One of the first things you learn as a new business owner about deducting business expenses on your Canadian income tax return is that you rarely get to claim 100% of the costs you incur.
Whether it’s Capital Cost Allowance, business-use-of-home expenses, or motor vehicle expenses, you can only claim so much of what your expenses actually were according to the rules for that particular tax deduction.
Meals and entertainment expenses are no exception; the general rule is that the maximum amount you can claim for food, beverages, and entertainment expenses is 50% of either the amount you incur or an amount that is reasonable in the circumstances, whichever is less.
But that’s not always the case. There are actually quite a few situations where you can claim more of a food or entertainment expense or even all of it which you’ll want to be aware of so you can make the most of your meals and entertainment expense claim on your T2125 form (Statement of Business or Professional Activities).
Exceptions to the 50% Rule
Some exceptions to the 50% rule for meals and entertainment expenses are based on the kind of work people do and/or the type of businesses they run:
- Long-haul truckers can claim 80% of the food and beverages they consume during eligible travel periods (a period of at least 24 continuous hours away from where they live and transporting goods at least 160 kilometres away).
- Self-employed foot and bicycle couriers and rickshaw drivers can claim the entire cost of the extra food and beverages they need to consume in a normal eight hour work day (or, for 2006 and later tax years, a daily flat rate of $17.50).
- Businesses such as restaurants, hotels and airlines can claim the entire cost of expenses incurred providing food, beverages or entertainment to paying customers. Promotional samples are also exempt.
- If your employee(s) work at a remote location, where an employee “could not reasonably be expected to establish and maintain a self-contained domestic establishment” and you provide food and beverages, you can claim 100% of the costs.
Other exceptions relate to specific situations such as providing food and/or entertainment at events.
You can claim 100% of your food and entertainment expenses when:
- You bill your client or customer for the meal and entertainment costs, and show these costs on the bill.
- You include the amount of the meal and entertainment expenses in an employee’s income.
- You incur meal and entertainment expenses for a Christmas party or similar event, and you invite all your employees from a particular location. (You can only hold six events like this a year though!)
- You incur meal and entertainment expenses for a fund-raising event that was mainly for the benefit of a registered charity.
Wondering About Conventions?
You can deduct the cost of going to up to two conventions a year, but alas, the cost of food and entertainment is subject to the 50% rule. Even if the cost of food and entertainment is included in the convention fee, which means you can deduct $50 a day as a meal and entertainment expense, the 50% limit still applies.
Claim All the Business Expenses You’re Entitled To
To learn more about business expenses, see the Canada Revenue Agency’s Business and Professional Income Guide – or let TurboTax Home & Business lead you through the process of claiming business expenses on your tax return. Especially designed for sole proprietors such as contractors and consultants, TurboTax Home & Business uses an enhanced business interview to guide you through the self-employment section of the tax return – making sure that you get all the tax deductions and credits you’re entitled to.