As a small business, one of your main goals is to minimize expenses and taxes. You can do this by taking advantage of available tax credits and deductions. One of the areas that you certainly need to consider in order to lower your tax bill is the meal and entertainment expenses. Not all expenses related to meals and entertainments can be considered in your business deductions. Therefore, it’s very important to understand what’s allowable when filing your tax returns. The best part is that the CRA allows you to deduct up to 50% of the cost of meals and entertainment related to your business. This can mean huge savings for any small business.
What are the Allowable Expenses?
The CRA allows deductions of up to 50% or an amount that is reasonable depending on the circumstance, whichever is less. However, there are certain types of meals and entertainment expenses that are generally considered. These include:
- Meals that are eaten by customers who are bringing the business some earnings
- The cost of entertainment such as a ticket, concert or performance
- Room rentals that are intended to offer some form of entertainment
- Other leisure activities like cruises
- Admission to events such as fashion shows
- The cost of entertaining guests in a social event, club, sporting function or any other trip
- Taxes and gratuities may also be included as part of entertainment expense
What’s Not Allowed?
Of course, you may not be able to include all sorts of meals and entertainment expenses that your business incurs even when dealing with customers. The CRA has put in place these guidelines to ensure that your entertainment and meal expenses are only necessary so that businesses do not exploit this form of deduction.
Generally, the Following Meal and Entertainment Expenses are Not Allowed:
- The cost incurred in recreational facilities
- The cost of acquiring seasonal tickets for a sporting event
- Meals claim while on vacation
There are a few exemptions such as if you can prove that the seasonal tickets you purchased were a promotional expense for your business, they may be considered in your tax deductions.
How to Ensure You Get These Deductions
In order to take full advantage of any deductions that are related to meals and entertainment, make sure you keep all the records of all these expenses. For instance, keep receipts of meals you share with customers and if possible, record them somewhere including the date and details of why the meeting was held. If you have to provide entertainment, keep records of the venue, cost of room rentals and also receipts which will help to prove that these expenses are valid if the taxman comes knocking.
Don’t report all your meals and entertainment expenses to get deductions because you can attract an audit in the process. Work with your accountant to ensure that the expenses are properly recorded and provide all receipts and additional information you may have regarding the meals and entertainment.
Sohail Afzal, CPA, CMA, MBA
Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.