You may have genuinely wondered about the rationale behind meal and entertainment tracking and deductions. This is a great way to reclaim tax and build up your savings as much as possible. Check out a guide to meals and entertainment deductions.
Some factors are put in perspective when considering meal and entertainment deductions. The business situation and the setting around the entertainment are the major considerations.
Meal expenses are the money that covers food and beverages. The entertainment expenses relate to hotel bills, tickets to ball games, and much more. The claims may be up to 50%, 80%, or 100%.
The subject of meal and entertainment deductions is often a grey area. Reading this, however, will help you understand the rationale behind it.
Meals are essentially food and drinks, which may come as breakfast, lunch, dinner, or even snacks. Meal expenses are the cost of getting or purchasing the meals. It often includes delivery tax, sales tax, and tips. The same applies to entertainment. It is any activity involved for fun or to relax.
It is often noted if the meals or entertainment done are related to your business or on a personal basis. In the past, meal, and entertainment deductions were lumped together. In recent times, they have been separated.
There are rules created by the Canadian Regulatory Agency concerning meal and entertainment expenses. The rule is that the percentage deductible is limited to the lesser of the following amounts:
You can claim 100% in some special cases. Here, the 50% rule does not apply. Examples are
You can claim 50% of the meal and entertainment expenses in the following situations
For conferences, seminars, and other business meetings, the meal expenses slightly differ. You can’t claim the costs of snacks and beverages like pies, muffins, coffee, or tea.
If it is a conference without specific costs allocated to meals and entertainment, you can claim $50 daily. This is a meal and entertainment expense. The 50% limit, however, plays a role here, and you get to claim only $25, which is half of $50.
According to the Canadian Regulatory Agency (CRA), at a convention or seminar, the registration fees are different. It is actually what is left after the money for food, beverages, and entertainment is deducted. What this simply means is that the claims you make are to be deducted from the conference fee.
There are specific businesses that give room for meal and entertainment expense claims.
A great example of the above-mentioned business is restaurants. As earlier written, 100% claims can be made for restaurants that supply food, beverages, and entertainment during business hours.
Up to 80% of the cost of food and drinks purchased by long-haul truck drivers can be deducted from their taxable income. The travel period refers to a minimum of 24 hours from their residential area and up to 160 kilometres away.
Rickshaw drivers and couriers who work with their bicycles or by foot can claim the money they use for meals. They can either claim the expenses or have a daily fixed rate of $17.50. This is essentially for both food and drinks and has to be within the 8-hour normal working hours.
Examples of allowable Meals & Entertainment Expenses that are listed as approved by Canadian Regulatory Agency include
There are expenses that are not allowable as meal and entertainment deductions. This simply means that it cannot be claimed as a tax deduction. The reason behind this is to create boundaries for businesses. It automatically includes the meals and entertainment deductions that are incurred by the business.
The list includes
Claiming meals and entertainment expenses can happen as a sole proprietor, business partner, or corporation.
As a partner or sole proprietor, the claims happen under operating expenses (8523). When filing your taxes using the T1 format, you must include a Statement of Business or Professional Income (Form T2125). This is the first step in claiming your meals and entertainment expenses.
For corporate operations, claiming meals and entertainment expenses happens under operating expenses (8523). Then, for your T2 business income tax return’s accounting report statement, you’ll use the GIFI or General Index of Financial Information.
According to CRA, keeping records of names, business addresses, and other necessary details about customers is important.
Besides the aforementioned details, you must keep the vouchers for time and date, places, and amount spent. The records serve as proof when claiming meal and entertainment expenses and help prevent unnecessary issues.
Keeping records of the expenses you incur goes a long way. The following should be noted.
This information comes in handy in case the CRA makes inquiries and makes the entire process smoother.
Acquiring knowledge of the tax system and understanding what is deductible goes a long way toward helping you save money. The intricacies of the rules may seem quite complex; however, to avoid getting confused, you can hire a professional.
Tax and accounting professionals and legal professionals would help you tread the right path. Worthy to note is to also keep all the evidence (receipts) to help you claim your meal and entertainment deductions.
Thanks for checking out a guide to meals and entertainment deductions.
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You don't need to keep receipts. However, this hinges on the method of calculating the meal expense. You are not required to keep receipts when using the CRA's simplified method of calculation.
Under CRA guidelines, the total bills have tips and taxes as part of them. For example, you had a meal that cost $20, and the tax amounted to $2.60 with a tip of $5. The total amount payable is $27.60, with $13.75 as claims.
Unfortunately, you cannot claim groceries as a meal and entertainment deduction. The reason behind this is that they are not used for guest entertainment. They are also not used in your place of business.
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