Tax Articles
Business at the Buffet: Can you Claim it as an Expense?
Brampton Board of Trade
Ken Karakashian, CA
Some of the most productive time business owners spend with clients or customers is over a meal, playing golf or at a sporting event. The government, however, is not as enthusiastic about these business relationship-building activities and strictly enforces the following rules that restrict the deductibility of these expenses for tax purposes.
Meals and Entertainment
For a meal or entertainment expense to be deductible for tax purposes, the amount must be incurred for the purpose of earning income from your business. Taking a customer out to lunch or to a hockey game to strengthen your relationship, for example, is a valid business expense.
The government’s perspective, however, is that these types of expenses include a personal element 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 as a reward for their work.
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.
Golfing Expenses
Many business deals have been struck on the golf course. Unfortunately, the government does not allow any expense incurred for the use of a golf course, such as membership fees, initiation fees or daily green fees, to be deducted for tax purposes.
Meal or entertainment expenses spent at a golf club are 50% tax deductible. It's important, however, that the amounts charged for meals and beverages are clearly itemized on the bill – the deduction of an all-inclusive charge from a club, which includes meals and beverages, is not tax deductible.
Charity Golf Tournaments
Charity golf tournaments charge players a fee comprising various components to cover the cost of play (such as green fees, cart rentals, door prizes, food and beverage) and to include a donation to the cause for which the tournament is raising funds.
The amounts related to the various costs are not considered to be a charitable donation because players receive something of value for them. The excess amount charged, however, is considered to be a charitable donation. The charity benefiting from the tournament typically issues a charitable donation receipt for this amount to players, which they may claim for tax purposes.
Your promotion and entertainment budget can help you build valuable business relationships – and claiming the correct amounts will ensure that you don’t incur the wrath of the Canada Revenue Agency next time you take a client or customer up to the buffet.
Ken Karakashian is a partner of BDO Dunwoody LLP (www.bdo.ca). One of Canada’s leading accounting firms, BDO helps entrepreneurs and family businesses succeed. If you have questions about this article or you would like to receive BDO’s “Tax Factor” newsletter, contact Ken at 905-270-7700 or kkarakashian@bdo.ca.
