How to Expense Mileage, Entertainment and Meals in Canada
Tax write-offs are your best friend as a small business owner. The higher the deductions you have, the lower your taxable income and tax payable. How do you expense mileage, entertainment and meals in Canada?
The use of your vehicle for business-related reasons means that the car expenses incurred are tax-deductible.
The Canada Revenue Agency (CRA) regulations allow you to claim these expenses provided you have supporting proof of the car’s use for business purposes.
How to Deduct Mileage Expense
You’ll need to track your trips throughout the year to calculate your mileage deduction correctly. It would be best if you also hang on to any vehicle-related purchases.
While you won’t send the receipts when filing, you’ll need them if the CRA wants to know how you calculated your deductions.
Using your vehicle for business means that you might be eligible for a mileage write-off.
Using a Full logbook
To claim the mileage deduction, the CRA requires you to keep a full logbook that journals all your travel activities.
It means you should note down the odometer reading on the first day you use your vehicle for business. Additionally, note down the odometer readings for the last day you use your car for business.
On each trip, indicate the date and the odometer reading of the beginning and end of the journey.
Using a Mileage Tracking App
A mileage tracking app helps you to track business trips in a well-ordered manner easily.
Calculating the Mileage
With accurate records, calculating your mileage deduction isn’t hard. You’ll need:
- The total distance you drove during the year
- The total distance you drove for business purposes
Plug the two figures into the CRA formula for calculating your mileage deduction.
Entertainment and Meals
You can only make entertainment and meal deduction claims if these expenses are incurred for the sole purpose of earning income for your business.
The calculation for these expenses follows the 50-Percent rule. It means the maximum amount of food, beverage, and entertainment expenses claim should be 50 percent of the amount you incur or an amount reasonable.
The 50-percent rule limit applies even when the amount of the expense is:
- Otherwise deductible as an expense
- If included in the cost of capital property such as land or a depreciable property
- Included in the inventory cost, research, or experimental development expenses
This information applies to business owners, professionals, and employees.
Tips and taxes are allowed expenses, and you can make a deductible claim. For instance, if you spend $100 on your client’s food and beverages, including a $7.00 HST, and a $10.00 tip, the total you spent is $117.00. Your allowed expense deduction is $58.50.
You’ll always need receipts when there’s a need to back up your claims for business expenses for a minimum of six years. You should, therefore, be diligent when you incur any business expense.
Do you have tax-related questions about your small business? Book a consultation with one of our tax planning experts and determine how you can maximize your tax savings for your business’ year-end