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Home TAX TIPS Our Tips Tax and pleasures

Tax and pleasures

For many professionals and self-employed individuals warmer weather means adding some fun (read: customer appreciation) to their business life. If you think golfing, yachting, dining and traveling, you are not alone. Canada Revenue Agency (CRA) has its own opinions on what’s deductible and what’s not. Here is the scoop:

1. Lunching or dining for the purpose of earning income is considered to be legitimate business expense. This includes taking customers, potential customers, or those who refer customers to you for a meal or drink. However, only 50% of the amount spent is deductible. CRA considers the non-deductible half to be personal enjoyment of the taxpayer. Even if your party consists of 5 clients, for instance, you still deduct only 50% of the expense. The only exception to the 50% rule is the cost of food purchased while traveling on the plain, bus or train in course of doing business. In addition, you should write on the receipt the name and telephone number of the person(s) you entertained with.

2. If you wish to reward your employees with a BBQ event or some other get together, you may deduct the full amount spent on food and beverages, as long as such event is open to all employees. You can organize no more than 6 such events per year.

3. You can deduct cost of attending up to 2 conferences or conventions per year as long as they are in connection with your business or profession. This includes the cost of travel, accommodation, and 50% of meals and entertainment. A convention should be organized within the geographical boundaries of the sponsoring organization. This means that a conference in Hawaii, will not be deductible if organized by a Canadian organization. It will be, however, deductible if organized by an American body.

4. If your best deals are made at a golf or country club, you need to be aware that such places are fairly expensive from the tax perspective. CRA does not allow any deductions in respect of membership dues or initiation fees paid to recreational or sport club, whether for yourself or your employees. In addition, you cannot deduct the cost of the game of golf or other sport activity. You can still deduct cost of dining or lunching at such clubs however, subject to the rules above. Make sure your receipt is itemized, clearly separating cost of meals from cost of recreational activities.

5. Similarly, the cost of use or maintenance of your boat, lodge or golf course, is considered by CRA to be personal expense, and is not permitted as business deduction. The “lodge” is defined as inn, resort or similar recreational facility.

 

Hopefully, with those simple tips you will be able to choose the type of business perks that makes most sense for your business. Enjoy the summer and tax effective entertaining!