Meals and entertainment expenses are vital to some businesses but often these are not recorded in an appropriate way.
For clarity, the meals category includes expenses incurred in the consumption of food and beverages, and entertainment includes tickets and entrance fees to an entertainment or sporting event. To be deductible these expenses must have only been incurred in order to earn business income.
Did you know that CRA only allows 50% of these expenses to be deducted from your tax return? Furthermore, only 50% of the GST from these expenses can be deducted from your GST returns.
These expenses are one of the more scrutinized categories when the CRA does an audit, so it is imperative you keep all the proper back up paperwork for these.
Here are some tips to do this:
- Get a copy of the itemized receipt as this shows what was purchased and the tax breakdown.
- Get a copy of the credit/debit card receipt as this shows the gratuity paid.
- Write on your receipt which customer, vendor or employee you met with.
- Avoid claiming meals expenses where it only shows one meal purchased on the receipt as the CRA could assume you just bought yourself dinner and it isn’t a business expense (this doesn’t apply to travel meals).
- Do not try to claim recreation and club dues (i.e. golf club memberships), season tickets for sporting events (unless satisfactory proof is provided that the tickets are a promotional expense), meals claimed while outside a sales territory or on vacation as these are not deductible.
For more information about this please review this detailed bulletin from the Canada Revenue Agency.