Are gift certificates given out as promotional items fully deductible? Trying to do more with less is a challenge many Canadian businesses face. More and more businesses use gift certificates as a promotional device in an effort to attract and pamper clients. But can the expense of those gift certificates be fully deducted?
Ted Leyzer
CPA, CA, LPA, Partner
Millards Chartered Professional Accountants
Ted Leyzer CPA, CA, LPA and Partner at Millards Chartered Professional Accountants says the answer depends on the type of gift certificate being offered.
“Essentially the answer revolves around whether or not the gift certificate is for food and beverages. In 2014, the CRA ruled that their general presumption is that only a 50% reduction would apply where the main product of the issuer of the gift card is food or beverages.”
The topic dates back to 2006 when a self-employed real estate agent who regularly gave gift certificates for food, sporting events, and concerts to his customers in an effort to encourage more business, attempted to deduct the full amount of his expenditures. He argued that did not consume any of the food or attend any of the events himself, so he should be entitled to 100% deduction.
“The tax court ruled that regardless of the purpose of the expenses, they were also “in respect of the human consumption of food or beverages or the enjoyment of entertainment,” and were trumped by subsection 67.1(1) of the Income Tax Act.”
Subsection 67.1(1) states:
(1) Expenses for food, etc
For the purposes of this Act, other than sections 62, 63, 118.01 and 118.2, an amount paid or payable in respect of the human consumption of food or beverages or the enjoyment of entertainment is deemed to be 50% of the lesser of
(a) the amount actually paid or payable in respect thereof, and
(b) an amount in respect thereof that would be reasonable in the circumstances.
“The CRA’s general presumption is that the 50% reduction would apply where the main product of the issuer of the gift card is food or beverages.”
While this presumption could be rebutted with appropriate supporting documentation, Leyzer cautions organizations that they should only expect a 50% deduction for food or beverage gift cards being given to clients for promotional purposes.
“Although many companies may still feel that the advantages of restaurant gift certificates may outweigh the downside, It might be better to consider other promotional items for the purpose of a higher tax deduction.”
Ted Leyzer’s Practice Areas include Auditing and accounting services to Credit Unions and Hospitals and Municipalities as well as Corporate and personal advice to owner-managed businesses. Leyzer specializes in non-profit Audits, farming and small business accounting as well as estate work including estate planning.
Thanks Ted – good to know. What about tickets for fundraising events where food & bev may be served as part of the event? And if no food or Bev at event can we claim 100% of it? I assume netorking events fall into the same category if there is food served, one can only claim 50%
Cheers!
Stella