Is the Cost of your Staff Christmas Party Deductible?

This past weekend the Security House Accounting Services Team enjoyed our Christmas gathering.  We enjoyed a great meal prepared by Janice Mansfield (www.janicemansfield.com) and played a rousing gift exchange game.  We all learned what a CLM (career limiting move) is when Deanna tried to steal my gift!

So when you have an event such as this, what is deductible for tax purposes to the business?  There is the 50% rule that applies to most meal purchases – however in this case 100% is deductible.  You can deduct 100% of the meal and entertainment expenses when you host a party or similar event to which you have invited all employees from a particular location, but you are limited to just six of these events each year.

Personal meals as they relate to business, for example taking a client to lunch to discuss an upcoming sales promotion, are deductible at 50%.  The 50% limit applies to the total of your bill or cost plus any tax, tip or gratuity as this is all considered to form part of the personal portion. You can also only claim 50% of the Input Tax Credit if you are registered for GST/HST.

An interesting fact concerning meals at a conference….. If the cost of the conference fee includes only snacks (coffee, tea, cookies) the total conference fee is deductible.  If the conference also includes meals (breakfast, lunch and / or dinner), then $50 per day must be allocated to meals and only 50% of the $50 is deductible for tax purposes.

Meals and Entertainment are an area that is frequently flagged for audit by the Canada Revenue Agency (CRA).  CRA recommends that records should be maintained of the names and business addresses of the customers or other persons being entertained, together with the relevant places, dates, times and amounts supported by such vouchers as are reasonably obtainable. If you do not have adequate supporting documents, your expenses will be disallowed and your taxable income increased as the burden is on you to support your claim.

If you have questions concerning the deductibility of meals, please give us a call.  We would be pleased to sit down and chat about what is deductible in your business.

I am Colleen from Security House Accounting Services.  Give us your books – Take back your life!

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