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

What you need to know about PST

PST calculator

On April 1st, 2013 BC eliminated HST and returned to PST, a retail sales tax that applies when a taxable good or service is acquired for personal or business use unless a specific exemption applies. GST will be 5% and PST tax rates will be:

  • General rate: 7% of the purchase or lease price.
  • Liquor: 10% of the purchase price.
  • Accommodation: 8% of the purchase price.
  • Vehicles: 7% – 12% of the purchase or lease price (including the surtax for passenger vehicles valued at $55,000 or more), or 7% – 12% of the fair market value if received as a gift.

 

What’s taxable and what’s not?

  • Retail sales tax on a taxable good or service acquired for personal or business use
  • Purchase or lease of new or used goods
  • Taxable goods brought, sent or delivered into BC for use here
  • Software, services related to most taxable goods
  • Accommodation, legal services, telecommunication services
  • The lease of tangible personal property (goods) in BC for personal or business use, unless a specific exemption applies.

All former exemptions will be re-implemented, including but not limited to:

  • All food for human consumption (e.g., basic groceries and prepared foods such as restaurant meals)
  • Bicycles
  • Dry cleaning and tailoring
  • Newspapers and magazines
  • Exemptions for business (e.g., purchase of goods for resale, eligible machinery and equipment).

PST does not apply to most services, so transportation services, personal services such as haircuts or massages and most professional services such as accounting or engineering services should not be cha.

Download a detailed list here: What’s taxable?

Reporting and Remitting

Any PST that you charge must be paid and reported to the government regardless of if you have collected it from your customer. You must remit all PST charged within a reporting period no later than the last day of the month following the reporting period. For example, if you are reporting for a period ending June 30, you must file your return and remit the PST charged in that period no later than July 31.

Your reporting frequency will be determined at the time of registration based on how much PST you are estimated to collect per reporting period on sales and leases in BC. Reporting periods may be monthly, quarterly, semi-annual or annual.

Tax Collected per Year

Filing Frequency Options

More than $12,000

Monthly only

$6,000 – $12,000

Monthly or Quarterly

$3,000 – $6,000

Quarterly or Semi-Annual

Less than $3,000

Quarterly, Semi-Annual or Annual

If the amount of PST you regularly collect changes, you will be notified by letter by the government and your reporting frequency may be adjusted.

How do I pay?

·   Online: You are able to file your PST return (including Nil returns), make payments, manage your accounts and more online.  eTaxBC, is intended to streamline business processes around reporting and remitting PST.

·   Internet Banking: Check with your financial institution to see if you can file your tax returns and make payments online through their website.

·   Mail: Send the remittance coupon, your payment and any required documentation to: The Director, Provincial Sales Tax, PO Box 9443 Stn Prov Govt, Victoria BC V8W 9W7

Commissions

Collectors who are registered as required are entitled to a commission for each reporting period in which they remit PST as required and on time. Collectors with more than one PST account may only claim commission on one of those accounts.

Tax Collectable

Commission

$22.00 or less

The tax collectable

$22.01 – $333.33

$22.00

More than $333.33

6.6% of tax collectable, to a maximum of $198.00

 

Retaining Books and Records

You must keep sufficient books and records to provide details of all the following:

  • all sales and leases (taxable and non-taxable)
  • all tax collected, remitted and commission taken
  • all purchases and leases for inventory and for your own use
  • all applicable supporting documentation to show why tax was not collected on taxable goods and services.

You must keep books, records and any documentation relating to your business for five years.

Need more information?

Toll free in Canada: 1.877.388.4440

Email: CTBTaxQuestions@gov.bc.ca

http://pstinbc.ca/

 

 

 

The 12 Craziest Write-Offs of 2012

Crazy write-offs

Photo courtesy of moffoys

Homeroom proudly presents: The 12 Craziest Write-Offs of 2012: weird & wonderful things we’ve had receipts turned in for last year.

