The deadline for HST returns is just around the corner for many businesses. If you have a year-end that coincides with the quarter year (year ends of December 31, March 31, June 30 or September 30) and you file your HST return quarterly, then CRA requires that you file your return by the end of the following month. As we continue to focus on HST for small businesses, we thought we’d address a commonly asked question: how much HST can you claim on meals and entertainment?
Charging and Paying HST in Your Business
The Canadian tax code is very long and complicated, and is regularly updated by CRA. Bookkeepers and accountants deal with it on a daily basis and even we have to make a special effort to stay on top of all of the updates, exceptions, interpretations and special cases.
In its most basic form, though, the Canadian Income Tax Act boils down to this: you are allowed to claim any business expenses that you incur in the activities of generating revenue for that business.
Similarly, as long as you exceed a certain amount of sales in your business, you’re likely required to charge HST for the products and services that you sell, but likewise the businesses that you’re buying products and services from are charging you HST.
On a regular basis you have to file your HST return and either pay the balance to CRA if you’ve collected more than you have paid, or you’ll receive an HST refund if you’ve paid more than you’ve collected.
There are a number of exceptions for what you do and don’t charge and pay HST on, and business meals and entertainment is one of those exceptions.
The Broad Rule and Some Common Exceptions
Meals and entertainment is one category where – most of the time – you cannot claim the full amount as a business expense and you cannot claim the full amount of HST paid as an ITC (input tax credit).
In most cases, you are only allowed to claim 50% of the total cost meals and entertainment incurred during the course of normal business. So say you take a client out for a business lunch and the meal costs $100.00. Add 13% HST in Ontario for a total of $113.00, and then a $15.00 tip for a total of $128.00. You’re only allowed to claim $128.00 * 50% = $64.00 as a business expense, with the remaining $64.00 going against your shareholders equity. Of the $64.00 that you claim as a meals and entertainment expense, you’re only allowed to claim 50% of the HST you paid - $13.00 * 50% = $6.50 – so the base expense amount is $57.50 with an ITC of $6.50 for a total claim of $64.00.
As with many other areas in the finances of your business, there are exceptions. It’s not our intention to go into great detail because even the exceptions have exceptions and special cases. Trying to explain it all would more likely lead to confusion, which is why we recommend small business owners work with a professional bookkeeper to stay on the right side of CRA. That said, here are some general descriptions of some of the more common exceptions:
Meals and entertainment for events (such as Christmas parties) are not subject to the 50% meals and entertainment rule, but you’re only allowed to have six such events per year.
You are paying for a meal or entertainment that you will in turn invoice your client for. You are allowed to expense the full amount, but the 50% rule then applies to the client.
You work in a specific job such as a long-haul truck driver (truck drivers can claim up to 80% but there are requirements for the trip duration and distance), a rickshaw driver or bicycle courier (who can claim 100% off additional food and beverage up to a daily limit).
You are purchasing the food or entertainment with the purpose of reselling it.
Hiring a Bookkeeper
This is just one of the areas where a business owner can really see the value in hiring a professional bookkeeper.
The Income Tax Act contains many provisions, exceptions and special cases that would take the average person months of study to become even partially familiar with, and CRA is continually creating updates, amendments and interpretations.
A qualified bookkeeper works with these types of situations on a daily basis and is familiar with the tax requirements – or knows where to look for the most accurate and appropriate information – so will give you the confidence and peace of mind that you’re running your business in compliance with CRA.
The Bottom Line
How much HST you can claim on meals and expenses is one of the most common things that we help our clients with. In most cases, you’re allowed to claim 50% of the expense and HST paid, but there are many exceptions and special cases. If you’re unsure which parts of the Income Tax Act apply, you should reach out to a professional bookkeeper to help guide the way to CRA compliance.
Simply Bookkeeping1 provides professional bookkeeping services for freelancers, solopreneurs and owners of unincorporated and incorporated businesses. We customize our services based on your needs – we only see some of our clients a few hours a month but others we see on a more regular basis. Our services are reasonably priced and we tightly track the amount of time we spend working for you so you only pay for the services you get.
To learn more about us, please visit our website at www.simplybookkeeping1.com or contact Michele Hyde by phone at (647) 668 – 9363 or by email at firstname.lastname@example.org.
Have Your Say
Are you expensing 100% of your business meal and entertainment costs? Is the 50% limitation news to you? Maybe it’s time to think about hiring a bookkeeper! Leave us a comment if you have a question about your specific situation and we’ll do our best to answer. Also, please share this article using the social media share buttons – other people might also be claiming incorrectly and might benefit from this post.