corporation's requirement to pay CADD on lumber.

A corporation had an accrued foreign exchange loss on foreign exchange contracts that it had entered into to hedge its food-sale operations in the US and that matured in the following year. After noting that the corporation’s recognition of such losses in accordance with GAAP and its financial statement treatment accorded with IT-346R, para. 14 and IT-95R, paras. 7 and 8, CRA went on to state that deduction of the losses nonetheless would be denied under s. 18(1)(a) if the obligation to pay under the forward contract had not yet arisen (stating that “to the extent that this obligation was not to arise until the other party to the contract had discharged its obligation (e.g., by delivery of the currency), then the expense could only be considered to have been "incurred" within the meaning of paragraph 18(1)(a) from that time” , or under s. 18(1)(e) if there was “uncertainty as to the payment of the debt.” Regarding the latter test, it stated:

In the case of a forward obligation, there is therefore certainty as to the payment of the debt, only the time of payment is deferred. It is, however, a real and enforceable debt and therefore a true obligation … .

The taxpayer recorded an estimate of the workers’ compensation (“CSST”) premium liabilities it had incurred in the year, which was prior to the time that the provincial commission finalized its assessment of such liability. In finding that such estimated amounts were deductible in the year, the Directorate indicated in its summary that “[a]t the end of the given taxation year, there is a legal obligation to pay the amounts and this obligation is not a contingency.”

Regarding whether an award of damages against the taxpayer in connection with its construction of a manufacturing plans was contingent and, thus, not to be added to the plant’s cost in light of such judgment being under appeal, CCRA indicated that an amount should not be recognized if its payment was subject to awaiting the decision of a higher court.

s. 18(1)(e) would prohibit the deduction by the issuer of the premium on a TSE-certified-linked GIC until the time of payment on maturity irrespective whether the issuer follows the realization method or the mark-to-market method on the call option it purchased to hedge its position.

A reserve fund for future utility costs that a water utility is required to set up pursuant to s. 57 of the Utilities Commissions Act (B.C.) does not give rise to a deductible amount when contributions are made to it.

Discussion as to whether an amount that a physician billed over the statutory cap on his billings would be deductible prior to the year of repayment.

U.S. countervailing duty cash deposits paid by Canadian lumber companies would be refundable deposits and, therefore, would represent non-deductible contingent liabilities.

A reserve for vacation pay benefits earned by employees in the year and that are reasonably expected to be taken in the following year does not constitute a contingent liability to pay in the future and, therefore, is deductible.

The accrual by a corporation in respect of its obligation to provide pension benefits to an employee who would retire in five years would not be a deductible expense by virtue of s. 18(1)(e).

Can a taxpayer owning two adjacent rental duplexes generating property income deduct the travel expenses incurred to travel from the taxpayer’s principal residence to those rental properties? After citing Benjamin, 54 DTC 357 and stating “the courts have made it clear that rental income is not usually business income and therefore cannot fall within the exception in paragraph 18(1)(h) for travel expenses,” CRA stated that “we do not consider that the taxpayer complies with the requirement that the two rental properties be located in two different locations from where the taxpayer's principal residence is located.” Consequently, the taxpayer could access only the following administrative policy:

Where a taxpayer owns only one rental property, the taxpayer may deduct motor vehicle expenses if the following conditions are satisfied:

• The taxpayer receives income from a single rental property located in the area where the taxpayer lives;
• The taxpayer personally does part, or all, of the necessary repairs and maintenance on the rental property;
• The taxpayer incurred motor vehicle expenses to transport tools and materials to the rental property.

…[S]uch a taxpayer cannot deduct the motor vehicle expenses incurred to collect rents.

As part of the carrying on of its training business, the taxpayer provides breakfast and dinner, as well as a coffee break. Respecting the deductibility of the “meal” portion of the charges to the trainees, CRA stated:

Paragraph 18(1)(h) explicitly precludes the deduction of personal or living expenses of the taxpayer in the calculation of the taxpayer’s business income … . According to [IT -357R2, para. 5] … any portion of a claim by a participant in respect of training expenses which either is personal or is unreasonable in the circumstances is not deductible by virtue of paragraph 18(1)(h) or section 67, respectively.

travel expenses incurred by a business owner to return home from vacation to respond to a business emergency would not be deductible given that such expenses would not qualify as being incurred while away from home in the course of carrying on a business.

A part-time self-employed professional has a home office where she makes and confirms appointments with clients, writes consultation notes, keeps client records, pays bills, carries out accounting and holds 20% of her meetings with clients, and also rents a small office (without access to a photocopier, fax machine or printer) in another area of the city where she meets with clients the other 80% of the time. In finding that her expenses of driving between her home and other office were not deductible by virtue of s. 18(1)(h), CRA indicated that in view of 80% of the meetings being in the other office, that it likely was her principal place of business, and stated:

[P]aragraph 18(1)(h) explicitly precludes the deduction of personal or living expenses of the taxpayer, other than travel expenses incurred by the taxpayer while away from home in the course of carrying on the taxpayer’s business. …

[T]he use of a motor vehicle for personal purposes generally includes travel between a taxpayer's home and the taxpayer’s place of business, unless it can be shown that the taxpayer’s principal place of business is the taxpayer’s home.

