First we need to understand that there are 2 scopes here: business and taxes. As a business owner all your Meals and Entertainment expenses are 100% included on your Profit and Loss expenses. Yes, the full amount is business related (conditions apply) and must be shown as part of your results because the expense is incurred for the purpose of earning income.
Now, as CRA rules only 50% of the expense, or a reasonable amount (always lower than 50%) is eligible to be claimed as a deduction from your income. Same for the HST you pay on meals, you can claim the Input Tax Credits (ITC) only for 50% of the HST paid.
Conditions apply? YES! as per CRA tax rules to be eligible the meals expense must be:
- meals eaten with customers
- the cost of tickets for a theatre, concert, or athletic event, or other performance
- the cost of private boxes at sports facilities
- the cost of room rentals to provide entertainment, such as a hospitality suite
- the cost of cruises
- the cost of admissions to fashion shows
- the cost of entertaining guests at clubs (night, athletic, social, and sporting), as well as on vacation and similar trips
- taxes, gratuities, and cover charges are included in entertainment expenses
- costs incurred for use of recreation facilities and club dues
- purchase of 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 a vacation
Best practices for calculating, claiming and keeping records of Meals and Entertainments Expenses are:
- Keep clear records of the transactions - both receipts, the one showing the payment, and the one showing the details and HST.
- Write down details on the receipt - client name, contact, purpose.
- Add to your calendar the meeting date and client
- Take a picture of you receipt or scan it ASAP - ink fades and maybe at year end you are not able to see the details.
- Keep daily records on your accounting books.
Always remember, the burden of proof is on you. Work efficiently each day and keep your records organized.
Still having questions? No worries! Send me a message and we can chat! Let's keep your business organized and on track.
Photo by Freshh Connection on Unsplash