Which Meal and Entertainment Expenses Can be Claimed?Brian Jang ON October 3, 2018
One nice advantage of being business people is the ability to deduct certain expenses, among them entertainment and meal expenses. The amount deductible varies, in some cases reaching up to 100% but what are the exact guidelines for determining what is and isn’t deductible, and to what degree?
We’ll look at the rules for meal and entertainment expenses below.
If you are self-employed, you may claim food, beverage, and entertainment expenses related to earning business from your business. These expenses need to be separate from any personal expenses, so being able to track them accurately is important. You may wish to have a bank account exclusively for this purpose.
Remember that the expense must be related to your business. Taking a client out to dinner purely to socialize would not be considered part of your business dealings.
Keep all of your receipts, as your business expenses need to be supported by documentation. Do not make the mistake of thinking your credit card statements will suffice; it is your actual receipts that will be required.
Limits on the Amount Claimable
According to CRA guidelines, food, beverages and entertainment expenses have a limit of what can be claimed, which is 50% of either the amount spent, or the portion of your expenditure that is considered reasonable, whichever is less.
This limit is in effect even if your expenses are included in the cost of inventory, research and experimental development expenditures, exploration and development, or other costs. It is also in effect on amounts spent on food, beverages and entertainment that are otherwise deductible as expenses.
For the purposes of income tax, taxes and tips are included as part of your food and beverage expense. They are also subject to the rule of 50% mentioned above, meaning that half of the total bill including tax and tip may be claimed.
When Can You Claim 100% of Your Expenses?
There are certain circumstances in which you will be able to claim 100% of your expenditure, but only in the specific situations that follow:
- You are billing your client for the expense and it appears on the bill. For example, the job you are performing for your client requires you to be away from home and you bill your meals to them directly. You will be able to claim 100%, although an amount paid for the client would still be subject to the 50% rule.
- You are paying for train, plane, and bus travel that includes the cost of meals in your travel fee. Be aware that this does not apply to travel by water.
- If you include meal and entertainment expenses in the income of an employee or would do so if they were not working in a remote location.
- Food, beverage, and entertainment expenses are incurred during a Christmas party or similar event to which you have invited all your employees. This needn’t occur at your place of business. If the event in question is not open to all employees, the 50% rule would come into effect. 6 such event may be held each year.
There are certain situations in which different deduction rules apply, namely:
- Long Haul Truckers are able to claim 80% of their food and beverage expenses during a period of at least 24 continuous hours where they travel to a point at least 160 kilometres away.
- Businesses that provide food, beverages, and entertainment as a form of compensation to their employees (such as restaurants) are exempt from the 50% rule when providing such during the course of regular business. Taking clients out to lunch, however, would still be subject to the 50% rule.
Being able to claim food, beverage and entertainment expenses is a quite advantageous, but be sure to be in compliance with the regulations in order to prevent any unnecessary issues with the CRA.