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Meals and Entertainment

For a meal or entertainment expense to be deductible for tax purposes:

The amount MUST be spent for the purpose of earning income from your business. Taking a customer out to lunch or to a hockey game to strengthen your relationship is a valid business expense. Example: Enjoying a hockey game or meal with a client to promote a business relationship, but buying lunch for yourself during the work day is NOT a valid meals expense.

However, the government’s perspective is that these expenses include a personal portion and therefore you may only deduct only 50% of the amount spent, including taxes and tips. This restriction also applies if you take your employees out.

There are certain exceptions to these rules. For example, the limit doesn't apply to employer-sponsored events for employees, provided the event is available to all employees at a particular place of business. Therefore a company can deduct, in full, the entire cost of the office holiday party when all employees working in the office are invited.

Meals provided to employees on a regular basis are only tax deductible IF they are claimed on the employees’ T4 as a taxable benefit. Then the expense may be claimed at 100%. Otherwise NO deduction is allowable.

For more information:

http://www.cra-arc.gc.ca/E/pub/tp/it518r/it518r-e.html