A meal or entertainment expense can be a number of different things. This type of expense can include activities like, dinners, lunches, drinks after work, coffees, going to a live performance, the opera, ballet, sporting event, office Christmas party, etc. However, in order for it to be a deductible business expense, the cost needs to have been incurred as a business expense.
So, in reference to the title of this post, NO. Your daily coffee from Starbucks cannot be considered a business expense on its own. If you are convinced that it is a business expense, you will need to demonstrate why that is. Who did you have coffee with? What type of business discussion did you have? Did this discussion lead to a sale of a product or service? If you can answer all of these questions, for each coffee to prove that you had coffee with someone about a business topic and that it potentially led to a sale or contributed to getting a sale, then this coffee would be a valid business expense.
Meal and entertainment expenses are also only 50% deductible for tax purposes. This also means that only 50% of the GST paid on the purchase of this expense is also only 50% claimable as an Input Tax Credit.
Another caveat is that Golf Fees paid to play golf are not a deductible business expense. EVER. If you buy food at the golf course for yourself and a client, that would be considered a valid business expense. It is just the golf fees. This doesn’t mean that the company can’t pay for the fees, it just means that the company won’t be able to deduct the cost from their income.
However, there is a small silver lining when it comes to Meals and Entertainment expenses. There is a part of the Income Tax Act that allows a company to throw larger events, that includes all of their employees, and allows these events to be 100% deductible. And a company can have up to 6 of these events a year. As long as all of the employees have been invited to the event, 100% of the cost is deductible. For instance, a company throws a Christmas Party and a Spring Barbecue for their staff and suppliers. Since all of the staff have been invited, 100% of the costs involved are 100% deductible.
By Dayna Holland