So you’ve grabbed a latte with your favourite client and you decided to buy the donuts. Ding! Tax deduction! To make it stick with CRA, here’s what to do:
1. Keep the receipt, keep the receipt and keep the receipt. Oh, and keep the receipt!
2. Write your client’s name on the receipt!
3. Protect that receipt!
4. Make sure your bookkeeper gets that original receipt!
5. Make sure your bookkeeper is protecting that receipt!
What your bookkeeper will do with that receipt is record 100% of the receipt as an expense of your business BUT 50% of that receipt is a tax deduction. Accounting and tax software are magically designed to be able to tell the difference between business expenses and tax deductions so you don’t have to!
And what if you go on an eating binge while working on your business? Here’s the thing…be reasonable in your spending. Meal and entertainment expenses must be for your business and they must be reasonable given the nature of your business. Meal and entertainment expenses are meant to reflect promotional activities and business development. So groceries for your family’s camping vacation just don’t make the grade.
Always imagine yourself sitting in front of a CRA auditor and the auditor asks you why the expense is reasonable within the context of your business. If you can feel sweat at your brow and that sick feeling in the pit of your stomach, maybe just maybe the expense is unreasonable and can’t be defended. Mind you, the sweat on the brow thing could be because you have a deep fear of CRA auditors and you’d rather let your accountant deal with it for you. Either way, you’re the one on the hook for the tax effect. Be reasonable, keep your original receipts and make sure they’re audit-ready in case CRA calls.