As cloud-based accountants offering services to construction and professional services businesses we see a lot of clients deduct a variety of things as business expenses. There are deductions for business use of home, materials, mileage, and cell phones to name a few. One of many business owners' most common deductions is meal expenses. Unfortunately, meals are one of the most commonly disallowed expense claims.
You can deduct 50% of meal expenses if they meet these requirements:
The business owner or an employee is present for the meal.
The meal is with a customer, employee, consultant or another business contact and has a necessary business purpose. Examples could be having lunch with a supplier or taking a prospective client to dinner.
The cost of the meal and beverages is reasonable. If the total cost of the meal is above what is reasonable, you can claim 50% of the reasonable cost.
Keep both the card payment slip and the detailed receipt
You can't just claim the expense based on your bank or credit card statements or payment slips. Although the card payment slip will show the tip and the method of payment used, your accountant will be a happy camper if you give them the detailed receipt as well.
This is because the detailed receipt for the meal will show the date as well as a breakdown of what was purchased. It will help to support that the meal was a reasonable cost should the CRA decide to investigate.
Detailed receipts show the taxes paid.
Meals at restaurants can include multiple taxes. There can be GST/HST, PST or liquor tax. It is vital to have this breakdown because many businesses collect GST and claim Input Tax Credits (ITC). This reduces the total amount of GST the company needs to remit to the Canada Revenue Agency.
Without the detail of how much GST was paid on the meal, you can not claim the GST as an ITC. Also, although you can include PST and Liquor taxes paid as part of the overall expense, they can't be claimed as ITCs.
Why does the receipt need to show all this information?
When you are claiming a meal, or any expense really, as a tax write-off for business purposes the supporting documentation needs to show a few key details. If the CRA decides to audit your return, they can ask to see receipts that show the transaction date, what was purchased, how much was spent, as well as the amount and types of taxes paid. If you can not provide this evidence, the auditor can disallow the expense.
Yes, you can claim the tip
This is where your card payment slip comes in handy. It will show the total cost of the meal (taxes included) as well as any tip you leave on the card. Again, as long as the tip is reasonable, it can be claimed as part of the write-off.
When can I claim 100% of the meal?
You are billing the client
You can claim 100% of the meal if you are billing a client for the cost and you show it on their invoice. This would be a 100% write-off for you as a cost of doing business, and your client can claim 50% of the cost.
Your travelling in a certain way
You can also claim 100% if you're travelling by train, bus or airplane and the cost of the meal is included in the cost of the ticket. It's worth noting that if you are travelling over water you have to stick with the 50% rule.
For employees, parties and fundraising events
If the cost of the meal is part of an employee's income it is also 100% deductible, but it would be considered taxable income to the employee. The costs incurred for fundraising events or staff parties can be fully deducted as well.
Isn't there a flat rate I can claim?
Yes, the CRA allows a simplified method of claiming meal expenses. In the simple method, you can claim a flat rate of $23/meal to a limit of $69/day, including sales taxes, without receipts. It's worth noting that if you choose this method the CRA can still ask you for some kind of documentation to support the claim.
Think keeping all those receipts is a hassle?
No one wants you to keep all your meal receipts in your wallet, an overflowing file folder or *gasp* a shoe box. Those days are gone. With a smartphone and the right apps, you can snap a picture and submit your receipt before you even leave the table.
With certain apps, you can upload your digital copy of the receipt and it can automatically be synced to your bookkeeping software. We have set many clients up with Dext or Hubdoc for this. They love the convenience of not having to keep paper receipts, and how it makes their bookkeeping so much quicker and easier. A good habit to get into is to write a quick note on the receipt explaining the business connection, such as "Lunch with client" or "Supplier meeting", so that there won't be questions later.
In conclusion, business owners and self-employed individuals can claim meals as a tax write-off. If you wish to claim dining as an expense and get the full benefit of the write-off, you must keep either a physical or digital copy of both the detailed and the payment receipt.