BETTER TAX BREAK ON RESTAURANT TAB? LEASE THE TABLE
LAWYER MAKES CASE THAT DINNER WITH A CLIENT IS SERIOUS BUSINESS
ALLAN J. GOLD
IF YOU RUN your own business – as a one-person show or as an employer- last winter’s federal budget probably had a big impact on your business-entertainment policy. Ottawa slashed the deductible portion of business-related meal and entertainment expenses to 50 per cent of these costs from 80 per cent.
So, as of last February, that business lunch or those season baseball tickets became a lot more expensive, thanks to the big drop in the federal tax writeoff.
About the only good news was that the change made businesses’ accounting somewhat simpler, because it harmonized the federal and Quebec rules. Fifty per cent is now the limit on both tax returns.
Allan Gold, a Montreal lawyer specializing in commercial and corporate law, has come up with a novel way to deduct the cost of business-luncheon meetings.
Split food and services
In essence, Gold suggests that restaurateurs split their goods and services. Apart from the food and drink, Gold recommends that the restaurant provide business people with the other elements – use of space, furniture and equipment, as well as service – through a lease of a restaurant table on a time-share basis.
There’s little that can be done about enhancing the deductibility of the actual food and drink consumed, Gold admits, because these items together constitute meals.
“Thus the table should not be set conventionally, but rather in a fashion for platters,” Gold said.
“While the food-and-drink bill is rendered at the time of the meeting, the rent should be invoiced monthly in advance by the restaurateur.” This rental, Gold believes, should be fully deductible – as rental of “office” space.
“Restaurant owners and non-social diners alike should make new arrangements,” said Gold, a partner with Wolofsky & Gold. “The reason for the business dinning-out experience is not the food but rather a business discussion.
“In such an informal setting, away from ordinary interruptions, the selling person may have an extended period of time to chat in order to establish a rapport with the buying person. Thus, the parties may gain an understanding of each other, and ultimately become at ease and confident that contract conditions will be fulfilled.”
Meeting customers and prospective costumers is tax-deductible undertaking, and Gold said last winter’s budget hasn’t altered that basic premise – although the tax man now seems to view meals and entertainment as a less justifiable business expense.
But Gold believes that if leasing and operating a branch office – and all related expenses – are accepted as fully deductible, why couldn’t a restaurant table be considered a branch office for business meetings held for the purpose of earning income? It stands to reason, he said, that costs such as rentals for the site and furnishings, actual pay-per-use charges – for example, for use of telephone/fax facilities – and charges for services rendered on site should be fully deductible.
Legal precedent has been set, Gold said, by instant office centers that have become popular. “They have proven to be workable, and they have found their marketplace,” he said. “ The expenses incurred are being fully deducted.”
What’s more, Gold wonders if a solid argument couldn’t be made to allow the cost of coffee, tea, soft drinks or even alcoholic beverages to be fully deductible. “Beverages do not a meal make and are commonly served in offices and can be viewed as office supplies,” he said.
Nevertheless, in order to be conservative, Gold suggests that only a 50-per-cent deduction be taken on the beverages.
According to Gold, this lease should:
Be in writing.
Clearly identify both lessor and lessee.
Specify a term (length of time).
State a specific rent.
Identify the precise location of the premises, and specify a particular table, which should bear a name plate listing the table lessees.
Define the duration of access to the premises, identifying the arrangement as a limited time-share situation.
Gold also recommends a number of other, more specific clauses, addressing such matters as the type of food served, how the table should be set, that a formal log of business meetings be kept, and that telephone and fax messages be delivered to the table.
And, if desired, there should be a clause stating that both parties wish the contract to be drawn up in English.
The main thing to remember when setting up a restaurant branch office, Gold said, is to respect the concept of “reasonableness.” This arrangement, he warns, should only be used:
Taking into account the feasibility of the hour and location.
In connection with normal business.
For the purpose of genuinely and necessarily earning income.
For prospective customers.
With a detailed log to substantiate its need and use.
With reasonable charges.
With common-sense limitations.
“As a precaution, I suggest that the taxpayer retain receipts for ‘purely social’ dining events during the term of the lease. In this way, if you are questioned, you can demonstrate that there was no misuse of the restaurant branch office.”
Right to minimize tax
The nature of our taxation system is that, as tax laws evolve, taxpayers remain entitled to arrange their affairs so as to minimize tax, he said.
“In times such as these, can we afford not to exercise this right? I believe not. The restaurant branch office appears to be an idea whose time has arrived.”
CAUTION/DISCLAIMER: The foregoing article is only for informational purposes and is not meant as legal advice. Seek out legal counsel for your particular needs.
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© 2005 Practitioners’ Press Inc./ TM Practitioners’ Press Inc.