NOT ALL ENTERTAINMENT EXPENSES ARE DEDUCTIBLE
In general, an expense is deductible if it was incurred to earn business or property income. However, meals, drinks and entertainment, commonly known as entertainment expenses, are an exception.
When entertainment costs are not considered a personal expense, they are usually 50% deductible. Depending on the case and the applicable conditions, these expenses may also be deductible in full or not at all.
Here are some examples of expenses that are 50% deductible, fully deductible or non-deductible.
BASIC RULE: 50% DEDUCTIBLE
- cost of food and beverages, including tip;
- cost of food and beverages, including gratuities, consumed on a golf course if these costs are itemized on the bill (exception: “golf and meal” packages in Quebec);
- restaurant or SAQ gift card ;
- cost of a box in a sports venue ;
- gifts to customers, provided they are food, beverages or entertainment;
- meal allowances paid to employees that are not included in their income ;
- tickets for plays, concerts and sporting events;
- fees for ski season passes ;
- transportation, travel and accommodation expenses for entertainment purposes.
FULLY DEDUCTIBLE
- food, beverages and entertainment costs billed back to the customer and itemized on the invoice (the 50% rule will apply to the customer)
- expenses incurred for the benefit of all employees, such as Christmas party expenses (six events per year)
- in Quebec, a subscription (at least three performances) to concerts by a symphony orchestra, a classical music or jazz ensemble, opera performances, dance shows and plays, for events taking place in Quebec.
NOT DEDUCTIBLE
- expenses incurred for the acquisition or use of a pleasure boat, lodge, chalet-hotel (e.g. hunting and fishing outfitter) or golf facility, as well as amounts paid as dues (registration fees or other) to an association whose main purpose is to provide its members with recreational, sports or dining facilities;
- contributions to a social or sports club paid by the employer for the benefit of an employee, even if the employee has a taxable benefit;
-
in the province only, entertainment expenses are subject to a general limit equal to 1.25% of the company’s sales. This limit applies only to expenses deductible at 50%.
EVIDENCE
The tax authorities may ask you to demonstrate that the expenses are not personal. It is therefore important that you keep the following information easily accessible: the names of customers or other persons who have benefited from these charges, as well as the names of locations, dates, times and amounts, accompanied by supporting documents.
This article appeared in: Les Affaires | http://bit.ly/10ubiQ4 | September 15, 2012
