The general rules for claiming meals and entertainment expenses are relatively clear and easy to understand. For the purpose of this post the focus will be on the meals portion and when they are deductible.
Businesses are allowed to claim meals as an expense if the cost was incurred to earn income. For example, taking an existing or prospective client to lunch is viewed as a valid business expense because you are nurturing the relationship to maintain or attract new business. The Tim Horton’s coffee and muffin that you buy for yourself on the way to a client meeting is not deductible. It is not a business expense that helps generate income.
Almost all meals expenses are subject to a 50% rule. This means that only half of the bill, including the tip, is deductible for tax purposes. An important point to keep in mind is that the GST/HST on the bill is also only 50% claimable as an input tax credit on your GST/HST return.
So are there any circumstances where the meals can be deducted 100% on your tax return? You are allowed to claim the expense in full in the following three situations.
- If you bill your client for the meals as part of your contract and show it separately on your invoice.
- If you travel by plane, train or bus and the fee includes meals and beverages. Note: travelling by ship, boat or ferry does not qualify.
- If you hold a holiday party or similar event and invite all your employees. Note: you are restricted to six events per year.
Meals and entertainment expenses is an area that the Canada Revenue Agency keeps a close eye on. Documentation should be as detailed as possible with client names and purpose of meeting written on the receipts.
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