In finding that the cost to a self-employed welder of purchasing steel-toed work boots and fire-resistant clothing could not be deducted in computing his business income, CRA stated:

[W]here a taxpayer acquires clothing that can be used in both the taxpayer's business and personal activities … the expense is a personal or living expense that is not deductible by reason of paragraph 18(1)(h).

…Our position might be different if these boots and clothing were used by the self-employed worker only in the course of performing the worker’s welding activities.

A self-employed financial products broker receives commissions for the sale of life insurance policies that he takes out for his own benefit (the persons insured are members of his family and the beneficiaries are either him or his spouse). The broker is responsible for the payment of the related premiums. Are these premiums deductible in computing his income from a business? After finding that the commissions generated by the broker were income to him given their substantial amount, CRA stated:

[T]he insured persons being members of the broker's family, CRA is of the view that such premiums are a personal expense that is not deductible under paragraph 18(1)(h).

Marine pilots carry on their pilotage business through a partnership whose office is used only by administrative staff. The pilots receive their assignments by telephone at their homes, from where they carry out some of the preparatory work for the navigational activities, including preparing their passage plan, and updating of navigational notices, sounding reports and nautical charts, as well as the verification of tides and water levels.

Before finding that travel expenses incurred by them between their homes and the boarding station were likely non-deductible by virtue of s. 18(1)(h), CRA referred to the criteria in IT-514R, para. 2 as to what is a contractor's principal place of business, stated that “the jurisprudence defines a taxpayer's principal place of business as the place where secretarial activities are carried out, where financial statements and income tax returns are prepared, where communication with clients, suppliers, accountants, lawyers or government authorities takes place, and finally, where the company's mail is sent,” and then concluded:

[W]e cannot conclude that a pilot's home is the pilot’s principal place of business and, consequently, the expenses incurred by the pilot between the pilot’s home and the port of embarkation are personal expenses that are not deductible ... .

Regarding a self-employed taxi driver working at a fixed locale in the Montreal area, who picked up clients during working hours and incurred meal expenses for lunch, the Directorate stated:

[T]ravelling expenses are expenses incurred in travelling from one place to another and include food and accommodation. The phrase "while away from home" excludes travel between a residence and a place of employment. That passage is less restrictive than the one used in subsection 8(4)… .

… Paragraph 18(1)(h) does not impose any minimum distance or duration requirements regarding the deductibility of a meal. …

[M]eal expenses incurred by a self-employed person in respect of meals consumed alone at lunchtime are generally not expenses incurred by the self-employed person in the course of carrying on the person’s business and for the purpose of earning income from the business.

A self-employed person who runs a business as a personal consultant and stylist, and provides advice on wardrobe reorganization, selection, alteration and recycling of clothing and coordination of clothing and purchase recommendations incurs significant costs for clothing, hairdressing and dry cleaning in order to present herself well. CRA stated:

[T]he costs of clothing and related cleaning costs of a self-employed person carrying on a business as a consultant and personal stylist are personal expenses that are not deductible from the taxpayer's business income since the clothing may be used otherwise than in the course of carrying on the business. These expenses are also not eligible for capital cost allowance. Similarly, hairdressing expenses incurred by the taxpayer are not deductible since the taxpayer incurs them in order to report for work … .

A taxpayer owns two adjacent rental properties 100 km from the taxpayer’s principal residence. Are these considered as two properties for purposes of CRA’s policies on s. 18(1)(h). The Directorate responded:

[T]he CRA … allows a taxpayer who owns two or more rental properties that are located in two or more locations other than the taxpayer's principal residence to deduct reasonable travel expenses incurred in collecting rents, supervising repairs, and managing the property.

Generally, we consider that a taxpayer who owns a single rental property is not carrying on a business and, as a result, the taxpayer’s travel expenses are considered personal and therefore not deductible. … Benjamin … 54 DTC 357 … determined that travel expenses incurred by a taxpayer to attend to rental properties are personal expenses of the taxpayer.

The CRA does, however, provide relief for a taxpayer's reasonable motor vehicle expenses incurred by the taxpayer to transport tools and materials to a rental property to perform all or part of the repair or maintenance work on the taxpayer’s rental property, provided that the property is located in the taxpayer's home area. … It should be noted that this policy does not provide relief for travel expenses to collect rents if the taxpayer has only one rental property and is not carrying on a business.

