Business meals: understanding the 50% limit
The general rule targets food and entertainment
The rule often associated with section 67.1 of the Income Tax Act generally limits to 50% the reasonable amount paid for food, beverages or entertainment. The limit usually applies to the relevant total, which can include taxes, the tip and alcohol when the expense itself is an eligible business expense. It does not turn a personal meal into an expense just because the person is self-employed.
The solo lunch stays generally personal
Eating is an everyday living expense. Buying a sandwich near your office because you have a lot of work does not automatically create a business link. In a common scenario, that solo lunch is therefore at 0% in business expenses. A $60 dinner with an existing client to discuss a mandate can have a business link; the general limit would then give a $30 deductible expense. Context and reasonableness remain essential.
| Situation | Amount paid | Deductible scenario |
|---|---|---|
| Solo lunch at the office | $22 | $0 in the common scenario |
| Documented client dinner | $60 | $30 with the 50% limit |
| Representation tickets and meals | $200 | $100 if eligible |
| Amount re-billed to the client | $100 | Treatment to check per agreement |
The receipt does not tell the business purpose
A receipt shows the restaurant, the date and the amount. It does not prove who attended or why the meeting served earning income. Add a note with the date, place, the client or prospect's name, the business, the meeting's purpose and the amount. Keep the detailed receipt rather than just the card transaction. A series of meals vaguely described as "networking" will be harder to defend than a precise log.
Re-billing the client: When a meal is incurred for a client then clearly re-billed as a disbursement, the treatment can differ. Document the agreement and the invoice; do not automatically move from 50% to 100% without checking the conditions.
Exceptions exist, but are not the starting point
Some situations may be treated differently: events offered to all staff within certain limits, amounts included in a person's income, activities where food is sold in the ordinary course of business, or expenses re-billed under precise conditions. These exceptions need facts and documents. For a small self-employed worker, the prudent method is to start from the 50% limit, then separately identify any supported exception.
Separating payment, deduction and taxes
Three numbers can coexist: the amount actually paid, the tax-deductible portion and the recoverable tax portion. The calculator shows the meal total, the deductible half and the non-deductible half to avoid confusing cash flow with the net income reduction. If you pay $1,000 of meals over the year, your bank account did decrease by $1,000, even if the tax scenario only reduces income by $500.
- Write the business note at the time of the meal, not six months later.
- Avoid generic descriptions and totals without detailed receipts.
- Separate personal meals from expenses discussed with a client.
- Check the specific rules before using an exception.
Clear bookkeeping reduces the time needed to file the return and answer an information request. The guide explains the general rule; it does not confirm a specific meal's eligibility. When the expense is large, repeated or tied to a special event, get validation suited to the facts.
Frequently asked questions
Is the tip included in the limit?
Under the general rule, the calculation usually covers the relevant reasonable total amount, including the tip.
Can I deduct a coffee bought before a meeting?
The business link must be real and documented; merely having a meeting later is not enough.
Does the calculator decide whether my meal is eligible?
No. It applies 50% to the amount you yourself classify as an eligible business meal.