ARCHIVED - Convention expenses

What the "Archived Content" notice means for interpretation bulletins

NO: IT-131R2

DATE: November 24, 1989

SUBJECT: INCOME TAX ACT
Convention expenses

REFERENCE: Subsection 20(10) (also sections 67 and 67.1 of the Act and paragraph 9 of Article XXV of the Canada-U.S. Tax Convention)

Application

This bulletin cancels and replaces IT-131R dated February 28, 1986. Current revisions are designated by vertical lines.

Summary

This bulletin explains the deduction provided under subsection 20(10) in computing income of a taxpayer carrying on a business or practising a profession, in respect of expenses incurred by the taxpayer in attending up to two conventions a year in connection with the business or profession. Paragraph 4 of the bulletin discusses new section 67.1 which restricts the amount that may be deducted for food, beverages or entertainment expense incurred after June 17, 1987 and enjoyed after 1987 to 80 percent of the lesser of the actual amount of the expenses incurred in this respect (whether paid or payable) and an amount that would be reasonable in the circumstances for such expenses. In addition, subsection 67.1(3) establishes a rule applicable to amounts incurred after June 1988 for the allocation of a reasonable portion of conference and convention fees to food, beverages and entertainment expenses where the fees entitle the participants to such benefits.

Discussion and Interpretation Self-Employed Individuals

1. Subsection 20(10) permits a self-employed taxpayer who is carrying on a business or practising a profession to deduct, in computing income for a taxation year from a business, expenses incurred in attending not more than two conventions a year provided that the conventions were

(a) held by a business or professional organization,

(b) attended in connection with the taxpayer's business or professional practice, and

(c) held at a location that may reasonably be regarded as consistent with the territorial scope of the organization.

It is not necessary that the taxpayer be a member of the organization sponsoring the convention but attendance at the convention must be related to the business or professional practice carried on by the taxpayer. A convention may be defined as a formal meeting of members for professional or business purposes.

2. Subject to the provisions of the Canada - United States Income Tax Convention discussed in 3 below, subsection 20(10) provides that deductions can be made only for expenses paid for attending conventions at locations consistent with the territorial scope of the sponsoring organization. The term "territorial scope" refers to the geographical area in which the particular organization ordinarily conducts its activities. Accordingly, this generally requires that a convention sponsored by a Canadian business or professional organization be held in Canada where the organization is national in character, or in the particular province, municipality or other area in Canada where the activities of the organization are limited to such an area. Consequently, expenses incurred in attending a convention held outside the geographical limits of the sponsoring Canadian organization will normally not be deductible in computing income and, for this purpose, a convention held during an ocean cruise is considered as being held outside Canada.

This restriction is not intended to deny a taxpayer a reduction of reasonable expenses incurred in attending a convention in another area or country if the convention is sponsored by an organization of that area or country and is related to the taxpayer's business or professional practice.

3. Where a convention held in the United States is sponsored by a Canadian business or professional organization that is national in character, paragraph 9 of Article XXV of the Canada - United States Income Tax Convention, 1980, provides that the expenses incurred in attending the convention are deductible to the same extent that they would be had the convention been held in Canada. However, paragraph 9 of Article XXV does not change the rules of subsection 20(10) where a convention held in the United States is sponsored by a Canadian organization that is not national in character. The expenses incurred in attending such a convention will be subject to the general rules discussed in 2 above.

4. The deductibility under subsection 20(10) of certain convention expenses may be restricted by the provisions of section 67.1.

Subject to certain exceptions, section 67.1 limits the deductible portion of the costs of food, beverages and entertainment to 80 percent of the lesser of the amount actually paid or payable therefor and an amount that would be reasonable in the circumstances for such expenses. This limitation, which applies to amounts incurred after June 17, 1987 for such amenities enjoyed after 1987, is discussed in IT-518, "Food, Beverages and Entertainment Expenses".

