Who this is for
- Canadian corporations whose ledger mixes client meals, tickets, staff events and owner meals
- Bookkeepers preparing the books and the Schedule 1 add-back for a T2
Not covered here
- Whether a cost is a deductible business expense at all
- What a receipt must show for the CRA
- Provincial corporate tax rules for Quebec and Alberta
- Quebec sales tax (QST) on meals
- Sole proprietors and partnerships
How much of a meal or entertainment bill can my corporation deduct?
A corporation can deduct 50% of the lesser of what it actually paid or owes and a reasonable amount for food, drink and entertainment (Income Tax Act, section 67.1). The books keep the full cost. The T2 adds the rest back on Schedule 1 (CRA guide T4012).
The Income Tax Act (the Act) does not define "reasonable". A lavish bill is cut twice: first to a reasonable amount, then to 50% of that, so the add-back is larger than the usual share of the bill. Whether an amount is reasonable depends on the facts.
In this guide, limited means only 50% is deductible, and no limit means section 67.1 does not cut the cost.
The limit covers any food, drink or entertainment: client and supplier meals, coffee, tickets, cover charges and gratuities (section 67.1; CRA business expenses guidance, written for sole proprietors and partnerships). Some costs sit outside it; the next section lists them. Whether a cost is deductible at all is a separate question: see business expenses the CRA accepts.
What makes a case not simple:
- The ledger puts limited and unlimited costs in one account, so the add-back has to be hunted bill by bill.
- Tickets, owner dinners or conference fees sit beside ordinary lunches.
- A bill that looks like a meal may be a personal benefit to a shareholder.
- More than six staff events in a year, or GST/HST credits claimed in full and never adjusted.
- The corporation is in Quebec or Alberta. The CRA does not administer those two provinces' corporate tax (CRA). This page covers the federal Act and Schedule 1 only.
What to gather: the year's ledger by account, receipts with a note of who attended and why, invoices that re-billed costs to clients, dates and invitees of staff events, payroll records of any meal benefit, and the GST/HST returns.
Which meals and entertainment are not limited?
The three that come up most for a small corporation are a cost re-billed to a client and identified in writing, up to six all-staff events a year, and a meal that is a taxable benefit to an employee. The table gives the Act's list (section 67.1; CRA).
| Situation | Limit | Section 67.1 | What the books should show |
|---|---|---|---|
| The corporation's own business is selling food, drink or entertainment for pay, such as a restaurant or caterer | None | (2)(a) | The costs tie to those sales |
| A cost is re-billed to a client, and the amount charged is reasonable and specifically identified in writing to the client | None for the corporation that bills; the client that pays is not covered by this exception | (2)(c) | The invoice or other writing to the client that shows the meal or entertainment cost |
| A fundraising event mainly for the benefit of a registered charity | None | (2)(b) | The charity and the event |
| One of six or fewer special events in a calendar year, generally available to all employees at a particular place of business | None | (2)(f) | Date, place, who was invited, and the event count for the calendar year |
| An amount that section 6 requires to be included in an employee's income, a taxable benefit | None | (2)(d) | The payroll record of the benefit |
Two narrow exceptions rarely reach an owner-managed corporation: food and drink at a remote work site or construction work camp ((2)(e), (e.1)), and a long-haul truck driver's food and drink during an eligible travel period, where 80% applies instead ((1.1), (5)).
Two traps:
- Staff events are counted per calendar year, not per fiscal year. An event for owners or selected staff only, with other employees at that place left out, is unlikely to fit. Paragraph (2)(f) covers six or fewer events in a calendar year, so a seventh leaves the treatment of all of them in doubt. Have a CPA review before treating any as no limit.
- Re-billing needs the cost identified in writing to the client. A client meal the corporation pays for and does not re-bill is limited. A meal re-billed inside a lump-sum fee fits only if a writing to the client, such as the invoice or an expense schedule, specifically identifies it, and the amount charged is reasonable. For the GST/HST on re-billed costs, see GST/HST on re-billed expenses.
Do concert and sporting event tickets count as entertainment?
