Are catering expenses fully deductible?
During the early years of my career, I worked in the educational conference field—initially in not-for-profit academia, and later in the very competitive one-day commercial conference segment—delivering tax, insurance and investment content to professionals.
Despite largely successful conferences, there was at least a dog or two that drained the coffers. Accordingly, pricing strategy, provision of sustenance, and inclusion of swag were recurring themes at management meetings.
Much of this came back to me while reading a recent tax appeal of a CRA reassessment denying deductibility of certain catering expenses.
Ordinary course of business
The idiom of there being an elephant in the room is a reference to an obvious truth not acknowledged by those who can plainly see it is there. This apparently was the CRA’s perspective in denying half the catering expense deductions claimed by Burlington, Ont.-based Pink Elephant, a provider of information technology training seminars.
Pink Elephant charged an all-inclusive fee to attendees—ranging from $2,000 to $10,000—for courses that ran from two to 13 days. These public educational courses were provided in hotels, with breakfast and lunch served.
Under the Income Tax Act, a taxpayer is entitled to deduct reasonable expenses in arriving at taxable income. In the case of food, beverage and entertainment expenses, the general rule is half of the outlay is deductible. Pink Elephant claimed entitlement to the exception to this limitation, seeking full deduction of these types of expenses when incurred within its ordinary course of business.
In interpreting the term “ordinary course of business,” the Judge considered the positions of a hotel and restaurant operation as compared to a restaurant operation alone. In the Judge’s opinion—the only one that counts in court—it would not make sense to apply the limitation to the former, and yet allow the exception for the latter.
Furthermore, this treatment applies, “whether the provision of food or beverages is a minor or significant part of the ordinary course of business” of the taxpayer.
As a result, Pink Elephant got its full deduction.
Half measures
From the conference attendee perspective, in the absence of a detailed cost breakdown, there is a deemed $50 per day for food and beverages, to which the 50% limitation would apply.
Interestingly (and this received brief mention in the case), a later section of the Act does not treat amounts paid for airplane travel in the same class as expenses incurred on food, beverages or entertainment. Given the now-standard practice of unbundling meals from airfares (at least for the class of cabin that I frequent), it would appear the 50% limitation might again apply to the in-flight sandwich purchased using my credit card — though I didn’t find any cases or rulings that either confirm or refute that treatment.
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