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5 Items that are NOT business expenses

A lot of business owners are guilty of keeping receipts for items that cannot be claimed as a business expense. To save money on your bookkeeping, by limiting the amount of time your bookkeeper spends sorting through receipts, leave the following receipts out of your folder.

1. Clothes

You may also be required to wear a certain type of outfit to work on a regular basis such as a suit. However, unless you are buying specific safety gear or are required to wear a branded uniform any clothes you purchase are considered a PERSONAL NOT BUSINESS expense. This includes associated costs such as dry cleaning and laundry services.

I know this is a terrible reality for most of us in particular for all of the office workers out there. As much as we wish things were different (we too would like to get some money back for looking this good on a daily basis) the CRA just won’t budge on this one.

Until the day when we start a revolution by wearing burlap sacks in protest please refrain from sneaking your clothing purchase receipts into your bookkeeping folder.

2. Personal maintenance

When you are the face of your company or the company you work for it’s important to look the part. This can be expense we all know Botox, makeup and personal training isn’t cheap!!

That said the CRA wants you to be beautiful on your own dime. Clearly this faceless monster doesn’t understand the pressures of being a local celebrity.

Again until we find a way to make them understand how important looking and feeling good is when you are a business owner please keep these receipts out of your bookkeeping.

3. Groceries

Eating is expensive!!! It would be really nice to get some of that money back on your food consumption especially considering that majority of your eating takes place while working.

Twice a year you can throw a party and claim it as a business expense. Keep that in mind when gathering your receipts.

Anything more than that is just groceries for your family, you know it…we know it…and the CRA will know!!

 

4. Solo Meals

So you ordered Subway for one during your lunch time “business meeting”…hmmmm interesting. Unless you went Dutch, which we know you didn’t, you can’t claim single meals as a business expense without running the risk of having it rejected during an audit. In addition your three daily trips to Starbucks don’t count as business meetings.

The best way to protect yourself and prove that your “meeting” is legitimate, in the event of an audit, is to write the name of the person you were meeting on the meal receipt.

Rejection = Penalties and interest

5. Personal items, trips & gifts

Did you really purchase that tent for your business trip to Pemberton? We may accept this as true if you are a journalist who works for a local paper that rewards you with love not money, or more logically a tour guide. But when the average business owner adds this receipt to their folder the bookkeeper will automatically assume it is personal unless you make a note claiming why it is a business expense.

Tickets to Disneyland, ski passes, expensive artwork, adult toys and climbing the grouse grind to have lunch will also be filed by your bookkeeper under “I don’t think so” unless you write a convincing argument on your receipt in advance.

 

The main thing to know about bookkeepers is that we want to make sure your expenses are recorded correctly so that if you are audited you have nothing to worry about because all of your expenses are legitimate business expenses that would be approved by the CRA.

To find out more about how we can help you with your business or to determine if you have some expenses that are an exception to the rule contact us today.

The Truth About Meals

meals

Photo courtesy of Nick Nguyen

Do you know how to properly deduct your meal expenses? There are different rules for different people depending on who you are, who you work for, and what your employment contract states when it comes to deducting your meals.

The 50% Rule: The maximum amount you can claim for food, beverages, and entertainment expenses is 50% of either the amount you incur or an amount that is reasonable in the circumstances, whichever is less.

What is reasonable? Ultimately the CRA defines what is reasonable. If you get audited, you will have to prove to the CRA auditor that your expense was reasonable. Is it reasonable to spend $500 on entertaining a client who pays you $50 a year? Probably not.

These limits also apply to the cost of your meals when you travel or go to a convention, conference, or similar event. However, special rules can affect your claim for meals in these cases. See sections on solo travellers and conventions below.

These limits DO NOT apply if any of the following apply:

  • Your business regularly provides food, beverages, or entertainment to customers for compensation (for example, a restaurant, hotel, or motel).

  • You incur meal and entertainment expenses for a Christmas party or similar event, and you invite all your employees from a particular location (note that you are limited to six of these events each year).

  • You bill your client or customer for the meal and entertainment costs, and you show these costs on the bill.

  • You incur meal and entertainment expenses for a fundraising event that was mainly for the benefit of a registered charity.

Claiming Meals For Business

What business gifts are you giving your clients? There are tax implications to the choices of gifts you purchase. Gift baskets (with food in them), gift cards to restaurants and coffee shops are considered meals. Which means they are only 50% deductible to you.

Many businesses supply coffee, tea, creamers, bottled water, juice, pop, snacks, or sometimes alcohol in the office fridge.  In order to claim these, you must have a business reason, the names of who participated and the reason for consumption.

Also as a  business, you are allowed to write off six office events a year and claim a 100% deduction on those events.

For any entertainment expenses to qualify as a business expense, you must be able to demonstrate that the amount was incurred for the purpose of earning income, the onus is on you as the business owner to keep track.

You must have a business reason as well as names of customers or persons being entertained.  For example, if you’re going to spend big money on tickets to a hockey game, keep a record of who you were entertaining and have a good reason for it. The more expensive something is, the more important it is to have a good reason for conducting business.

Never eat or drink alone if you want to write it off unless you are one of the exceptions. Take office breaks with a co-worker, call it team building and you can write it off. Be sure to write on the receipt, who you were with, and what was the purpose.

A cautionary tale: a client was recently audited and asked to provide the name and phone number for each receipt that had been deducted, the client was not able to provide this information, and all the meals were disallowed. It’s all good…until you get audited.

Convention expenses

You can deduct the cost of going to conventions, up to two a year. The conventions have to:

  • relate to your business or your professional activity; and

  • be held by a business or professional organization within the geographical area where the organization normally conducts its business.

This second limit may not apply if an organization from another country sponsors the convention, and if the convention relates to your business or professional activity.

Sometimes, convention fees include the cost of food, beverages, or entertainment. However, the convention organizer may not show these amounts separately on your bill. If this is the case, subtract $50 from the total convention fee for each day the organizer provides food, beverages, or entertainment.

You can deduct this daily $50 amount as a meal and entertainment expense. However, the 50% limit applies to the daily $50 amount.

Food, beverages, or entertainment at a convention do not include incidental items such as coffee and doughnuts available at meetings or receptions at the convention.

Travelling Expenses for Employees

Travelling expenses include food, beverage, and lodging expenses but not motor vehicle expenses. You can deduct travelling expenses as long as you meet ALL of the following conditions:

  • You were normally required to work away from your employer’s place of business or in different places.

  • Under your contract of employment, you had to pay your own travelling expenses.

  • You did not receive a non-taxable allowance for travelling expenses.

  • You keep with your records a copy of Form T2200, Declaration of Conditions of Employment, which has been completed and signed by your employer.

The 12-hour rule: You can deduct food and beverage expenses if your employer requires you to be away for at least 12 consecutive hours from the municipality and the metropolitan area of your employer’s location where you normally reported for work.

Solo Travelling employees

For a solo meal, you need to know if you fit into one of the special categories or if you have a contract that states whether you are required to carry on duties in different places.

As a rule of thumb travel and eat and drink solo at your own peril.

If you do, keep a log of how long you were away, why you were away, and how come you couldn’t get back within 12 hours.

Arrange your meals together with an employee, team member, colleague, client, customer, supplier, or partner to discuss business matters.

Unless you meet the criteria of railway worker, commission sales, transport, or have a contract to carry on duties away from the place of business or in different places, remember the 12-hours-away rule.

 

References:

Travel solo at your peril http://www.taxdetective.ca/articles/article/1482041/89556.htm

Canada Revenue Agency