November 23, 2024
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The Income Tax Act generally restricts the deduction for food, beverages, and entertainment expenses to 50% of the amount actually paid to earn income. There are several exceptions where a taxpayer is permitted to claim 100% of the expenditure. Amounts paid or payable for meals and entertainment are fully deductible where the taxpayer is in the business of providing meals and entertainment. For example, a restaurant can fully deduct amounts paid for food, including free meals and samples provided to customers. This exemption does not, however, apply to meals purchased by restaurant staff while traveling for business. Meals and entertainment expenses paid relating to a fund-raising event for a registered charity are also fully deductible. Where the taxpayer is compensated by another party for a meal or entertainment expense, the amount would be fully deducted against the amount of compensation. For example, a taxpayer paid an amount for a meal while providing business services to his customer. This customer reimbursed the taxpayer fully for the meal. The taxpayer would deduct the expense fully against the reimbursement, which was included in income. The customer would be restricted to 50% paid for the reimbursement. A taxpayer can deduct 100% of the food, beverage and entertainment expenses for six or fewer special events held during a calendar year. These events must be held at a particular place of business (such as the taxpayer's business premises, hotel, restaurant, etc.). The food, beverages, and entertainment must be generally available to all employees of the business. This would include events such as a company Christmas party. The 100% deduction would also include employer-provided services, such as an employer cafeteria, as long as the prices charged were reasonable (priced above cost). A meal or entertainment expense paid on behalf of an employee is fully deductible where this amount is required to be included as a taxable benefit to the employee. There is no 50% restriction for meals or entertainment paid on behalf of the employee where the amounts are not a taxable benefit because they are provided at a remote work location in Canada. A remote work location is a location at least 30 kilometres from any urban area that has a population of at least 40,000 people. For the amount to be excluded as a taxable benefit (and 100% deductible), the employee must be away from the employee's principal place of residence, or at the work site or location, for at least 36 hours. Lastly, there is no 50% restriction for meals paid on behalf of the employee where the amounts are not a taxable benefit because they are provided at the site of a construction activity or at a construction work camp, at which the employee was lodged, that was constructed or installed at or near the site to provide board and lodgings to employees while they are engaged in construction services at the site. For the amount to be excluded as a taxable benefit (and 100% deductible), the employee must be away from the employee's principal place of residence, or at the work site or location, for at least 36 hours. TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes. |