When are convention expenses deductible?
If you are self-employed, then you maybe able to deduct from business income the expenses of attending up to two conventions per year.
The rules allowing this deduction are foundin subsection 20(10) of the Income Tax Act.
Business or professional organization
One of the conditions for the deduction isthat the convention be “held by a businessor professional organization”.
One “tax advice” company has interpreted this condition as though it read “held by abusiness or a professional organization”.The company claimed on its website thata business can hold its own “convention”so as to make all kinds of travel andvacation expenses deductible. This adviceis wrong and should not be followed.
The word “business” in the phrase “businessor professional organization” is an adjectivemodifying “organization”, not a noun. Theconvention must be held by a “businessorganization” or a “professional organization”,not just by any business. This is quite clearfrom the French wording of the phrase, whichis “une organisation commerciale ouprofessionnelle”. (Under the Official Languages Act, the French and English versions areequally authoritative, and so the French can be used to help interpret the legislation if theEnglish is ambiguous.)
The following additional conditions applybefore expenses can be claimed:
The convention must be held in the sameyear as you are claiming the deduction.
• The expenses must be paid in the year(not simply be incurred or payable).
• The convention is held by a business orprofessional organization “at a locationthat may reasonably be regarded asconsistent with the territorial scope ofthat organization”. Thus, for example, aconvention of the Winnipeg WidgetManufacturers’ Association, held in aresort in Mexico, would not qualify.
However, the Canada-U.S. tax treatyprovides that a convention held in theU.S. will qualify if it would otherwisequalify if held in Canada. Thus, anational Canadian organization canhold a qualifying convention anywherein the U.S. This will not necessarilyassist a local organization, however.
• You must attend the convention “inconnection with” your business orprofessional practice. However, you donot need to be a member of theorganization sponsoring the convention.
Deductibility beyond these restrictions
Subsection 20(10), referred to above, is apermissive provision, not a restrictive one.Therefore, if attendance at a convention canbe justified as being an expense forpurposes of gaining or producing income,and not on account of capital, it should bedeductible anyway without being subject to
the restrictions of only two conventionsper year and the other conditions above.
The Courts have sometimes held thatconvention expenses are “on account ofcapital”, because their benefits are long-term.This was the ruling of the Exchequer Court ofCanada in the 1956 Griffith case that led tosubsection 20(10) being introduced. This wasalso the ruling of the Federal Court of Appealin the 2004 Shaver case. In Shaver, thetaxpayer was an Amway salesman whoattended monthly business seminars. Thesewere held to be “on account of capital” (i.e.,not current expenses), and so he was limitedto deducting two of these seminars per year.
Still, depending on the taxpayer’s businessand type of convention, the courts may takea broader view in certain cases. If ataxpayer can show the connection betweenattending annual conventions and earningcurrent income as a result of the informationand contacts obtained at the convention, theexpenses will not necessarily be limited totwo conventions per year or restricted to theconditions above.
Meals and entertainment
Only 50% of amounts paid for food, beverages or entertainment qualify as a deduction from business income generally. This rule applies to conventions as well. Where the convention fee entitles you to meals and entertainment without specifying a separate price for them, $50 per day is deemed to be for the meals and entertainment. Thus, $25 per day of the convention fee becomes non-deductible.
Since the deduction for conventions is from business income, employees cannot claim a deduction for such expenses.
If an employer requires an employee to attend a convention, reimbursement by the employer of the employee’s expenses of attending will generally not be a taxable benefit except to the extent there is a personal element to the benefit of attending. Even where there is some personal benefit, it may not be taxable: the Tax Court of Canada held in the 1999 Romeril case that there was no taxable benefit because the main purpose of the trip was for business.
If an employee’s spouse attends a convention (or travels to it without being registered) and the employer pays, the spouse’s attendance is normally considered a taxable benefit to the employee. However, the Canada Revenue Agency considers that there will not be a taxable benefit if 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”.
The CRA has published an Interpretation Bulletin, IT-131R2, that describes the Agency’s position on convention expenses in more detail. As noted above, however, the Tax Court may be more flexible than the CRA in some cases.
