The only thing better than enjoying a good meal, is knowing you can also deduct it as a business expense. In an ideal world, we’d love to deduct all of our meals, but in the real world, that’s just not going to happen.
The Canada Revenue Agency (CRA) has specified exactly what can and can’t be claimed. We’ll help you stay on the right side of the rules on claiming meals and entertainment costs as a business expense.
Allowable Expenses at 50%
You’re probably familiar with the “50% limitation” – which says that you can only claim 50% of the actual amount spent on meals and entertainment costs. So a $100 lunch with a client will mean you can only deduct $50 as an expense.
However, note that there is a caveat – the cost that you can deduct is 50% of the lower of: the amount spent, or a reasonable amount. So that $800 steak dinner for two at Jacob’s probably won’t be considered ‘reasonable’ by a CRA auditor. In that case, they will decide that a reasonable dinner for two should be, say $80, and only allow 50% of $80 to be deducted as a business expense.
Here’s what you can deduct as valid meals & entertainment expenses (subject to the 50% limitation):
- Meals with customers or prospective clients
- Tickets to a theatre, concert, athletic event (including private boxes) or other performance
- Cruise tickets
- Admission to a fashion show
- Hotel room rentals (hospitality suite)
- Cost of entertaining guests at clubs (night, athletic/sporting or social)
- Any amusement, recreation or attendance at any entertainment event, unless it’s specifically disallowed below
- Security escort or tour guide for a business client
For all of these expenses, you may be required to prove that the amount was spent for the purpose of earning income. Therefore, it’s recommended you keep a record of the customers/prospects that you’re entertaining, relevant dates & times, along with any other vouchers as proof.
Allowable Expenses at 100%
In some very specific situations, you can deduct 100% of the costs for meals/entertainment, i.e. these costs are not subject to the 50% limitation.
- Amounts billed to clients – if, for example, you’re a consultant who bills your clients for your meals while on their work assignment
- When your primary business is providing meals/entertainment – Restaurants, hotels that purchase food to provide to their customers
- Meals purchased for a fundraising event to benefit a registered charity
- Meals that are included in an employee’s income
- Office parties – any office lunch/party that the company pays for, where all employees are invited. Limited to 6 events per year.
- Costs of recreation facilities and club dues
- Meals for company executives or partners, with no clients present
- Season tickets for sporting events (unless you can prove the tickets are a promotional expense)
- Meals outside your sales territory, or on a vacation
- Meals taken after a golf game at the club house
- Expenses that are personal in nature
- Payments to escort services for “illicit services of a personal nature” (CRA’s words)
We’ve only covered common cases for businesses, and excluded specific situations that typically wouldn’t apply to our clients. So if you’re a long-haul truck driver, bicycle courier or rickshaw driver, you can read more here. If you have a question about a specific cost not covered here, leave a reply below.