If you are a small business owner, it’s almost guaranteed that you’ll end up working from a coffee shop at some point! Maybe you need to work on a blog (ahem!), figure out your social media strategy, scheme for your upcoming fiscal year – or maybe you just love the ‘social’ living room.
The question that I get from a lot of small business owners is ‘can I write off that coffee?’ And this is a super confusing topic, so let’s talk about the CRA and what they say about entertainment and meals.
At Zetique, this is something that my small business clients send me a lot – coffee shop receipts and restaurants where they had lunch on the run. They want to write off that coffee or that lunch and, it’s not a valid business expense.
What the CRA says is that you can write off your meals, your coffees, your drinks, your entertainment, if you are incurring those charges for the sole purpose of getting new clients. So if you are taking somebody out with the purpose of getting business, then that’s when you can start writing off food and drink expenses in your bookkeeping.
Always keeping that idea in the back of your mind – is this event, is this coffee, is this glass of wine, is this meal that I’m expensing to my small business – am I spending this money so that I can get business from this person that I’m taking out? And if yes, if you pay for the full meal, both the coffees, et cetera, et cetera, then you can write off only 50% of what the final bill is.
No fair, right? The reason the CRA gives for this is that you need to eat anyways. Just like with clothing, in the purpose of doing business, you have to wear clothes and you can’t write off those clothes just because you have to wear them. They aren’t a business expense just as feeding yourself, having your drinks, et cetera, is not a business expense.
SO, WHEN YOU’RE SITTING IN A COFFEE SHOP BY YOURSELF
you’re working on your computer, you’re pounding out a bunch of stuff and drinking coffee, those coffees are not actual business expenses. Those are just to sustain you, to help you get your work done. So always keep in mind that entertainment, meals, coffees, et cetera, have to be for someone else with the intent of getting business from that person. Okay?
The catch is that it is kind of a subjective thing. So when you’re sitting with somebody, you’re talking about business and one of you pays for both of the coffees or the entire meal, then there is some subjectivity to whether or not you could write it off. And that’s up, as is everything in our Canadian tax system, to whether you can justify the expense. Because in the end it’s always going to be about the justification.
Aside from taking somebody for a coffee or taking somebody for a meal, it depends on what kind of work you do. If you’re in certain lines of work, you can easily expense taking people out for different events – like sporting events or going to the theater or going to watch a speaker. All of those things can be considered entertainment. And again, keeping in the back of your mind always that it’s for the purpose of getting business from this person that you’re taking, and that you can justify it.
If you’re selling something that costs a hundred dollars and you take somebody out to the theater and the theater tickets cost $200 each, it’s not very easy to justify that expense to your business. If you really want this client and taking them out for oysters and champagne will seal the deal, it’s not going to be justified if you’re selling a low-cost item. If you have a high-ticket item, then it might make sense.
The crunch is that if you ever get audited, these are the things that get audited really quickly. So when you’re paying for it and you have your receipt, you can take the entire amount divided by 50 and 50% of the cost is what you can write off to your business. Always keeping in the back of your mind whether or not you can justify the expense!