Many individuals in the computer industry work as computer consultants. If you are in this group, are you aware of the various tax issues that affect your work?
Here are some points to keep in mind:
1. If you are an employee rather than an independent contractor, you cannot deduct
most expenses, and your employer is required to withhold income tax at source, as well as Employment Insurance premiums and Canada Pension Plan (or Quebec Pension Plan) contributions. Similarly, if you have incorporated your business but your relationship with your company’s client is really that of employee to employer, your company will be considered to be carrying on a “personal services business” and there will be a very high tax cost.
If you are working entirely for one company or are under the control of one company, you may well be an employee. The dividing line between employee and self-employed is not always clear. The rest of this article will assume that you are an independent contractor (self- employed), and are not incorporated.
2. If you are an independent contractor carrying on business, the income you earn is business income. No income tax will be withheld at source, but you will have to set aside enough money to be able to pay your quarterly instalments (after your first year of carrying on business) as well as your April 30 income tax balance.
3. If you are an independent contractor, you can deduct the expenses of earning your self-employment income. This can include: office supplies; Internet access; advertising; liability insurance; capital cost allowance (depreciation) on capital assets such as computer equipment and furniture; travel from your home office to a client site; office telephone and cell phone charges; and, in most cases, a portion of your home expenses (such as mortgage interest or rent, insurance, utilities and maintenance) if you have a home office.
4. If you are an independent contractor, then your income tax filing deadline is June 15 rather than April 30. However, if you owe a balance at year-end, interest (currently at 5% per year compounded daily) accrues after April 30.
If you are self-employed as an independent contractor, you are normally not eligible for Employment Insurance (EI) benefits. (However, if you are working through a placement agency, a CRA administrative policy may consider you self-employed for tax purposes but still treated as an employee for EI and CPP deductions.) You can opt into the EI system so as to be eligible for certain benefits such as parental benefits on the birth of a new child. However, once you opt into the system you cannot leave, so you will have to pay EI premiums on your self-employment income forever.
Assuming you are self-employed, if your annual gross revenues (i.e., billings for your services) exceed $30,000 (when combined with any corporations you control), you must register for GST/HST with the CRA and charge either GST or HST on your services. The rate you charge (5% GST, or 13% or 15% HST) will normally depend on your client’s address (there are some exceptions, such as where you provide services for a location-specific event, or for court litigation). Thus, for example, if you are billing a Calgary client you must charge 5% GST, while if you are billing a Toronto client you must charge 13% HST. (The Ontario HST rate is 13%; the four Atlantic provinces are 15%; and the rest of Canada is 5% GST.)
Of course, you must collect and remit to the government the tax that you charge; but you can normally deduct all GST/HST
that is charged to you for business expenses, as an “input tax credit” (ITC) on your GST/HST return. You may also be able to choose to use the “Quick Method” whereby you do not claim ITCs but remit less GST/HST than you collected, at a flat rate. (For example, for 5% GST, you may be able to remit 3.6% of your sales minus $300 instead of 5% minus ITCs.)
If you and your client are both in Quebec, you normally must charge Quebec Sales Tax, which generally follows the same rules as the GST, though unlike HST it must be accounted for separately.
The company that is paying you will usually not mind being charged GST, HST or QST, since they will receive an ITC (full refund) for all the tax that you charge them.
5. If you are a province that has a retail sales tax (BC, Saskatchewan or Manitoba), you may have to charge that tax. The details vary by province. These taxes are not recoverable by your clients.
Once you have been registered for GST/HST for your first year, you are required to pay quarterly instalments of GST/HST, unless your total GST/HST “net tax” remittance for the year or the previous year (prorated to 365 days if it was a short first year) will be less than $3,000.
If you have not been charging and collecting all of the sales taxes you should have, you may want to consider making a “voluntary disclosure”, to inform the tax authorities and get penalties waived. You may still be able to collect the tax from your clients, even for work done years ago, so that you can remit the tax to the government. The availability and details of voluntary disclosures vary between the federal authority (CRA) and the various provincial authorities that administer provincial sales taxes.