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Keeping Your Business Expenditures in Check for Tax Purposes

Expenditures for tax purposes

Most every business person wants to stay on top of their expenses for their business so these don’t eat into the profits.   The CRA has some very stringent rules that have to be adhered to for each type of expense.   A certain amount of expenses are often created as a result of business entertainment.

These are sometimes an expense which are tracked carefully by the CRA as they are often misused.   Some business people fall into the habit of trying to claim personal entertainment expenses under the business and end up getting caught doing this which then creates some real tax hassles.

At the same time the CRA knows that there are going to be some related business entertainment expenses.   Many times Company owners have to take clients out for meals, or utilize other forms of entertainment in order to generate business.

To avoid getting into difficulty with what is applicable to business expenses, remember perhaps what could be called the golden rule is that expenses must be applicable to earning business or property income.

The important thing to remember is to make sure you have a proper paper trail to support each of the expenses you are claiming.   You must keep all receipts.   Make sure the receipt is a valid one that shows how much it is for and the date.   It should show how you paid for it, and you can even put a note on the back of it explicitly outlining what it is for.  So for example, if you took two clients out for dinner, then make a note of who they were on the back of your receipt.

Around the holiday seasons there usually is an increase in the expenditures related to entertainment.   The CRA recognizes that these expenses may be a little higher because of the time of the year, but again don’t misuse the system by charging unrelated expenses to this area of your business.

You should also be aware that in many cases the total expenses incurred may not be full deductible as an expense.

Something else to keep in mind is just because you have chosen a specific form of entertainment for your clients, and you can justify this, it doesn’t mean that the CRA will accept it as an allowable business expense.   You may be thinking that the round of golf and dinner you treated your clients to at your favorite golf club on more than one occasion will justify claiming your membership dues.   This is probably not going to be the case, and you may find only a portion of the meals are claimable.

You really should discuss your dos and don’ts regarding entertainment business expenses with your business accountant.

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Sam Seidman, CPA, CA, LPA
629 Sheppard Avenue West
Toronto, Ontario
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Chartered Professional Accountant, Chartered Accountant, Licensed Public Accountant

Email: sam@torontoaccountant.ca

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