Business Meal
Under the Canadian Income Tax Act and CRA’s interpretations, a business meal is considered deductible if it meets the following criteria:
- Purpose: The meal is purchased for a clear business reason, such as meeting with clients, potential customers, consultants, or employees to discuss business activities, strategies, or projects.
- Context: The meal occurs in a setting conducive to business discussions, away from the regular work environment. This could include meals during business travel, at a restaurant, or a catered business meeting.
- Documentation: Adequate records and receipts are maintained, detailing the expense, the attendees, their business relationship to the taxpayer, and the business purpose of the meal.
- Reasonableness: The amount spent on the meal is reasonable under the circumstances and not extravagant.
Personal Meal
Conversely, a personal meal does not qualify for a deduction as it is not directly associated with the earning of business income. These are meals consumed out of necessity rather than for business purposes, including meals during regular work hours that do not involve a business discussion or meals consumed alone without a business objective.
Understanding Business Meal Deductions
The CRA stipulates that the maximum amount claimable for food, beverages, and entertainment expenses is 50% of the lesser of the actual amount incurred or an amount deemed reasonable under the circumstances.
These guidelines ensure that businesses can claim deductions for legitimate business meals, albeit with a cap to prevent excessive claims
Meals During Business Travel
Business travel presents unique scenarios for meal deductions. Whether you are attending a conference or meeting clients out of town, the cost of meals during these travels falls under the same 50% deduction limit.
However, it’s crucial to understand that this limit also applies to meals and entertainment enjoyed during travel, such as on a plane, train, or bus, provided these costs are not already included in the ticket price
Special Cases and Exceptions
There are circumstances where the deduction limits do not apply or are altered. For example, long-haul truck drivers can claim 80% of their food and beverage expenses due to the nature of their work.
Similarly, self-employed foot and bicycle couriers and rickshaw drivers are entitled to deduct the cost of extra food and beverages consumed due to their work’s physical demands, with the CRA setting a flat daily rate for such deductions
100% Deductible Situations
While the general limit for business meal deductions is 50%, there are exceptions where 100% of the expenses can be claimed. These include scenarios such as:
- where the meals and entertainment are provided as compensation to customers and you are in the business of providing meals or entertainment (e.g. restaurant).
- these meals are billed directly to a client and itemized on the invoice.
- when the expenses are for company-wide events like office parties, with all employees invited (limit of 6 of these events per year).
- when the meal and entertainment costs are included in an employee’s income.
- when meals are provided to employees housed at temporary work camps installed for the purpose of providing meals and accommodation to employees working at a construction site, and the employee cannot be expected to return home daily.
GST/HST Considerations
For GST/HST registrants, the input tax credit claimable for meals and entertainment expenses is limited to the portion that is deductible for income tax purposes, typically 50% of the GST or HST paid on these expenses
Navigating the nuances of business meal deductions can significantly impact your tax obligations and savings. By adhering to CRA guidelines and leveraging permissible deductions, businesses can effectively manage their expenses while ensuring compliance with tax laws.
Always consult with our team to understand how these rules apply to your specific situation and to maximize your deductions appropriately.
