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As a business owner or sole proprietor, you can claim food, beverage & entertainment expenses. The catch? These expenses have to be incurred for earning income. If your expenses qualify, then you can take advantage of the Meals & Entertainment Tax Deduction.
How Does the Canada Revenue Agency (CRA) Define This Tax Deduction?
According to the CRA, meals expenses include both food & beverages. While entertainment includes attendance at events such as concerts, athletic events, theatres etc. The CRA’s expectation is that you are taking customers, vendors etc. to restaurants & venues as potential means to generate income.
How Much Can I claim?
It would be nice to claim 100% of these expenses however, the CRA has a 50% rule when it comes to meals & entertainment. They set the maximum claim for food, beverages & entertainment expenses at 50% of the lesser of the following amounts:
– the amount you incurred for the expenses
– an amount that is reasonable in the circumstances
Note: taxes & tips are included in the 50% rule.
If you travel for business the same 50% limit applies to meals & entertainment when you’re traveling. In all instances keep your receipts & record of what the meeting or event they were for in case the CRA asks for them.
What is the Flat Rate Meal Allowance?
The flat rate meal allowance is a simplified method for calculating meal expenses. The rate was increased to $23 per meal in 2020. Therefore, people who qualify to use the simplified method take 50% of $23 per meal & do not need to supply receipts.
When claiming meal expenses on a personal income tax return, the CRA allows transport employees & individuals claiming moving expenses, medical travel expenses, or the northern residents’ travel deduction, to calculate their meal expenses claim using the simplified method. This method is the easiest way to calculate meal expenses since it is based on a flat rate & individuals do not have to keep receipts for their meals.
Exceptions to the 50% Rule
Long-haul truckers can claim 80% for food & beverage during eligible travel periods where they:
– Travel a period of at least 24 continuous hours in which the driver is away from home
– Are transporting goods beyond a radius of at least 160 kilometers from home
How Do I Claim Meals & Entertainment Expenses?
If you are a sole proprietorship or partnership, complete Form T2125, Statement of Business or Professional Income on your T1 income tax return. If you are a corporation, you claim meals & entertainment expenses under operating expenses (8523).
There are many more quirks & things to know about these expenses. Contact us & talk to one of our informed tax experts for a more thorough understanding.