Yes. The Act says entertainment includes amusement and recreation (section 67.1(4)). The CRA lists tickets and entrance fees to an entertainment or sporting event, gratuities, cover charges and hospitality suite rentals as entertainment (CRA). The General Index of Financial Information lists theatre, concert and athletic event tickets under meals and entertainment, item 8523 (RC4088).
Tickets therefore go in the limited account, with the same share deductible as a client dinner. They leave it only if an exception in the table fits, for example a ticket that is a taxable benefit to an employee.
Golf, lodge and club costs follow a different rule and stay out of the meals accounts; see business expenses the CRA accepts. Schedule 1 has its own line 120 for non-deductible club dues and fees.
Which account do meals and entertainment go in, and should I split limited and unlimited costs?
Split by rule, not by amount. A corporation should keep the full cost in two meals accounts, one for costs the limit applies to and one for costs an exception covers, so the add-back is one total from the limited account.
| Account | What goes in | In the books | On Schedule 1 |
|---|---|---|---|
| Meals and entertainment, limited | Client and supplier meals, coffees, tickets, office coffee and snacks, delivered lunches, team lunches that are not qualifying events, meals on trips | Full cost | Add back the part the limit removes |
| Meals and entertainment, no limit | Only costs from the exceptions table, with the exception named in the memo | Full cost | No add-back |
| Shareholder account | An owner's personal meals | Not an expense | Not on the meals line |
| Club dues, golf and similar | Costs that follow a different rule | Own account | Not a meal; line 120 covers club dues and fees |
Rules that keep the add-back simple:
- Default to the limited account. Restaurant, café and ticket purchases land there. Moving a bill to the no-limit account takes proof.
- Book the full cost, not the deductible part. The financial statements show what was spent. The add-back is worked out once, at year end.
- The account decides the add-back, not the GIFI code. Both meals accounts can report as GIFI item 8523 on the financial statements; the add-back still comes from the limited account only. A re-billed cost may report under a different code. See chart of accounts for GIFI.
How is the non-deductible part added back on the T2?
The corporation enters the add-back on Schedule 1, line 121, "Non-deductible meals and entertainment expenses". Schedule 1 starts from net income (loss) after taxes and extraordinary items on the financial statements, line 9999 of Schedule 125, and reconciles it to net income for tax purposes (Schedule 1).
- Total the limited account for the fiscal year being filed, including invoices accrued at year end and paid later.
- Work out the deductible amount. For each bill, take the lesser of what was paid or payable and a reasonable amount, and add those up. The deductible amount is 50% of that sum. For reasonable bills, that is the usual share of the total.
- Subtract it from the total. The difference is the add-back.
- Enter it on line 121. Leave the no-limit account alone.
The result of Schedule 1 goes to line 300 of the T2 (T4012). The add-back raises taxable income for the year.
This is a permanent difference: the Act deems the amount to be the limited share, so the rest is not deductible in a later year. For how Schedule 1 reconciles book profit to taxable income, see tax income versus book profit.
The line number is from the latest published Schedule 1. Line numbers can change between form versions, so confirm it on the form for the year-end being filed. For the other year-end steps, see the year-end close checklist.
What do I record on each bill: who, why and the receipt?
Record the date, the people, the business reason and the account for each bill, and keep the receipt. Each item supports a test in the Act.
| Record | Why it matters |
|---|---|
| Date, place, amount paid with tip, and the receipt | Shows what was actually paid. For what a receipt must show, see CRA receipt requirements |
| Who attended and who they work for | Separates a business meal from a personal one and shows which exception applies |
| The business reason, in a few words | The Act allows a deduction only for an outlay made to earn income (section 18(1)(a)) |
| Limited or no-limit, with the exception named | Puts the bill in the right account the first time |
| Re-billed cost: the invoice or other writing to the client that shows it | The test in (2)(c) is that the cost is specifically identified in writing to the client; without it the limit is the default |
| Staff event: the invitees, place and calendar-year count | Shows it was one of six or fewer, open to all at the workplace |
| Taxable benefit: the payroll record | Shows the amount was included in the employee's income |
Write the who and why when the bill is paid; a note rebuilt months later is weaker. Keep the receipt and the note for the period in how long to keep business records. For a bill with no receipt, see business expenses without receipts.
