Throughout the year, I get a lot of questions around what can be deducted when it comes to meals for tax purposes. However, as we enter personal tax season I get these questions almost daily! I have decided to write a blog that answers some common questions. For further explanations, see Canada Revenue Agency website as they have some great resources.
I travel for work – can I deduct meals?
If you travel for work and are self employed you can deduct meals in the business (whether in a corporation or on your personal tax return for sole proprietors). However, the tax deduction is limited to 50% of the amount paid for the meal. If you are a GST registrant, the GST Input Tax Credit claim is also limited to 50%. Also note, employees may be able to deduct meals for travel but a signed Employment Declaration form from your employer is required (http://www.cra-arc.gc.ca/E/pbg/tf/t2200/README.html). In this blog, our focus is on the business owners themselves.
This is where my clients get angry: “What?!! But I take clients out to lunch, can’t I just code it to advertising?”
Unfortunately not. There are a few exceptions, you can deduct the full cost of a clients meal if you then bill them for that meal and include the exact cost on their invoice. Otherwise, even for your clients portion of the meal, only 50% is deductible for tax purposes.
At this point, typically clients continue to get angry and argue. Such arguments as: “But I am away from home and have to go to restaurants. Isn’t there a way to at least get them when I travel?”
The answer is still no – well kind of. There is a rule that states that if you are working in a remote campsite you can deduct meals. However, if the place you are visiting is within an hour of a grocery store your business trip will likely not count as a remote worksite. There are also additional rules if you are a long haul truck driver.
Are there any other loop holes for 100% deduction?
Yes! If you pay for meals for an all staff event! For example, your Christmas parties are 100% deductible. The limit to these, is 6 events a year. There are also options available if your job is on foot, if you are a bicycle courier or if you are a rickshaw driver. I have not yet seen a successful argument for a typical business owner or carpenter that does not have a desk job. I suppose they could argue they are on foot as well but I think they would have to fight the battle in court for the deduction.
Overall, just remember, most meals are at 50% unless you have invited all staff. Also be sure to note the business reason on the receipt (ie. travel, client meeting etc.) as to even get the 50% deduction there must be a business purpose for the meal.
This blog is intended for general use and understanding. Specific cases can alter recommendations which are often based on current court cases. These recommendations may evolve as new court cases or CRA interpretations become available. Thus direct professional advice is always recommended to ensure you are getting the right information for you and your business.