  1.  The first Crazy Write-Off: receipts came in for a beta, a Hamster & a Kitty. They’re cute yes, but not tax deductible.
  2. The 2nd Crazy Write-Off: receipts came in for 2 packs of diapers. DIAPERS?! Nope, sorry, can’t write off baby’s ‘leavings’.
  3. The 3rd Day of Crazy Write-Off: receipts came in for Marriage Counselling sessions. Hate your spouse? Revenue Canada cares not.
  4. The 4th Crazy Write-Off: receipts came in for  boxes of LEGO! Sorry, lego is fun, but definitely not a business expense.
  5. The 5th Crazy Write-Off: receipt came in for a stay at a ‘CLOTHING OPTIONAL’ RESORT!!! Not *that* kind of ‘business’.
  6. The 6th Crazy Write-Off: receipt came in for LEATHER CLEANING! White leather sofa? Fetishwear? Biker Gear?
  7. The 7th Crazy Write-Offs: receipt came in for U-Brew Beer Kegs!! Is your business driving you to drink?!
  8. The 8th Crazy Write-Off: receipts came in for purses, clothes & shoes!!!! Sorry ladies, unless it’s a UNIFORM, no dice.
  9. The 9th Day of Crazy Write-Offs: receipts came in for boxes of tampons! This would be AWESOME, wouldn’t it girls?!!  Dream on…
  10. The 10th Crazy Write-Off: receipts came in for packs of BIRTH CONTROL PILLS!!! Kudos for being baby-making responsible!
  11. The 11th Crazy Write-Off: receipts came in for MOVIE TICKET/CONCERT STUBS! Schmoozing customers/staff? Great! Yourself? No.
  12. The 12th Crazy Write-Off: receipts came in for ‘ADULT’ MOVIES!!! There’s ‘business’ and then there’s ‘BUSINESS’.

5 common bookkeeping mistakes

Bookkeeping mistakes

Photograph courtesy of Sam Beckwith

1. Ignoring CRA correspondence

Ignoring the brown envelopes from the CRA won’t make them disappear, and chances are that it might not be as bad as you think.

Having someone who is used to reading these letters can ease your mind by deciphering what needs to be done. From experience, being pro-active and keeping in contact will keep you out of trouble, even if you don’t have the money to pay right away.

2. Procrastinating with your bookkeeping

How good would you feel if your books were up to date and you knew how your business was doing on a regular basis?

Having your receipts pile up creates clutter in your office and your mind. The longer you wait, the less likely you are to remember specifics about your income and expenses. Get it done and save yourself headaches.

3. Not paying employer portion of payroll liabilities

Most new business owners don’t know that as an employer, you need to match CPP and EI that is withheld on the employee’s paycheques.

These amounts can add up quickly, and when your T4’s are filed, you will get a bill for the employer portion which could cripple your business. The payroll division of CRA tends to be the most severe and quickest to hand out penalties. Hand over your payroll to a professional.

4. Annual HST filers being surprised at how much they owe

Did you know that one year’s worth of HST could be $10,000 or more depending on your business?

Setting up an HST savings account is a great way to help you budget for the annual payment. If you work with a bookkeeper, they can tell you how much you would owe each month so that you will be prepared. Alternatively, switching to filing quarterly is another option. 5. Self employed person’s obligation to pay CPP Did you know that all self employed individuals are obligated to pay 9.9% CPP (Canada Pension Plan) on all net earnings over $3500? Many self employed people do not earn enough to pay income tax, however they still owe CPP at tax time, and are unable to pay on time. Avoid unpleasant surprises and plan ahead.

5. Self employed person’s obligation to pay CPP

Did you know that all self employed individuals are obligated to pay 9.9% CPP (Canada Pension Plan) on all net earnings over $3500?

Many self employed people do not earn enough to pay income tax, however they still owe CPP at tax time, and are unable to pay on time. Avoid unpleasant surprises and plan ahead.

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We are happy to announce the launch of our new Blog.  Please check back often because we will be posting all sorts of useful resources and interesting articles.

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