In the course of business, it is not uncommon to wine and dine prospects, clients, employees, and other individuals, more common in some industries than in others. Meals can also be incurred during training, travel and other business activities. If the purpose of a meal can be linked to a business purpose, then it can be expensed in the business. However, meal expense can draw the eye of CRA if seen as unreasonable. If your business is looked at closer by CRA for any reason this account could come under scrutiny as well – this is generally an area of “low hanging fruit” for a CRA agent. Without adequate support for the business purpose of a receipt, CRA may be inclined to refuse the deduction.
I recommend that all business owners document on the receipt (or a description in their books) of the business purpose. This should include a “why” and a “who”. Some examples include:
- Meal at training in Calgary
- Lunch to thank employee Joe Smith for going above and beyond on project x
- Coffee to discuss contract with ABC Corp.
Generally, CRA will not allow the deduction of single serve meals in the community where you live. Buying a lunch instead of packing one is not a business purpose – an explanation of “I’m just too busy with my business” or “I start early in the morning and there is no time” simply do not fly!
Another way of thinking about this is to compare an employee and an entrepreneur. If someone is employed they may have a very demanding salaried management position and start early in the morning as well. They cannot deduct morning coffee or a take out lunch because they work long days. Whether you are employed or self-employed eating 3 meals a day is viewed as meeting a personal need.
Should you meet someone for a business meeting and you each buy your own meal, that could still be a valid deduction with the appropriate documentation. However, without the support of the WHO and the WHY, CRA would not know any different and the burden of proof lies with you to prove a business purpose. Take the extra 30 seconds when you get a meal receipt and jot a who and why on the back of it. Don’t forget to get both the itemized receipt that shows the GST and the card receipt that shows any tip!
It’s important to remember that, with only a few exceptions, meals are only 50% deductible for tax purposes. Accordingly, only 50% of the GST Paid on meals can be claimed as an Input Tax Credit.