Canada: "Unhappy Hour" for Taxpayers: Federal Court Rules Gifts of Food, Beverages or Entertainment Not Fully Deductible

Last Updated: March 24 2006
Article by Greg J. Best

The Canada Revenue Agency ("CRA") has consistently maintained the position that the deduction of expenses related to the consumption of food or beverages or the enjoyment of entertainment is limited to 50% of the amount paid or payable in respect of such expenses under subsection 67.1(1) of the Income Tax Act (Canada) (the "Act"), regardless of a taxpayer's classification of such expenses as "advertising and promotion" or the fact that a taxpayer has not personally consumed the food and beverages or enjoyed the entertainment.1 Following the Federal Court of Appeal's recent decision in Stapley v. The Queen,2 this position also reflects the current state of the law as regards the application of subsection 67.1(1) of the Act.


The taxpayer in Stapley was a real estate agent who provided clients with gift certificates for food and beverages, and tickets to various sporting events and concerts. In computing his income for the taxation years in question, the taxpayer deducted 100% of the cost of the gift certificates and tickets, which totalled approximately $53,000 in deductions over three years.

Both the Tax Court and the Federal Court of Appeal accepted that the gift certificates and tickets were marketing expenses incurred by the taxpayer aimed at building and maintaining client relationships to generate income from his business. Both Courts further accepted that the taxpayer neither consumed the food or beverages, nor attended the sporting events or concerts. The Tax Court concluded that because the taxpayer did not participate in the consumption or enjoyment, the amounts expended by the taxpayer to acquire the gift certificates and tickets were in respect of earning income, and not in respect of the consumption of food or beverages or the enjoyment of entertainment.

In contrast, the Federal Court of Appeal determined that the statutory language used in subsection 67.1(1) of the Act did not create a requirement of taxpayer consumption or enjoyment. Therefore, the 50% limitation applied to the deductibility of the gift certificate and ticket expenses incurred by the taxpayer.

Interpretation of Subsection 67.1(1)

In providing its interpretation of subsection 67.1(1) of the Act, the Federal Court of Appeal relied on the Supreme Court of Canada's approach to statutory interpretation as laid out in 65302 British Columbia Ltd. v. The Queen,3 and most recently in Canada Trustco Mortgage Co. v. The Queen.4 Specifically, in determining whether the taxpayer's expenses were caught by subsection 67.1(1) of the Act, Sexton J.A. stated that it was incumbent on the Court to consider:

  • the grammatical and ordinary sense of the words of the provision (the "plain meaning approach");
  • the scheme of the Act; and
  • the nature of the mischief that the provision was designed to address.

(a) The Plain Meaning Approach

The Federal Court of Appeal found that nothing in the grammatical or ordinary sense of the wording in subsection 67.1(1) of the Act limited its application to those circumstances in which a taxpayer actually participated in the consumption of food and beverages or in the enjoyment of entertainment. Furthermore, Sexton J.A., quoting from the Supreme Court of Canada's decision in Nowegijick v. The Queen,5 indicated that "the phrase 'in respect of' [as used in subsection 67.1(1) of the Act] is probably the widest of any expression intended to convey some connection between two related subject matters."6

Accordingly, notwithstanding that the taxpayer incurred the food and entertainment-related expenses for business purposes, the Court held that such expenses were nonetheless "in respect of" the consumption of food and the enjoyment of entertainment.

(b) The Scheme of the Act

The Federal Court of Appeal went on to examine the legislative framework surrounding subsection 67.1(1) of the Act. Sexton J.A. noted almost a dozen specific exceptions to the application of the provision. Based on the statutory context, he reasoned that Parliament has expressly turned its mind to allowing the deduction of expenses in respect of food and entertainment under certain circumstances, and that had Parliament intended for marketing expenditures of the kind claimed by the taxpayer to fall outside the scope of subsection 67.1(1) of the Act, it would have done so expressly by providing a specific exception to that effect.

The Court further noted that at least two of the exceptions to the 50% limitation suggested that subsection 67.1(1) of the Act effectively contemplate consumption or enjoyment by persons other than the taxpayer claiming the deduction.7 Therefore, the Court concluded that the statutory scheme did not require a taxpayer to consume the food or enjoy the entertainment in respect of which an expense was incurred in order for such expense to be subject to the 50% limitation on deductibility.

(c) The Object or Legislative Purpose Behind Subsection 67.1(1) of the Act

Paragraph 18(1)(a) of the Act allows taxpayers to deduct expenses incurred to earn income from a business or property, provided such expenses are reasonable in the circumstances. Subsection 67.1(1) of the Act, in turn, limits the amount that can be claimed as a deduction pursuant to paragraph 18(1)(a) with respect to food, beverage and entertainment expenses.

In the opinion of the Federal Court of Appeal, subsection 67.1(1) of the Act recognizes that meals and entertainment involve an element of personal consumption. Therefore, allowing a full deduction for such expenses would allow the deduction of the portion of the expense that is of a personal nature. The difficulty in Stapley, as recognized by the Federal Court of Appeal, was that the taxpayer did not consume any of the food or beverages or enjoy the entertainment. Arguably, by deducting the cost of the gift certificates and tickets, the taxpayer was not seeking to obtain a deduction for expenses of a personal nature. Therefore, the taxpayer did not run afoul of the mischief which subsection 67.1(1) of the Act sought to prevent.

In resolving the inconsistent result obtained under the various interpretive approaches, the Federal Court of Appeal followed the Supreme Court's guidance in 65302 British Columbia Ltd. and Canada Trustco that where the words of a provision are clear and unambiguous, the ordinary meaning of the words takes precedence over a court's view of the object and purpose of the provision. Accordingly, the Court held that the taxpayer's expenditures were caught by subsection 67.1(1) of the Act.


1. See for example CRA document no. 2004-0088721E5, "Gifts of Beverages," (October 25, 2004); CRA document no. 2003-0000025, "Gifts of Food, Meals and Entertainment," (March 6, 2003).

1. 2006 F.C.A. 36.

3. [1999] 3 S.C.R. 804.

4. 2005 S.C.C. 54.

5. [1983] 2 S.C.R. 428.

6. Stapley v. The Queen , 2006 F.C.A. 36 at paragraph 15.

7. Paragraphs 67.1(2)(a) and (d) of the Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
8 Nov 2016, Seminar, Ottawa, Canada

The prospect of an internal investigation raises many thorny issues. This presentation will canvass some of the potential triggering events, and discuss how to structure an investigation, retain forensic assistance and manage the inevitable ethical issues that will arise.

22 Nov 2016, Seminar, Ottawa, Canada

From the boardroom to the shop floor, effective organizations recognize the value of having a diverse workplace. This presentation will explore effective strategies to promote diversity, defeat bias and encourage a broader community outlook.

7 Dec 2016, Seminar, Ottawa, Canada

Staying local but going global presents its challenges. Gowling WLG lawyers offer an international roundtable on doing business in the U.K., France, Germany, China and Russia. This three-hour session will videoconference in lawyers from around the world to discuss business and intellectual property hurdles.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.