If you’re a small business owner or an employee who travels for work, you might be wondering how to deduct your meal expenses from your taxes. Well, the Canada Revenue Agency (CRA) has some rules that you need to follow, and they’re not always straightforward. This blog post detail what the CRA rules about meals and entertainment expenses, and how to make sure you’re claiming them correctly on your 2023 tax return.
The 50% Rule for Business Meals
First of all, you need to know that the CRA limits the amount you can deduct for meals and entertainment expenses to 50% of the actual cost or a reasonable amount, whichever is less. This means that if you spend $100 on a business lunch with a client, you can only claim $50 as a deduction. The same applies if you buy tickets to a show or a game for your client or yourself as part of your business trip.
But why 50%? The CRA says that this is because meals and entertainment expenses are partly personal in nature, and partly for the purpose of earning income. So, they only allow you to deduct the portion that is related to your business.
There are some exceptions to the 50% rule, though. For example, if you’re hosting a party or an event for at least six employees, and it’s not more than six times a year, you can deduct 100% of the cost. Or, if you’re providing meals or entertainment to a charity or non-profit organization, you can also claim the full amount.
The 50% rule also applies to other types of expenses that include meals and entertainment, such as:
- Capital expenses, such as buying a property or an asset that has meals and entertainment costs included in the price
- Research and development costs, such as conducting surveys or experiments that involve meals and entertainment
- Business development costs, such as launching a new product or service that involves meals and entertainment
The 50% rule also applies to employee expenses for meals and entertainment, such as:
- Commission-based salesperson expenses
- Travel expenses for employees who frequently travel away from their employer’s place of business
Meal Allowance vs. Per Diem Allowance
Another thing to keep in mind is that the 50% rule also applies to meal allowances and per diems. A meal allowance is when your employer reimburses you for the exact amount you spent on meals during your business trip. A per diem is when your employer gives you a fixed amount of money per day to cover your travel expenses, including meals.
If you receive a meal allowance, you can deduct 50% of the amount you spent on your meals, as long as you have receipts to prove it. If you receive a per diem allowance, you can deduct 50% of the amount you received, as long as it is reasonable and does not exceed the CRA’s prescribed rates. You do not need receipts to claim a per diem allowance.
One more thing: Are you using your personal vehicle to travel for work-related purposes? Using an expense tracker app will save you time by automatically tracking your business expenses and ensure you properly deduct those expenses for tax savings.
Deducting your business meal expenses in Canada can help you reduce your tax bill and save money. Remember, these expenses are only deductible if they are reasonable and necessary for your business. You need to follow the rules and limitations set by the Canada Revenue Agency (CRA) to avoid any problems or penalties. And don’t forget to keep all your receipts and records in case the CRA asks for them, and consult a tax professional if you have any questions or doubts.