What happens to conference fees and meals on the road?
Meals on a trip are limited like any other meal. A conference fee is split: the food part is limited and the rest of the fee is not limited by this rule (section 67.1).
- Conference or convention fee. If the fee entitles the attendee to food, drink or entertainment and the account for the fee does not identify a reasonable part for them, $50 for each day on which they are provided is treated as food and entertainment. Book that amount in the limited account and the balance as the conference fee. Incidental beverages and refreshments at meetings or receptions do not trigger this rule. If the invoice identifies a reasonable food part, book that amount in the limited account.
- Meals while travelling. The CRA says the limit applies to meals, drinks and entertainment on a trip (CRA). Section 67.1 has no location test, so the limit applies to meals bought outside Canada too.
- Airplane, train and bus. No part of the fare counts as a meal, so a fare that includes food needs no split. Food and drink bought separately, or served when the ticket price does not include them, is limited.
How many conventions a corporation can deduct in a year is a separate rule; see business expenses the CRA accepts.
How does the limit affect GST/HST input tax credits?
A GST/HST registrant using the regular accounting method claims input tax credits (ITCs) on 50% of the GST/HST on a meal or entertainment cost when the income tax deduction is limited to 50% (CRA: RC4022). A corporation on the Quick Method cannot claim ITCs on its operating expenses, meals and entertainment included (RC4022). A corporation not registered for GST/HST has no credit to limit. The credit follows the income tax test: the Excise Tax Act reduces the credit where section 67.1 of the Income Tax Act limits the cost (Excise Tax Act, section 236). A cost outside the income tax limit is not cut by that rule, but the other credit tests still apply, including section 170, which can deny the credit on a cost acquired exclusively for an officer's or employee's personal use. Have a CPA check the credit on any meal that is a taxable benefit. A long-haul truck driver's food and drink during an eligible travel period has a different share: the credit follows the driver's 80% share. When a bill is more than a reasonable amount, sections 170(2) and 236(1.2) cut the credit further; have a CPA confirm it. This section covers GST/HST only, not Quebec's QST. For other costs with partial or no credit, see expenses with no or partial ITC.
Under the regular method, the CRA lets a registrant choose one of two ways to claim:
| Method | During the year | Year end |
|---|---|---|
| Claim in full, then adjust | Claim all the GST/HST on these costs | Add 50% of the credits claimed on them to net tax: in the first period after the fiscal year for monthly and quarterly filers, in the same fiscal year for annual filers |
| Claim the allowed share | Claim 50% of the GST/HST each reporting period | No adjustment |
Either way, code the GST/HST on a bill by the same limited or no-limit split as the bill, then check the other credit tests above. The GST/HST not claimed is not recovered as a credit. The Excise Tax Act reads section 67.1 as applying to the amount due including the tax (section 236), and the Income Tax Act treats a credit claimed as government assistance (section 248(16)). So how the unclaimed tax is booked and how it changes the add-back depend on the base used; a CPA should confirm it. The income tax add-back and the GST/HST adjustment are separate calculations on separate returns.
What if the corporation paid for the owner's personal meals?
A shareholder's personal meal is not a business meal, so it belongs in neither meals account. (A meal run through payroll as a taxable benefit to an employee is the taxable-benefit row above.) The Act allows a deduction only for an outlay made to earn business income (section 18(1)(a)). When a corporation pays a shareholder's personal cost, the amount may be a benefit that the shareholder must include in income (section 15(1)).
In the books, move the amount out of expenses and record it by what it was. It is a loan in the shareholder account only if the owner had a real debt to repay when the money went out; otherwise it is a benefit, and a journal entry alone does not make it a loan. Review any GST/HST credit claimed on it too. See personal expenses paid by the corporation and shareholder loan account. Putting an owner's dinner in the limited account "to be safe" still claims a deduction on part of a personal cost. A bill that mixes business and personal guests needs a decision on how much is business before the books close. If the CRA finds such costs in an audit, see shareholder benefit found in an audit.
The reverse case, a real business meal the owner paid personally, is booked like any other business meal; see business expenses paid personally.
