As the festive season gets underway, for those running their own business there are opportunities to recognize and entertain customers, clients and of course, staff. If you choose to pay the cost, how much can you deduct as a business expense?
A distinction needs to be made between personal activities with a select client or group of clients, and organized business oriented events having a more inclusive invitation to clients in general.
In the case of dinner and a hockey game or theatre performance with a client, including a prospective client, CRA assumes there is personal benefit to the business owner so only 50 per cent of the cost can be expensed.
And be sure to do your math the CRA way. Even if four go to the game making the business owner one quarter of the group, 75 per cent isn’t the allowable expense recognizing the fact that there are three clients. Only 50 per cent can be expensed. So if it’s a group of 10, only 50 per cent is expensed, not 90 per cent.
The logical extension of this CRA math is to entertain one client at a time, especially if you really like hockey or theatre and you’re planning to go a lot anyway.
However there are events that qualify for a 100 per cent expensing of the cost. If the purpose of the event is deemed to be a “business input”, CRA allows the entire cost to be expensed. For example, if food and entertainment are required to carry on a typical business activity such as a presentation or workshop.
Perhaps consideration should be given to activities that would allow you to concurrently conduct business and entertain clients and therefore the costs would be eligible for 100 per cent expensing, instead of doing the individual social invite to the hockey game that only allows a 50 per cent expensing.
Interestingly, given the business input approach, it may be argued that an invitation to the client base for an event such as an “Open House” is a cost that should be 100 per cent expensed. After all, the event will have a business orientation.
Now, if this type of event also supports a registered charity, CRA allows 100 per cent expensing of costs associated with such a fund-raising event.
Why not invite your clients to bring items for a family Christmas basket to aid the local food bank.
And I would be remiss if the entertaining of staff were left out of this discussion.
First off, work functions for staff that provide food and include a business component such as training, presentation or meeting can be 100 per cent expensed.
More importantly, CRA affords a business owner the luxury of hosting social type events such as a company Christmas dinner or a night at the arena or … a post-tax-season-celebration … for employees that can be 100per cent expensed as long as it’s a general invite to all staff.
Generously, CRA allows six such events a year.
Keep in mind, a specific employee invite to a social type activity yields only a 50per cent expensing.
Party on …
Ron Clarke has his MBA and is a business owner in Trail, providing accounting and tax services. Email him at ron.clarke@JBSbiz.ca. To read previous Tax Tips & Pits columns visit www.JBSbiz.net.