Meals & Entertainment – What Can I Write Off?
If you’re operating as an incorporated or unincorporated business, determining if you can deduct an expense for meals isn’t based on a definitive and clear-cut rule. This is a very subjective or grey area that depends on your specific business situation and the situation at the time the meal expense incurred. My hope is that this commentary will provide more insight into the confusing and ambiguous area of meals expenses.
The general principle is that a meal is considered a business expense if it was incurred in order to generate business income, or in other words, the meal was purchased in the course of your business. The more straightforward examples that would be captured by this rule would be any meals you had to pay for taking out a customer or client. This would fit the rule because by taking out the customer, you’re creating goodwill, and by discussing business matters (for example, discussing the details of a potential job or order) this meal would then be a legitimate business expense.
Where it gets vague is where the meals are for lunches or dinners during a work day, where the reason for the meal is not specifically to take a customer out for a meeting. There are two common areas where a meal can still be deducted as a legitimate business expense:
- Meals purchased when you are travelling for a time period that requires you to be 12 hours away from where you commonly work.
- Taking an employee or associate out for a meal to discuss any business matters.
A meal by yourself is difficult to prove that it was for a legitimate business reason if you were not travelling. This is a rule of thumb that should be kept in mind when recording meal expenses or signing a tax return claiming them. The best practice to follow is to write down on the receipt who you were meeting with (if you met with someone) and what the meeting was for (for example, to discuss a project).
It should also be noted that only 50% of business meal expenses are tax deductible. You won’t have to make the manual calculation to pro-rate the individual receipts. Let your accountant do the math, as this is done at the tax return level so you don’t have to worry about this detail.
Also, the above comments refer to general business situations. There are specialized rules for travelling and transport employees or businesses, such as long-haul truckers.
This is a very open-ended area and depends heavily on your specific business situation so it’s best to speak with your accountant to determine the best plan of action that reduces the risk of CRA disallowing your meal deductions but also maximizes your tax deduction at the same time.
Contact us to learn more about deductions for meal expenses.