What To Do When CRA Claims that Meal Expenses Can Only Be Incurred With a Customer

People sitting around table - only with customers | Photo by Les Roches http://www.flickr.com/photos/lesroches/9676969155

When claiming Meal Expenses, an auditor may try to tell you that the expenses can only be claimed if they were incurred with an existing or potential customer or client. 

CRA's argument, at-a-glance

As Canadian tax law states that meal expenses are only deductible if they were incurred for the purposes of producing income, and since an auditor might feel that only customers, or clients, can have any potential impact on your ability to produce said income, CRA might argue that meals held with anyone other than a customer or client are of a personal nature. To an auditor, this is a "common sense" argument, and is not usually accompanied by any reference to legislation or other relevant source.

Canada's tax law - how it really is

It is simply incorrect to disallow meal expenses because they were not incurred with a client. In the words of CRA's own interpretation bulletin, IT518r - Food, Beverages and Entertainment Expenses, article 19:

Records should be maintained of the names and business addresses of the customers or other persons being entertained

Notice the red text? According to CRA's own interpretation bulletin on the subject, both meal and entertainment expenses can be incurred with customers or other persons. An auditor's underlying assumption that only customers can have an impact on a taxpayer's ability to produce income is incorrect. For example, if you meet with a work colleague over a meal in order to discuss or work on a paying project, or to strategize over obtaining paying projects in the future, then your interactions with that colleague have an obvious potential to impact your future earnings. In reality, meetings with work associates could be necessary precursors to obtaining new paying customers with whom you can then incur further meal expenses.

Conclusion

There is no legislative basis for attempting to disallow meal expenses solely on the basis that they were held with with someone other than a customer. Canada's actual tax legislation does not restrict meal expenses to "customers only", and, furthermore, IT518r, CRA's own interpretation bulletin on the subject, makes it clear that meal and entertainment expenses can be claimed with persons other than customers. A CRA auditor has absolutely no justification for making use of this tactic. 

See Your Defense in Nutshell below for an example of the type of response you can use in your communication with CRA.

Your Defense In a Nutshell

 

This section is for logged-in users only. If you were logged in, you would see an example of a well-crafted response you could use and customize in your own communications with CRA. Simply request an account from us. We will be more than happy to hear from you. 

Sincerely,

- Audit Self Defense team

Add new comment

left Audit Self Defense is committed to making sure you never have to pay more to CRA than you are legally required to, and to making sure you have the tools you need to calmly and effectively deal with CRA if they come calling. Do we want you to win your case? Absolutely! However, Audit Self Defense cannot guarantee successful audit decisions. Nobody can guarantee that.