Are business meals tax deductible in Canada?
The federal rule: half, not all of it
Section 67.1 of the Income Tax Act is short and leaves no room to negotiate. An amount paid for the human consumption of food or beverages, or the enjoyment of entertainment, is deemed to be 50 percent of the lesser of two amounts: what you actually paid, and an amount that would be reasonable in the circumstances.
Two consequences get missed. First, reasonable is a real test, not a formality: a 600 dollar dinner to close an 800 dollar contract can be trimmed before the 50 percent is even applied. Second, the limit covers entertainment too, meaning tickets and entrance fees to a show or sporting event, gratuities, cover charges, and room rentals such as hospitality suites.
The detail almost everyone misses: GST and QST
This is the part we most often see handled wrong. When the income tax deduction is limited to 50 percent, the input tax credit follows: you can claim only 50 percent of the GST you paid on those expenses. QST works the same way, with a matching adjustment written into the Quebec sales tax legislation.
The Canada Revenue Agency accepts two methods, and the choice is yours:
- Claim 50 percent of the actual tax you pay in each reporting period. No year-end adjustment to remember.
- Claim 100 percent during the year, then add the 50 percent adjustment to your net tax calculation. If you file monthly or quarterly, the adjustment goes in the first reporting period of the next fiscal year; if you file annually, it goes in that fiscal year.
Method 1 is simpler and cannot be forgotten. Method 2 keeps a little cash in the account during the year, as long as someone actually books the adjustment.
The second ceiling, the Quebec one
Here is what makes a Quebec file different. On top of the 50 percent limit, Revenu Québec applies a ceiling based on the business's annual sales, and your deduction is the lesser of the two.
| Annual sales | Ceiling |
|---|---|
| 32,500 dollars or less | 2 percent of sales |
| More than 32,500 and less than 52,000 dollars | 650 dollars |
| 52,000 dollars or more | 1.25 percent of sales |
A concrete example straight out of the Revenu Québec guide: a business with 50,000 dollars of sales and 2,000 dollars of entertainment expenses. The 50 percent limit gives 1,000 dollars. The ceiling gives 650 dollars. The deductible amount in Quebec is 650 dollars, not 1,000. A business that applies only the federal rule deducts 350 dollars too much.
The exceptions worth knowing
- Long-haul truck drivers: 80 percent during an eligible travel period, meaning at least 24 hours away from the municipality where the driver resides, hauling goods beyond a radius of at least 160 kilometres.
- Meals billed to a client and shown on their invoice: no limit applies, federally or in Quebec.
- Restaurants and hotels: meals sold in the ordinary course of the business are outside the limit and stay in cost of goods sold.
- Office party: up to six events a year where all employees at a given location are invited.
The habit that saves the deduction
A restaurant receipt on its own proves nothing. Write the client's name and the purpose of the meeting directly on the receipt, or in the photo you take of it. Thirty seconds on the sidewalk on the way out beats reconstructing it eight months later, when nobody remembers who was at the table. That detail, not the dollar amount, is what defends the deduction in a review.
Frequently asked questions
Should I record half the meal in my books, or the full amount?
Record the full amount, sales tax included. The 50 percent limit is a tax adjustment applied when the return is prepared, not a haircut you make in the accounting records. On the sales tax side the Canada Revenue Agency gives you two options: claim 50 percent of the GST you paid in each reporting period, or claim 100 percent during the year and add the 50 percent adjustment to your net tax at the end of the fiscal year. QST follows the same logic.
What if I bill the meal back to my client?
If you bill the client for the meal and the cost is shown on their invoice, the 50 percent limit does not apply to you. Revenu Québec goes further: in that case neither the 50 percent limit nor the sales-based ceiling applies. The trade-off is simple, the amount you rebill becomes revenue in your books.