Meals and Entertainment (50% Rule)

Definition

Business food, beverages and entertainment are generally deductible at 50% of the lesser of actual cost and a reasonable amount, after the underlying business-purpose test is met. Personal meals do not become deductible because they are paid with a business card. Income Tax Act section 67.1

Key rules

• Include tips and non-recoverable taxes in the expense. Deduct recoverable GST/HST input tax credits (ITCs) before calculating the income-tax deduction.
• Tickets and other entertainment can be subject to the same limit even when the business owner does not attend.
• Specific exceptions include food sold in the ordinary course of the taxpayer's food business, qualifying charitable fundraisers, qualifying costs separately identified and billed to a client, and up to six annual events open to all employees at a particular place of business. Conditions matter; a private shareholder dinner is not an all-employee event.
• Eligible long-haul truck-driver meals during an eligible travel period use an 80% limit.
• Where a qualifying convention fee includes food or entertainment without identifying its price, allocate $50 for each day it is provided, excluding incidental refreshments such as coffee and doughnuts. Apply the meal limit to that allocation. CRA convention expenses
• GST/HST registrants using the ordinary method generally recover only 50% of eligible meal ITCs. CRA permits specified calculation methods and exceptions; do not deduct both a recovered ITC and the same tax as an expense. CRA GST/HST guide

Example

A registrant corporation takes clients to a documented business dinner. The bill is $320 plus $41.60 HST and a $55 tip. Assume the ordinary 50% limits apply and the corporation claims the permitted ITC.

For an otherwise qualifying $1,100 staff holiday dinner open to all employees, the six-events exception can permit a full deduction of the expense after recoverable tax.

Records and mistakes

Keep the itemized invoice, participants, business purpose and date. A receipt alone may not establish why a meal was business-related. Golf green fees are separately denied; meals at a golf facility require the distinctions explained under Club Memberships and Dues. Do not use the 50% rule to deduct an owner's ordinary personal lunch.

Related concepts

• Business Expense Principle (ITA 18)
• Travel Expense
• Club Memberships and Dues