Meals and Entertainment Business Expenses

In Canada, meals and entertainment expenses are common for small business owners and self-employed individuals, especially when meeting clients, hosting events, or conducting business over meals. However, the Canada Revenue Agency (CRA) has specific rules regarding what can be claimed, how much can be deducted, and what records should be kept. Properly understanding these regulations can help you maximize your deductions while avoiding any potential issues with the CRA.

1. Deductible Meals and Entertainment Expenses

Not all meal and entertainment expenses are fully deductible. In general, only 50% of the cost of meals and entertainment can be deducted, and this applies to most business-related expenses. Here are some examples of eligible expenses:

• Meals and drinks purchased during business meetings with clients or prospects.
• Meals consumed during business trips or conferences.
• Entertainment expenses, such as attending sporting events, concerts, or other shows with clients or business partners.

The 50% deduction limit applies regardless of whether the business owner or the client consumes the meal.

2. Special Cases Where 100% Deduction is Allowed

While the 50% rule is common, there are some specific situations where you can deduct 100% of the meal or entertainment expenses:

• Meals provided at a fundraising event for a registered charity.
• Meals offered at special events (e.g., a holiday party) to all employees of the business.
• Meals provided during remote worksite operations, such as a job site located away from your business location where meals are necessary for work.

3. Keeping Records

To support your claims, it’s essential to maintain accurate records of your meals and entertainment expenses. The CRA requires the following information to be documented:

• Date of the event or meal.
• Location where the expense was incurred.
• Names of individuals involved (e.g., clients, employees).
• Purpose of the meal or entertainment (e.g., discussing a contract or business partnership).
• Receipts that clearly show the total amount, the restaurant’s name, and any taxes included.

These records should be kept for six years in case the CRA requests them during an audit or review.

4. Alcoholic Beverages

Alcohol is considered part of meals and entertainment expenses, and the 50% rule still applies. However, you should be cautious when claiming alcoholic beverages. Excessive or frequent claims of alcohol-related expenses may draw CRA scrutiny.

5. What Cannot Be Claimed

There are expenses that cannot be claimed as meals and entertainment. For example:

• Personal meals or entertainment that are not directly related to your business.
• Meals consumed with family members unless there is a clear business purpose.
• The portion of any expense that is considered lavish or extravagant beyond what would be deemed reasonable for your business.

6. Tips for Small Business Owners and Self-Employed Individuals

Here are some best practices to follow:

• Separate personal and business expenses: Always distinguish between personal and business-related meal and entertainment expenses to avoid complications with the CRA.
• Use a business credit card: Pay for business meals and entertainment using a separate business account or credit card to maintain clean records.
• Include notes with receipts: Jot down the purpose of the meal and who attended directly on the receipt to make record-keeping easier.

7. Non-Deductible Expenses

Certain meal and entertainment expenses are not deductible at all. For instance:

• Club membership dues, such as those for gyms or golf clubs, are not deductible, even if used for business.
• Costs incurred for the sole purpose of entertaining yourself or your family.

Conclusion

Understanding the CRA’s rules for meals and entertainment expenses can help you avoid mistakes and maximize your business tax deductions. For most business owners and the self-employed, only 50% of these expenses are deductible, and it's crucial to keep detailed records to support your claims. When in doubt, consulting with a tax professional or accountant can ensure you're following the rules and optimizing your deductions.