When are convention expenses deductible?
If you are self-employed, then you may be able to deduct from business income the expenses of attending up to two conventions per year.
The rules allowing this deduction are found in subsection 20(10) of the Income Tax Act.
Business or professional organization
One of the conditions for the deduction is that the convention be “held by a business or professional organization”.
One “tax advice” company has interpreted this condition as though it read “held by a business or a professional organization”. The company claimed on its website that a business can hold its own “convention” so as to make all kinds of travel and vacation expenses deductible. This advice is wrong and should not be followed.
The word “business” in the phrase “business or professional organization” is an adjective modifying “organization”, not a noun. The convention must be held by a “business organization” or a “professional organization”, not just by any business. This is quite clear from the French wording of the phrase, which is “une organisation commerciale ou professionnelle”. (Under the Official Languages Act, the French and English versions are equally authoritative, and so the French can be used to help interpret the legislation if the English is ambiguous.)
The following additional conditions apply before expenses can be claimed:
The convention must be held in the same year 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 or professional organization “at a location that may reasonably be regarded as consistent with the territorial scope of that organization”. Thus, for example, a convention of the Winnipeg Widget Manufacturers’ Association, held in a resort in Mexico, would not qualify.
However, the Canada-U.S. tax treaty provides that a convention held in the U.S. will qualify if it would otherwise qualify if held in Canada. Thus, a national Canadian organization can hold a qualifying convention anywhere in the U.S. This will not necessarily assist a local organization, however.
• You must attend the convention “in connection with” your business or professional practice. However, you do not need to be a member of the organization sponsoring the convention.
Deductibility beyond these restrictions
Subsection 20(10), referred to above, is a permissive provision, not a restrictive one. Therefore, if attendance at a convention can be justified as being an expense for purposes of gaining or producing income, and not on account of capital, it should be deductible anyway without being subject to the restrictions of only two conventions per year and the other conditions above.
The Courts have sometimes held that convention expenses are “on account of capital”, because their benefits are long-term. This was the ruling of the Exchequer Court of Canada in the 1956 Griffith case that led to subsection 20(10) being introduced. This was also the ruling of the Federal Court of Appeal in the 2004 Shaver case. In Shaver, the taxpayer was an Amway salesman who attended monthly business seminars. These were held to be “on account of capital” (i.e., not current expenses), and so he was limited to deducting two of these seminars per year.
Still, depending on the taxpayer’s business and type of convention, the courts may take a broader view in certain cases. If a taxpayer can show the connection between attending annual conventions and earning current income as a result of the information and contacts obtained at the convention, the expenses will not necessarily be limited to two conventions per year or restricted to the conditions 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.