Meals and Entertainment (50% Rule)
Business meals and entertainment are generally limited to a 50% deduction under ITA s.67.1, with documented business purpose and a short list of 100% exceptions.
Definition
ITA s.67.1 limits the deductible portion of food, beverages, and entertainment incurred in the course of a business to 50% of the lesser of the amount paid and a reasonable amount. The rule captures both the meal itself and any GST/HST or tip, and it applies whether the host attends or not. The underlying business purpose must still clear the general s.18(1)(a) purpose test before the 50% cap is even relevant.
Key rules
- 50% cap (s.67.1(1)): the deduction is 50% of the lesser of the amount paid and what would be reasonable in the circumstances.
- Tax and tip included: GST/HST, PST, gratuities, and service charges all form part of the capped amount.
- Entertainment: tickets to sporting events, concerts, theatre, and hospitality suites are treated the same as meals.
- Long-haul truck drivers (s.67.1(1.1)): meals consumed during an eligible travel period by a long-haul driver are deductible at 80%.
- 100% exceptions (s.67.1(2)): the 50% cap does not apply when the meal is (a) part of the taxpayer's ordinary course of business of providing food or beverages for compensation, (b) a fundraising event run primarily for a registered charity, (c) billed to a client with the meal cost separately disclosed and the client bears the cost, or (d) a staff event for all employees at a particular place of business, limited to six such events per year.
- Conventions (s.20(10)): a daily meals-and-entertainment amount of $50 is imputed if the convention fee does not separately state a meal component; that imputed portion is then subject to the 50% cap.
| Situation | Deductible % | Source |
|---|---|---|
| Client lunch | 50% | s.67.1(1) |
| Staff holiday party (open to all, up to 6/year) | 100% | s.67.1(2) |
| Meals charged back to client on invoice | 100% | s.67.1(2) |
| Long-haul trucker en route | 80% | s.67.1(1.1) |
| Fundraiser for registered charity | 100% | s.67.1(2) |
Example
Northstar Advisory Inc. takes three clients to dinner on July 10, 2026. The bill is $320 plus $41.60 HST and a $55 tip, for a total of $416.60. The owner records the business purpose (quarterly review with Acme Corp leadership) and keeps the itemized receipt.
On December 18, 2026, the same corporation hosts a holiday dinner open to all four employees. That $1,100 cost is fully deductible under s.67.1(2), up to the six-events-per-year ceiling.
Common mistakes
- Recording meals at 100% on the income statement and forgetting to add back 50% on Schedule 1.
- Deducting golf green fees. Green fees are specifically denied under s.18(1)(l). See .
- Claiming full ITCs on meal HST. ITCs are also limited to 50% (s.170).
- Missing documentation: the receipt must show who, where, why, and when.
- Treating an owner's solo lunch at a coffee shop as a meal expense. Personal meals are blocked by s.18(1)(h).
Related concepts
Authority
- Income Tax Act s.67.1
- Income Tax Act s.67.1(2)
See also
Related entries
Business Expense Principle (ITA 18)
An outlay is deductible only if it is incurred for the purpose of gaining or producing income from a business or property and is not a personal or capital expense.
Travel Expense
Business travel costs (transportation, lodging, incidentals) are fully deductible, while meals on travel remain subject to the 50% limit and conventions are capped at two per year.
Club Memberships and Dues
ITA s.18(1)(l) denies deductions for membership fees at any club whose main purpose is dining, recreation, or sporting activities, even when the use is entirely business.
Non-Deductible Expenses
A consolidated list of outlays that ITA s.18 and related sections prohibit from current deduction: personal, capital, fines, club dues, life insurance, and the 50% meals portion.
This entry is for general reference. It does not constitute professional tax advice. Consult a qualified Canadian accountant for your specific situation.