Understanding the eligible Meals and Entertainment Expenses?
In many occasions business relationships are developed over a meal, it is worthwhile to
track meal and entertainment expenses.
I commonly encounter clients that significantly underutilize the allowable meals and
entertainment deductions on their tax returns. For many small business owners, such
deductions should constitute a substantial expense amount on their tax returns.
The general rule for deducting meal and entertainment expenses is this: you can deduct up
to 50% of the cost of meals and entertainment, or “an amount that is reasonable in the
circumstances”—whichever is less.
It is important, to understand precisely what types of foods and entertainments expense that
are valid or invalid to the eyes of the Canada Revenue Agency (CRA).
You must be able to explain how the expense was incurred in the course for your business
to earn an income. It is important to keep track of information such as the attendees of the
event/meal, business topics discussed and any other information that would help you link
the expense to business activities.
The Canada Revenue Agency stipulates that the following are deductible meal and
entertainment expenses:
meals eaten with customers
tickets for a theatre, concert, or sporting event
private boxes at sports facilities
room rentals for an entertainment venue, such as a hospitality suite
river or ocean cruises
fashion show admission tickets
entertaining guests on vacation, or at various types of clubs—bars, athletic, social,
and sporting
taxes, gratuities, and cover charges—as part of entertainment expenses
With respect to meals and entertainment expenses, the following costs are not deductible:
club dues or costs for the use of recreation facilities
season tickets for sporting events (unless satisfactory proof that the tickets are a
promotional expense)
meals taken while outside a sales territory, or on a vacation
meals taken after a golf game (at the club house)
If you’re an employer, you can deduct 100% of the employee meal expenses, since
these are not subject to the 50% limit as long as the expenses meet specific criteria.
In some cases, 100% of other meal and entertainment expenses are deductible, including:
meals and entertainment that are part of compensation to customers—if you are in
the business of providing meals or entertainment (as in the case of a restaurant)
when the meals and entertainment are billed to your customer and itemized on an
invoice
meals provided for working overtime
For social events, 100% of eligible expenses are deductible for up to 6 events per
year. After that, the 50% limit applies.
You should contact a tax professional, if you have any questions regarding this topic or
unsure if you can claim some of those entertainment expenses.
Written by
KSF Accounting & Tax Solutions
Nicolas Valcourt, CPA, CMA
Email: Info@KSFAccounting.ca
www.KSFAccounting.ca
