Limits: Tax law limits most of your entertainment expenses to 50% of the amount spent.

Receipt Rule: You must have receipts for everything you spend.

Discuss business when you eat:

• The law contains a new requirement, you must discuss business before, during, or after a business meal to qualify for a business meal deduction.
• Tax law requires that a business meal be arranged for the purpose of conducting specific  business.
• The business meal must take place in surroundings conducive to a business discussion
• Answering the questions “who,” “where,” and “why” and recording the costs on the receipt will give you proper documentation for business meals.

Deduct theatre tickets and other associated entertainment expenses:

•  The theatre is a place conducive to a business discussion
•  The cost of theatre tickets is deducted under entertainment. This generally takes place in a non-business setting, no business discussion occurs during the entertainment, however, the entertainment should occur either before or after to be a bona fide business discussion.
•  There must be a link between the business discussion and the entertainment. 
•  The business discussion occurred in a proper business setting and was followed by entertainment with the dinner discussion. 
•  Setting where business discussion which includes entertainment: nightclubs, golf courses (excluding green fees), theatres, sports events, hunting trips, ski trips and fishing trips.    

Deduct season tickets by event. 

• Example, 15 specific performances treat each of them separately.
  Use entertainment tickets as Promotion:
• There is no limit to making business gifts, however, like most entertainment, the deduction is limited to 50% of the cost of the gift.  
•  If you give tickets for entertainment as promotional gift and note this in your diary, you will be able to deduct 50% of the cost of the gift.
  Feed and entertain your spouse:

*CRA has a “closely connected” rule. Most spouses are closely connected. The closely connected rule permits deducting the expense of entertaining your spouse as well as the spouse of a business guest. If your business guests bring their spouse so can you.

Audit Proof your entertainment deductions:

In order to deduct any entertainment, the deduction must meet three requirements:

                        1)  It must be reasonable

                        2)  There must be a reasonable expectation of profit

                        3)  There must be a documented business reason for entertainment.

Deduct home entertainment:

*Your home is already a setting conducive to a business discussion. If you invite a couple to your home for dinner, it’s easy to have a one-on-one conversation. You do not need to spend more time trying to conduct business than you spend entertaining your guest. E.g. You invite the Jones to your home to ask for a referral, you get it.  Even if 90% is pent on non-business the cost is deductible. If you asked and failed to get the referral the cost is still deductible.

Give small parties at home:

*Your home entertainment deductions are secure when you discuss specific business with your guests.  Keep your guest list small (fewer than 12 people).  Then you can talk to everyone with whom you need to discuss business.

Large group entertainment:

• When you invite more than 12 people you will be hard pressed to prove to CRA that you had specific business discussions. You must establish some other type of commercial motivation
• Never mix business with pleasure (b-day party)
• Display products to show clearly commercial motivation.  If you have no personal or social relationships with the guests your chances for a deduction is improved.
   
  Give parties for employees:

*The reasonable cost of a year-end holiday party or summer outing for employees and their families is 100% deductible. There are no 50% rule. CRA limits employee events to six per year.

Reward employees with non-cash gifts:

* An employer is allowed to deduct the cost of up to two non-cash gifts with a combined fair market value under $500 AND up to two non-cash awards with a combined fair market value under $500 in a year to each employee without having to add these amounts to the employee’s T4.  Cash gifts including gift certificates of any amount are considered taxable employee benefits.

Combine Personal Pleasure with Business Travel

What is travel – when you are away for 12 hours from your regular work area.

•If you do not meet the 12 hr rule, your trip is classified by tax law as a non-travel trip.  You are only allowed to deduct your transportation costs not your meals.  If you are on travel status then you can deduct 50% of your meals.
•Transportation expenses:  include the costs incurred getting to and from your destination.
•On-the-road expenses:  include all costs necessary to sustain life on your trip including lodging, meals, laundry, dry cleaning, and similar expenses.
•Make weekends deductible:  when traveling out-of-town, you may count all weekends, legal holidays as business days that fall between business meetings (E.g. Book Friday and Monday)
•You deduct all on-the-road expenses for the weekends and holiday
•You add business days for purposes of determining if your transportation expenses are deductible.
•When traveling in Canada, you can count weekend days as business days when it would cost more to return home than stay at your business destination.
•You obtain tax deductions for the two days of fun and sun.
•Days in transit are considered business days provided travel is by a reasonably direct route to the business destination. Get educated out of town
•Tax law allows deductions for travel to and from educational facilities, meetings, seminars, and conventions.  If the same seminar is held both in your hometown and a nice resort, there is no requirement that you stay at home.

Get Your Maximum Business Auto Deductions:

• Figure out business use by diving business kilometers by total kilometers driven.
• You do this for each car driven for business
• Buy cars that cost $30,000 or less plus GST and PST
• Purchase cars later in the year – since the first year has the half rule for depreciation the later you buy it the less you will lose the first year.  Depreciation is calculated under the declining balance method using 30% of the remaining undepreciated capital cost per year.
• If you own a car for over three years than the best after-tax return would be to own it.  If you get an another car every two years than you are better off leasing.  The limit on lease payment deduction is $800 plus taxes per month, anything more is lost.
• Keep a daily log of car use:
• When you file your tax return you have to answer specific questions such as total kilometers and total business kilometers
• Records must be adequate to support business use.  Failure to keep good records exposes you to huge penalties and interest
• Keep a daily log of car use.  Answer the following questions who, where and why.