Example
These examples use Canadian dollars. GST/HST is left out unless stated.
Year-end add-back
A corporation's limited account holds C$10,000 of client lunches, coffees and travel meals, all reasonable. The deductible amount is C$5,000. The add-back on Schedule 1, line 121 is C$5,000. Taxable income is higher by that amount before any other adjustment.
Staff events
The corporation holds two events, a summer barbecue and a December dinner, each open to all 30 employees at its one workplace. Together they cost C$4,000. Assuming these are the only staff events that calendar year, both fall within six, so they go in the no-limit account and nothing is added back. An owners-only dinner is not an all-staff event: if it is a supported business meal it goes in the limited account, and a personal one stays out of both meals accounts.
Concert tickets
The corporation buys C$2,000 of concert tickets for clients. The tickets are entertainment, so C$1,000 is deductible and C$1,000 is added back on line 121, before any HST effect. If the tickets carried C$260 of HST at 13%, and the corporation is registered, uses the regular method and otherwise qualifies for the credit, the credit is limited to C$130, whether the corporation claims in full and adjusts at year end or claims half each period. How the unclaimed C$130 affects line 121 is the open point in the GST/HST section.
Different for you?
- Your ledger mixes limited and unlimited costs, includes tickets or owner dinners, and the T2 is due: the add-back, any shareholder-benefit question and the account setup need a CPA's review before filing; see corporate tax help.
- More than six staff events in a year, or an event not open to all staff: the add-back may change; get corporate tax help before filing.
- GST/HST credits were claimed in full on meals and tickets and never adjusted, or claimed while on the Quick Method: see expenses with no or partial ITC, the GST/HST Quick Method and bookkeeping help.
- The books are behind or have no usable detail: see catching up on overdue books, and consider bookkeeping help before the return is prepared.
- Corporate returns for earlier years were never filed: see catching up on unfiled corporate returns.
- The corporation paid personal dinners or trips for an owner: see personal expenses paid by the corporation.
- The CRA has asked about meals or other expenses: see reviews, audits and voluntary disclosure and get corporate tax help.
- The corporation is in Quebec or Alberta: the provincial return is separate, so get corporate tax help with both returns.
Figures on this page
| Figure | Value | Source |
|---|---|---|
| Usual income-tax deduction share for meals and entertainment Applies to the lesser of the actual amount paid or payable and a reasonable amount; statutory exceptions apply | 50% | Justice Laws: Income Tax Act, section 67.1 Checked |
| Deduction share for a long-haul truck driver's food and beverages during an eligible travel period Specified percentage for amounts paid or payable after 2010 (Income Tax Act s. 67.1(1.1) and (5)); replaces the usual meals limit for these food and beverage costs | 80% | CRA: Business expenses Checked |
| Daily amount of a convention fee deemed to be food, beverages and entertainment when not shown separately Per day of the event on which food, beverages or entertainment is provided; that amount is then subject to the meals and entertainment limit (Income Tax Act s. 67.1(3)) | $50 | Justice Laws: Income Tax Act, section 67.1 Checked |
| Usual ITC share for restricted meals and entertainment Applies when the income tax deduction for reasonable business meals and entertainment is limited to this share; exceptions exist | 50% | CRA: General Information for GST/HST Registrants Checked |
Primary sources
- Justice Laws: Income Tax Act, section 67.1
- Justice Laws: Income Tax Act, section 18
- Justice Laws: Income Tax Act, section 15
- Justice Laws: Income Tax Act, section 248
- Justice Laws: Excise Tax Act, section 170
- Justice Laws: Excise Tax Act, section 236
- CRA: Schedule 1, Net Income (Loss) for Income Tax Purposes
- CRA: Guide T4012, T2 Corporation Income Tax Guide, chapter 3
- CRA: General Index of Financial Information (GIFI), RC4088
- CRA: General Information for GST/HST Registrants, RC4022
- CRA: Business expenses
- CRA: Provincial and territorial corporation tax
About this guide
Published by Cloud Accounting under standing professional approval. This version has no separately recorded personal review. It explains general rules for the tax year shown. It is not advice for your situation.
Changes
- : First published.