Meals and entertainment expenses and the 50% rule

That client lunch is deductible. It is just not deductible in full, and the half you can claim comes with record-keeping conditions that most businesses only discover when someone at CRA asks.

The 50% rule

The Income Tax Act limits the deduction for food, beverages and entertainment to 50% of the amount paid, or 50% of a reasonable amount in the circumstances, whichever is less. It applies the same way to a corporation, a partnership and a sole proprietorship. It also applies to the tip and to the tax on the bill, so the restriction bites the full invoice rather than the food line.

Entertainment is read broadly. Tickets to a game, concert seats, theatre, the cost of a hospitality suite and admission to a show all sit inside the limit when the business is paying.

The HST side, which is where it goes wrong

The same 50% restriction runs through your GST/HST filings. Only half the HST paid on meals and entertainment can be recovered as an input tax credit.

There are two ways to handle it in the books. Claim 50% of the HST as each expense is posted, or claim the full amount through the year and then make one adjustment in the final reporting period of the fiscal year to hand back the excess. Accounting software tends to push businesses toward the second method, and the second method is the one that gets forgotten. When the year-end adjustment never happens, every return in that year overstates the credits, and the balance comes due with interest whenever it eventually surfaces.

We prefer to set the meals accounts up with the restriction built into the sales tax code, so the correct credit falls out of the bookkeeping instead of depending on someone remembering in month twelve.

What sits outside the 50% limit

Several situations allow a full deduction:

• Employee events. Food and entertainment generally available to all employees at a particular place is fully deductible, for up to six events in a calendar year. The holiday party and the summer barbecue are the usual examples. An event limited to the owner and a few senior people does not qualify.
• Long-haul truck drivers. Meals consumed during an eligible travel period are deductible at 80%. Eligibility depends on the vehicle qualifying as a long-haul truck and on the trip meeting distance and duration tests away from the home terminal.
• Costs you rebill. Pay for a meal, itemise it separately on your invoice to the client, and you deduct it in full. The 50% limit moves to the client.
• Meals that become a taxable benefit. Where the cost is reported on an employee's T4, the employer deducts it as compensation rather than as a meal.
• Registered charity fundraising events.

The deduction question is separate from the taxable benefit question. CRA administrative policy treats an employer-paid social event as a non-taxable benefit only where the cost per attendee stays below a set threshold, and that threshold has been raised more than once. Confirm the current amount before booking something expensive.

What is not deductible at any percentage

Golf club membership dues. Green fees. The use of a yacht, camp or lodge for entertaining. The cost of a private box at a sports facility.

The golf distinction causes more reassessments than anything else in this area. A genuine business meal in the clubhouse is still 50% deductible. The round itself is not deductible at all, and coding the whole day to meals and entertainment is an easy adjustment for an auditor to find.

Conference and convention fees

Where a registration fee covers food and entertainment without breaking out the cost, the Act deems a fixed daily portion of the fee to be meals, and that portion is then subject to the 50% limit. The deemed daily amount is set in the legislation. Check the current figure before splitting a large conference invoice.

How the arithmetic works

Take a business with $9,000 of meals and entertainment for a year, of which $1,500 was a staff holiday party open to everyone.

The HST recovery follows the same split. Full credit on the party, half on the rest.

What a claim needs to survive a review

A credit card statement is not support. For each expense, the file should show the date, the amount, the venue, who was there and why the business was paying. The attendee names and the business purpose are the two items almost always missing, and they are the two an auditor asks for first.

A photo of the receipt taken at the table with the names written on it is enough. What does not work is reconstructing eleven months of lunches in March from a bank feed.

The mistakes we see most often

• Claiming 100% by default because the expense was clearly business related
• Never making the year-end HST adjustment
• Personal meals coded to the business because the card was in the wallet
• Treating a full day at a golf course as a deductible client meal
• Assuming the six-event rule covers management dinners

Getting the classification right at the point of entry costs almost nothing. Fixing it later, across a filed corporate return and four HST returns, costs considerably more than the deduction was worth.

All of our corporate and personal tax work

General information only, current at August 2026. Tax rules change and GST/HST status is fact-specific. Confirm your own position before relying on anything here.