Meals and entertainment expenses are frequently flagged for audit by the CRA and they can be very difficult to substantiate “after the fact”.
What qualifies as meals and entertainment?
Meals include food and beverages. Entertainment includes attendance at an event (e.g. tickets for a concert, entertaining guests at sporting events, etc.). When you incur these expenses in the course of your business, your company may claim 50% of the total amount paid as a deduction on its corporate income tax return. Care should be taken to ensure that these expenses are not for personal use.
What does CRA look at when reviewing these expenses?
Receipts are the major supporting documents because they provide information such as the date/time, location, and the amount paid.
These can be matched with the amount claimed on the tax return to prove the validity of the claim. The CRA also expects an explanation on how those meals and entertainment expenses relate to your business income. Therefore, you should document the following information on each receipt:
- Who attended the event
- Contact details of the parties who attended the event
- What client matter or income it relates to
Keep in mind that if you do not have adequate supporting documents, the CRA will disallow the claim. This will result in an increase in your taxable income and potentially “double taxation” if the expenses were paid by your company but deemed of a personal nature. You may also have to pay penalties and interest.