Since many businesses cultivate relationships during meals, most people would readily agree that it’s worth taking the time to track food and entertainment expenses. Though this may seem obvious, we frequently encounter prospective clients that haven’t been maximizing their allowable meal and entertainment deductions when filing their taxes. These deductions should constitute a substantial line item on the tax returns of many small business owners. Don’t leave money on the table!
Continue reading to learn about the various categories of deductions that you should be tracking.
The general guideline for deducting expenses for meal and entertainment is no more than 50% of the total cost, or “an amount that is reasonable in the circumstances”—whichever is less. To have full confidence in the deductions that you claim, it’s worth spending a bit of time understanding each of the valid expense types how much is actually deductible for each type of expense.
Review each of the examples below to see which expenses are deductible—and which are not. Also, you’ll find the most important best practices for maximizing your meal and entertainment expense deductions.
According to the Canada Revenue Agency, these are deductible meal and entertainment expenses:
- theatre, concert, or sporting event tickets
- private boxes at sports facilities
- meals eaten together with customers
- taxes, gratuities, and cover charges—the as part of entertainment expenses
- room rentals for an entertainment venue (for example, a hospitality suite)
- ocean or river cruises
- entertaining guests on vacation, or at various types of clubs—bars, athletic, social, and sporting
- fashion show admission tickets
In relation to meal and entertainment expenses, these costs are not deductible:
- meals eaten while on vacation or outside a sales territory
- meals eaten immediately after a golf game (at the club house)
- club dues, or costs for the use of recreation facilities
- season tickets for sporting events (unless clear proof is available such expenses are a promotional expense)
As an employer, 100% of employee meal expenses are deductible. If these expenses meet specific criteria, they are not subject to the 50% limit.
A number of other types of expenses are deductible, including:
- When you bill meals and entertainment to your customer on an itemized on an invoice
- meals provided for working overtime
- meals and entertainment that you include as compensation to customers—if you are in the business of providing meals or entertainment (as in the case of a restaurant)
- 100% of eligible for social events expenses are deductible—up to 6 events per year. For additional events, the 50% limit applies. See the CRA Social Events page for other limitations.
Traveling: Remember, many allowable deductions can be taken for traveling—though you must be aware of the special considerations for employers.