[Here] we may consider the properties to be in two different locations despite their proximity to each other as the collection of rent, the supervision of repairs and the general management of those properties may require separate one-off trips.

Before concluding that a self-employed minister could not claim CCA for or deduct the cost of his suits and ties, CRA stated:

Where a taxpayer acquires clothing that can be used both in the taxpayer's business activities and in the taxpayer's personal activities, such as a suit as in this case, the CRA takes the position that such expense is a personal or living expense that is not deductible by virtue of paragraph 18(1)(h).

In finding that airfare and hotel expenses incurred by an investment company to attend a general meeting of shareholders in connection with one of its share investments were non-deductible, CRA stated:

[T]he travel and living expenses incurred are not deductible to the corporation on the basis that, in our view, the expenses incurred by a shareholder of a corporation in attending the annual meeting constitute personal and living expenses within the meaning of paragraph 18(1)(h).

In finding that travel and accommodation costs incurred by the taxpayer in dealing with a rental property at a distant location that had been left in an unsanitary and substandard condition by a deceased tenant were non-deductible, CRA stated:

[U]nless you incurred those expenses for the purpose of earning income from a business or property, you will not be able to deduct those expenses from your rental income for the 2004 taxation year.

… [I]t would appear that your travel expenses were incurred to monitor and manage the situation arising from the death of your tenant and not to earn income from the property.

In addition, because of the clear prohibition in paragraph 18(1)(h) … you cannot deduct in computing your rental income the meal and living expenses that you incurred while staying in Longueuil, as those are personal and living expenses.

"Where an insurance policy, including one purchased through a professional association, provides the self-employed taxpayer with a benefit for loss of income earning capacity, such as income disability insurance, it is our view that the premium paid on such a policy is a personal and living expense which is non-deductible. However, benefits received by the taxpayer under such a plan would generally not be included in income for tax purposes."

"Where a Policy, purchased directly from an insurance company or indirectly through a professional association, provides an Individual, carrying on a business or practicing a profession, with a benefit for loss of income-earning capacity, the premium paid on such a Policy by the Individual is a personal or living expense that is not deductible for income tax purposes. Additionally, the receipt of disability benefits under the Policy will not be included in computing the individual's business income."

A corporation purchases a critical illness insurance policy on the life of its sole shareholder and there is also, at an additional cost, a rider to the policy providing for a refund of the premiums paid if the shareholder does not develop one of the covered illnesses or medical conditions after a 10-year period. Regarding the non-deductibility of premiums, CRA stated:

Under subsection 248(1), personal or living expenses include premiums or other charges for an insurance policy if the proceeds of the policy are payable to or for the benefit of the taxpayer.

Generally, premiums paid by a corporation for critical illness insurance in the above situations are not deductible in computing the corporation's income.

Furthermore, where the corporation is the beneficiary of a policy acquired to finance a share purchase/redemption under a shareholders' agreement … the premiums are not made or incurred for the purpose of earning business income as required by paragraph 18(1)(a) or paragraph 18(1)(h).

Similarly, if the purpose of acquiring an insurance policy is to compensate the corporation for the additional costs or loss of income that might be incurred in the event of an employee or shareholder suffering from a critical illness … the premiums are not incurred or made for the purpose of earning business income as required by paragraph 18(1)(a) or because they are personal or living expenses by virtue of paragraph 18(1)(h).

If a critical illness policy were used as collateral for a corporate loan, the premiums would also be non-deductible …. Antoine Guertin … .

… Premiums paid by the corporation for the rider to the policy allowing it to obtain a premium refund amount if the shareholder does not have one of the covered illnesses or medical conditions after 10 years are not deductible on the basis of the application of paragraphs 18(1)(a) and 18(1)(h).

A self-employed radiologist, who does not have a permanent office at Hospital A (80 kilometres from his home) but an office and an X-ray room are available to him when working there, but Hospital B (75 kilometres from his home) provides him with an office for his exclusive use. In addition to a regular work schedule at both hospitals, he is periodically on call, which requires him to rent a hotel room or apartment near the hospital where he is on call.

CRA indicated that Hospital B should be considered a place of business of the radiologist having regard to its policy that travel between a place of work and home is non-deductible, stating in this regard that:

[I]n some cases, such as that of health professionals, it may be sufficient for an individual to have access to certain premises on a continuous basis to carry on the individual’s business and for it to be common knowledge that the individual can be reached at such location when the individual’s services are required, in order to conclude that it is the individual’s place of business.

Regarding Hospital A, it stated:

The fact that a radiologist does not have a permanent work office at that hospital may serve as an indication but is not, in our view, a conclusive criterion … . [O]ne could conclude that Hospital A is a place of business for the radiologist since … the radiologist has a regular work schedule at both hospitals. In such a case, travel between his residence and his place of business would be considered to be of a personal nature.

The rental costs were non-deductible.

