Deductible business expenses: what you can claim, and the 50% meals rule

Short answer: the CRA says you can generally deduct any reasonable current expense you incur to earn business income. You deduct only the business part of a cost you also use personally. Equipment and other capital property is not deducted at once but through capital cost allowance. Food, beverages and entertainment are limited to 50% of the lesser of what you spent and a reasonable amount, and the same limit applies to meals when you travel or go to a conference.

What makes an expense deductible?

• You incurred it to earn business income. The CRA’s word incur means you paid it or will pay it.
• It is reasonable for the business.
• It is a current expense, not a capital one. Buying capital property, such as equipment or a vehicle, is claimed over time through capital cost allowance.
• It is the business part only. A cost that is partly personal, such as a phone or a car, is split, and only the business share is claimed.
• It is reduced by anything that paid for it: input tax credits, rebates, grants and other assistance come off the related expense.

Which expenses does the CRA list?

The CRA’s business expenses page covers, among others: advertising; bad debts; business start-up costs; business taxes, fees, licences and dues; business use of home; delivery and freight; insurance; interest and bank charges; legal, accounting and other professional fees; maintenance and repairs; meals and entertainment; motor vehicle expenses; office expenses; prepaid expenses; property taxes; rent; salaries, wages and benefits; supplies; telephone and utilities; and travel.

How much of a business meal can I deduct?

At most 50% of the lesser of the amount you spent and an amount that is reasonable in the circumstances. Entertainment, such as tickets to a sporting or entertainment event, is in the same category. The limit also covers your own meals when you travel or attend a convention or conference.

An illustration with made-up numbers: a client lunch that cost CAD 120, all of it reasonable, gives a deduction of CAD 60.

The CRA lists cases where the 50% limit does not apply:

• A business whose ordinary work is selling food, drink or entertainment, such as a restaurant or hotel.
• Costs you bill to a client and show on the bill.
• Costs included in an employee’s income, and some meals at remote or special work locations.
• Up to six events a year to which you invite all employees at a location, such as an office party.
• Fund-raising events held mainly for the benefit of a registered charity.
• Meals for employees housed at a temporary camp built for construction work, who cannot reasonably be expected to go home each day.

Long-haul truck drivers can deduct 80% of food and beverages consumed during an eligible travel period, under the CRA’s conditions.

If you are registered for GST, the input tax credit on meals and entertainment is generally limited to 50% as well. The GST registration guide covers that side.

What your books need to show

• A receipt or invoice for every expense, with the date, supplier and what was bought.
• For a meal or event, who attended and the business purpose, written on the receipt or in the bookkeeping entry.
• Meals and entertainment in their own account, so the 50% is applied once, at year end.
• Capital purchases recorded as assets, not expenses, so capital cost allowance can be claimed.
• The business-use percentage for anything shared with personal use, worked out and kept.

Home office and vehicle expenses →

Equipment and the proposed 100% first-year deduction →

Keeping business and personal money apart →

GST registration and input tax credits →

Ask for a written quote →