Meals and entertainment (M&E) expenses

In most cases, only 50% of business M&E expenses are deductible. This includes gift certificates to restaurants or places of entertainment. This rule applies to everyone— sole proprietors, corporations and partnerships.

There are a few exceptions to this 50% rule. It doesn’t apply in certain cases, such as the cost of providing meals and recreation for all the employees working at a particular place of business. However, this exception only applies to up to six special events a year. M&E expenses incurred for an event intended primarily to benefit a registered charity also escape the 50% limit. However, the cost of executive dining rooms and similar facilities is subject to the 50% limit. There are also exceptions from the 50% rule for meals provided for employment at a special work site or to employees lodged at a construction work camp. Finally, if you invoice a client for reasonable meal expenses and you specifically identify such expenses in the accounts submitted to your client, you’ll be entitled to a full deduction for the expenses while your client will be subject to the 50% restriction.

The ability to claim a GST/HST ITC for M&E expenses is subject to a similar restriction—generally, only 50% is creditable. As an alternative, you can claim all the GST/ HST paid on such expenses as they are incurred and then make an annual adjustment to your remittance to add back half the amount claimed in the year.

Rules for long-haul truck drivers

If you’re a long-haul trucker, special rules apply. The deductible amount for food and beverage costs incurred is 80%. As a result, the amount of the GST/HST ITC that is disallowed is 20%.

For this purpose, you are a long-haul truck driver if you are either an employee whose principal duty of employment is to drive long-haul trucks for the purpose of transporting goods or a self-employed person whose principal business is to drive long-haul trucks for the purpose of transporting goods. In both cases, you must be away for at least 24 continuous hours and the destination for the goods must be at least 160 km away.

Tax tip: To simplify the calculation, it’s a good idea to make sure your accounting system keeps such costs segregated from other expenses.