In finding that costs incurred by a self-employed person for coaching services were not deductible by virtue of s. 18(1)(h) in computing income from a business in the insurance field, CRA stated:

[I]t appears to us that a personal development aspect underlies the entire coaching process. Furthermore, the information available in this file does not demonstrate that those expenses were incurred for the taxpayer's business needs.

The taxpayer makes two return trips to Spain each year to personally look after rental properties and incurred approximately $1,800 in travel expenses per year for those trips (mostly, plane fares). CCRA noted that “[s]everal court cases, including … Benjamin … 54 DTC 357 … have determined that travel expenses incurred by a taxpayer to attend to rental properties are personal expenses of the taxpayer and therefore not deductible pursuant to paragraph 18(1)(h).” However, as noted in T4036 Guide on Rental Income, where the taxpayer owns two or more rental properties the taxpayer may deduct reasonable motor vehicle and travel expenses incurred for the following purpose of collecting rent, supervising repair work or managing the property. However, CCRA then stated:

[T]he cost of travelling to Spain could be considered unreasonable in view of the price paid in relation to the amount of income generated by your rental property and in relation to the price that would be charged by a person on site to look after your rental property.

The Scott case is restrictively interpreted. "Only where a taxpayer's business involves non-motorized locomotion will a business deduction be allowed for 'food and beverages' as an alternative fuel source."

The amount in respect of a four-day seminar held during a 12-day European cruise for self-employed professionals will 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 participants normally attended such seminar.

RC is prepared to allow the deduction of reasonable motor vehicle expenses incurred by an individual who owns only one rental property where the rental property is located in her general area, she does part or all of the necessary repairs and maintenance on the property, and she incurs the expenses to transport tools and materials to the property. The first of these conditions will not be satisfied if it takes approximately 25 minutes to travel from her rural home to the rental property, where it is apparent that other towns are closer to her residence.

Premiums paid by a partnership under a disability plan to insure against the loss of income earning capacity of its partners would not be deductible by virtue of s. 18(1)(h).

Amounts paid for the services of a call girl are not deductible.

If an employee is not entitled to claim expenses for an office in the home, travel between home and the first customer of the day is considered to be personal.

Respecting where paramedics are reimbursed by their employer for the cost of membership fees in a fitness centre, CRA stated:

Under paragraph 18(1)(l), the payment or reimbursement of such expenses does not give entitlement to a deduction in computing the employer's income.

Discussion of the meaning of the phrase "membership fees ... in any club the main purpose of which is to provide dining, recreational or sporting facilities for its members".

Interest on money borrowed to acquire a yacht used to entertain clients for business purposes is non-deductible in light of s. 18(1)(l)(i). However, a reasonble fee paid to have a corporate name appear on a racing yacht may be deductible if the expenditure can be expected to enhance, improve or maintain the corporation's income.

Where a corporation acquires a ski pass valid for 36 visits at an arm's length ski resort, the visits may be made by any individual designated by the corporation and the corporation plans to provide the pass to its principal clients, s. 18(1)(l) will not restrict the deduction of the cost of the pass.

Where the taxpayer had acquired a golf pass valid for a number of rounds on a golf course, the expenditure was non-deductible by virtue of s. 18(1)(l) regardless whether or not the purpose of the expenditure was public relations.

Re application of s. 18(1)(m)(v) to oil production from farm-out wells; and potential application of s. 80.2.

A corporation that carries on a personnel services business is entitled pursuant to s. 18(1)(p)(ii) to deduct the amount of a retiring allowance paid to an incorporated employee provided that the retiring allowance will be deductible on computing its income if its income were from a business other than a personnel services business. S.18(1)(p) also does not deny the deduction of contributions made by the corporation to a registered pension plan in respect of the incorporated employee otherwise deductible under s. 20(1)(q).

An employee who sometimes uses his motorhome to travel in the performance of his duties of employment is paid a per-kilometre allowance for the use of the motorhome when he is outside the municipality or metropolitan area where the employer's establishment at which the employee ordinarily works is located. The per-kilometre rate is higher than that normally used for automobiles, as it takes into account the operating expenses (including capital cost allowance and interest, if applicable) relating to the motorhome in connection with its use for business purposes. CCRA stated:

[T]he employer-corporation would not be subject to the restriction set out in paragraph 18(1)(r), which applies to the use of an automobile. On the other hand, it could be subject to the general restriction described in section 67 … .

Where a consulting firm reimburses the travelling expenses of its employees and charges the travelling expenses on an itemized bill sent to its clients, the corporation and not the clients will be governed by the restrictions of s. 18(1)(r).

Regarding the deductibility of interest and penalties arising under the ITA and ETA, the Directorate indicated that deductibility of the former was prohibited by s. 18(1)(t), whereas this prohibition did not extend to the latter so that, for instance, GST/HST interest generally was deductible if incurred re deductible expenditure.