Fall is right around the corner and you’re likely ramping up for the harvest.
Taking on more workers may mean more mouths to feed around the harvest table and you’re probably wondering if you can deduct the extra expense.
Under the right circumstances you can claim 100% of the cost of these meals as a business expense.
The general rule in the Income Tax Act that addresses this is section 67.1(1):
Costs in respect of the human consumption of food or beverages, or the enjoyment of entertainment are deemed to be 50% of the lesser of:
- The amount actually paid or payable in respect of these items; and
- An amount that would be reasonable in the circumstances to pay for them.
But then, section 67.1(2)(e) states:
The 50% limitation doesn’t apply if the employer incurs the amount for food, beverages or entertainment that is generally available to all its employees at a particular place of business and is consumed or enjoyed by them.
This exempts costs incurred for a Christmas party or similar event to which all employees at a particular place of business have access.
A “similar event” could be a meal at harvest time for employees allowing you to claim 100% of the expense.
Like most expenditures reasonability and frequency are key considerations. Aggressive claims like daily meals to employees would not be considered acceptable and would be considered taxable benefits.
The exception under paragraph 67.1(2)(e) is meant for occasional events and celebrations.
It’s not necessary for a party or other event to be held at the place of business. It may be held at a restaurant, rented hall or other location.
The exemption also applies to the costs of food, beverages and entertainment for the employees’ spouses and children, provided these are offered to spouses and children of all employees.
Let the harvest feast begin. Just be sure you don’t overindulge too often.
You can view more specifics on these sections of the ITA at http://www.cra-arc.gc.ca/E/pub/tp/it518r/README.html.