What is the Special Tax Deduction for Meals and Entertainment?

50%

Generally speaking, businesses are entitled to a special deduction for meals and entertainment incurred for income generating purposes. When filing the T2 form for corporate income taxes, the allowable deduction would be added back to net income on Schedule 1 to arrive at income for tax purposes. More specifically, s.67.1 of the ITA allows only 50% of the expense in respect of the human consumption of food or beverages or the enjoyment of entertainment to be deductible for corporate income tax purposes. This section does not apply when it relates to a fundraising event of which the primary purpose is to benefit a registered charity [p.67.1 (2)(b)]. The deduction is equivalent to the lesser of:

        o 50% of the total amount, or
        o 50% of a reasonable amount given the circumstances

100%

From CRA “Your business regularly provides food, beverages, or entertainment to customers for compensation (for example, a restaurant, hotel).”

From CRA “You bill your client or customer for the meal and entertainment costs and
show these costs on the bill.”

"For example, a self-employed individual expends a reasonable amount for meals while away from home. This amount is ultimately billed to a client and is identified in the account submitted to the client as an expense relating to meals. The self-employed individual would be entitled to fully deduct the meal expenses. The 50% limitation would, however, apply to the client."

“You are traveling by plane, train or bus and the cost of meals, beverages, and entertainment is included in the travel fee. It's a different case if you’re traveling by other transportations though; in that case, you can only claim 50 percent of any food, beverages and/or entertainment.”

From CRA “You include the amount of the meal and entertainment expenses in an employee's income or would include them if the employee did not work at a remote or special work location.”

“You incur meal and entertainment expenses for a Christmas party or similar event, and you invite all your employees from a particular location.( Note that the event doesn’t have to be held at your place of business); the guest list has to be democratic, If NOT, your expense deductions are limited to 50 percent. Note, too, that you can only claim expenses for six such events a year.”

FROM CRA “The meal and entertainment expenses you incur are for a fund-raising event that was mainly for the benefit of a registered charity.”

But be cautious: you can only claim 100 percent of these expenses if the event is a fund-raising event, not if the event is "of the regular activities of a registered charity to accomplish its objectives."

What Qualifies for a Tax Deduction?

For example, treating a client out to dinner to discuss business matters would be considered an allowable business expense and thus entitled to the 50% write off. To make it simple, meal expenses incurred by an employee alone can be deducted given that the employee was away for at least 12 consecutive hours from the area of the business location where the employee ordinarily works.

“Food and beverage expenses related to conventions and seminars you attend for business purposes are treated differently. You can deduct the cost of attending up to two conventions a year. “

“If you attend a convention, conference or seminar where you are provided with meals or entertainment, and no amount of the fee you pay is specifically allocated to the costs of those food, meals or entertainment, you must claim $50 a day as an entertainment and meal expense, but this is subject to the 50 percent limit, so in reality, you can only claim half of this amount, or $25, each day.”

The matter gets quite complicated when the meal involves only a single individual – for instance, an employee going out for lunch alone at a restaurant nearby his office because he forgot to bring his lunch would not be eligible for the deduction since the meal was not incurred for the purpose of generating income. However, under s.8(1)(h) of the ITA, it is still possible for a single employee to a deduct travel expenses such as meals, provided that the following conditions are satisfied:

• The employee is ordinarily required to perform employment duties away from the employer's location of business or in different locations.
• The employee was required under the contract of employment to pay any travel  expenses incurred to carry on employment duties
• The employee was not in receipt of a non-taxable allowance for such travel expenses, and 
• The employee has not claimed a deduction under any of paragraphs 8(1)(e)(f) or (g) of the Act.

“Long-haul truckers can claim 80 percent of the food and beverages they consume during eligible travel periods, defined as a period of at least 24 continuous hours away from where they live and transporting goods at least 160 kilometers away.”

GST Registrants

For GST registrants, eligible businesses may claim input tax credits (ITCs) for the purpose of recovering the GST paid on meals and entertainment expenses [s.67 1, 12(1)(x), 20(1)(hh), 248(18)]. 3 The allowable ITC claim is equivalent to 50% of the GST paid. For example, suppose that the total cost incurred for a meal is sums up to $105 ($100 meal, $5 GST). In this case, the registrant would only be entitled to claim half of the GST paid, or $2.50 as an ITC.

Keeping Track of Expenses

Tips for Clients: It is critical to develop a habit of documenting all relevant business expenses for
bookkeeping purposes. For the purpose of claiming meals and entertainment expenses, there are a few tips to make the recordkeeping process more effective in case the CRA ever investigates.

• TIP 1: Keep all receipts related to meals and entertainment expenditures in a fixed place
• TIP 2: Write down on the back of the receipt the client(s) in attendance and their contact info
• TIP 3: Make a note of the business matter in discussion at the event

"Records should be maintained of the names and business addresses of the customers or other persons being entertained, together with the relevant places, dates, times and amounts supported by such vouchers as are reasonably obtainable."
For more information see the Canada Revenue Agency's Income Tax Interpretation Bulletin IT-518R.