In addition, for the purposes of section 67.1, subsection 67.1(3) provides a rule which applies where a fee paid or payable for attendance at a convention entitles the participant to food, beverages or entertainment and the organizer of the event has not allocated or identified a reasonable portion (based on cost) of the fee as pertaining to these benefits. For each day of an event which entitles the participant to such benefits, $50 (or such other amount as may be prescribed) is deemed to be paid or payable in respect of food, beverages and entertainment and the fee for the event will be deemed to be the actual fee paid or payable minus the amount deemed to pertain to those benefits. This provision does not apply to incidental beverages and refreshments made available during the course of meetings or receptions, such as juice, coffee, doughnuts and muffins.

Assuming that a fee for a convention is otherwise deductible under subsection 20(10), the effect of subsection 67.1(3) would be to limit the deduction to the aggregate of the portion of that fee that has not been deemed to pertain to food, beverages or entertainment and 80 percent of the portion deemed by that provision to pertain to such benefits. Subsection 67.1(3) is applicable with respect to amounts incurred after June, 1988. Convention fees incurred prior to July, 1988 which entitle the participant to food, beverages or entertainment are not subject to the 80 percent limitation unless the fee was incurred after June, 1987 for such benefits that were enjoyed after 1987 and the organizer of the event has identified or allocated a portion of the fee as pertaining to the benefits.

Where a taxpayer incurs expenses for food, beverages or entertainment in attending a convention and the costs thereof are not included in the convention fee, the normal 80 percent limitation in section 67.1 applies to the costs incurred after June 17, 1987 for any such amenities that were enjoyed after 1987.

5. A taxpayer who combines attendance at a convention, wherever it is held, with a vacation trip must allocate expenses on some reasonable basis to eliminate those that are essentially for vacation purposes. A reasonable basis is considered to be one that allows the taxpayer to deduct the cost of travel (i.e., transportation and necessary meals and accommodation en route) from the taxpayer's place of business to the convention and back by the most direct route available, and the costs and accommodation while participating in the convention. All such costs must be reasonable as required by section 67 and are subject to the restrictions in section 67.1.

6. It should be noted that expenses incurred by or for a spouse or children accompanying the taxpayer to a convention or a combined convention and vacation trip are normally considered to be personal and, as such, are not deductible.

Employees

7. Where an employer requires an employee to attend a convention as part of the duties of employment and the employee is reimbursed for reasonable costs incurred in so doing, such reimbursement would not normally constitute income in the hands of the employee. On the other hand, if the employer gives an employee a non-accountable allowance to cover the cost of attendance at such a convention, the employee will, as a rule, be taxable on that allowance unless it is exempt from tax by reason of any of the exceptions in paragraph 6(1)(b). Employees are not in any case entitled to deduct any of the costs of attending conventions in computing their income. Reference should be made to the current version of IT-470 with respect to holiday trips paid for by an employer as part or an extension of the employee's attendance at a convention.

Travelling Expenses of Employee's Spouse

8. Where an employee is accompanied by a spouse on a business trip, any payment or reimbursement by the employer of the spouse's travelling expenses is a taxable benefit to the employee unless the spouse was requested by the employer to go and the main purpose for going was to assist in attaining the business objectives of the trip.

Corporations

9. The provisions of subsection 20(10) apply to corporations as well as to individual taxpayers and, where the rules of a particular convention allow a corporation to register at the convention quite independently of who its officers may be, a corporation can "attend" a convention through one or more of its agents or employees. A corporation generally will be subject to the usual limitation of two conventions per year in connection with its business but may send more than one representative to each.

10. However, a corporation which has diversified business interests and many employees may take the limit of two conventions per year to apply to each such interest. For example, a large integrated oil company might be interested in conventions of personnel people, accountants, chemists, geologists, and other groupings and the limit would be applicable separately to each.

11. Intracompany meetings, seminars, courses, etc., will not be regarded as conventions as far as employees of the company and its parent, subsidiary or associated companies are concerned but the rule of reasonableness in section 67 will still apply both to the amounts and the locale. The employees of an association organizing a convention would be considered as attending an intracompany meeting. Additional details in this respect may be found in the current version of IT-357, "Expenses of Training".

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