“Can I write off that golf game?”
“I want to take a client out for drinks after work – is that against the rules?”
“I’m buying staff pizza today, can I write that off?”
“My wife and I run the family business and discuss it often on date night. Is that a business expense?”
Meals and Entertainment expenses is an area that many small business owners have questions about. Here is some information that should help clear things up.
The 50% Limitation
In general, a business can write off 50% of their meals and entertainment expenses. This means half of the expense, and half of the HST.
Does an Expense Qualify?
- Meals and entertainment expenses must be incurred for the purpose of earning income, and the business must be able to demonstrate this. Some examples of allowable expenses are:
- Dining with or entertaining a customer, vendor or employee
- Dining while travelling for business
- Keep records with the names & businesses of the customers, employees and/or vendors who are being entertained. Also keep a record of how the expense is related to the business
- On the receipt, write the names of everyone who attended, their businesses, and what was discussed and/or how business was conducted.
- Example: “Mike Smith from ABC Plumbing – reviewed contract”
Allowable Expenses
According to Canada Revenue, the following expenses are allowed:
- Meals eaten with customers, vendors, employees
- Tickets for a theatre, concert or athletic event or other performance
- Private boxes at sports facilities
- Room rentals to provide entertainment, such as a hospitality suite
- Cruises
- Admission to fashion shows
- Cost of entertaining guests at clubs (night, athletic, social and sporting) as well as on vacation and similar trips
- Taxes, gratuities, and cover charges are included in entertainment expenses
Disallowed Expenses
According to the CRA, the following expenses are allowed as meals and entertainment expenses, which means you cannot expense them through your business
- Recreation and club dues (ie golf club memberships)
- Season tickets for sporting events (unless satisfactory proof is provided that the tickets are a promotional expense)
- Meals claimed while outside a sales territory or on vacation
Exemptions to the 50% Rule
According to the Canada Revenue Agency, the following expenses are exempt from the 50% limitation, which means you can write off the full amount of the expense and HST:
- Your business sells food, beverages, or entertainment to customers for compensation (for example, a restaurant, hotel, or motel)
- You bill the client or customer for the meal and entertainment costs and you show these costs on the bill.
- You include the amount in an employee’s income
- The expense is for an office party or similar event, and you invite all your employees from a particular location. The limit is six such events per year. (a Christmas party, for example, or staff meeting where you buy the whole team lunch)
- You incur the expense for a fund-raising event that was mainly for the benefit of a registered charity
- You provide meals to an employee housed at a temporary work camp
- Long-haul truck drivers are allowed to deduct 80% (conditions apply – see the CRA website for more information)
Hopefully, this information will help you to make decisions regarding meals and entertainment for your business.
Sources:
https://www.canada.ca/content/dam/cra-arc/formspubs/pub/it518r/it518r-e.pdf
