Meals and entertainment — the 50% deduction rule
Expenses for food, beverages, and entertainment
Section 67.1 restricts the deduction for food, beverage, and entertainment expenses to 50% of the actual cost, regardless of the business purpose of the expense.
Plain-language explanation
Section 67.1 is one of the most-encountered limits for business owners. Even if a meal or entertainment expense is 100% for business purposes, you can only deduct half.
The 50% rule: All food, beverages, and entertainment expenses incurred for the purpose of earning income from business or property are deductible at only 50%. This applies whether the expense was for a client dinner, a team lunch, or tickets to a hockey game.
What counts as entertainment: Sporting events, concerts, theatre tickets, golf green fees, and similar leisure activities. The cost of the event plus any incidental food and drink.
Exceptions — 100% deductible: - Meals consumed by an employee while travelling away from the employer's principal place of business - Meals that are the business itself (a restaurant's food costs) - Food for crew on a work site in a remote location - Employer-provided meals at work (if available to all employees, e.g., a staff cafeteria at cost) - Meals at a conference or convention that are a separate charge from registration
Golf and country club memberships: Membership dues for golf or country clubs are 0% deductible under s.18(1)(l) — even if you conduct business on the course. Green fees for a specific client game may be 50% deductible.
Example
Leo takes three clients to a Canucks game. Total cost: $800 for tickets, $120 for food and drinks at the arena. Total expense: $920. Deductible amount: $920 × 50% = $460.
Amendment history
Significant changes to this provision. Older versions help you understand rules that applied in prior tax years.
Meals and entertainment deduction reduced from 80% to 50%. The change was part of the 1994 federal budget's effort to limit personal lifestyle expenses dressed as business expenses.
Before
80% of meals and entertainment deductible (reduced from 100% in 1987)
After
50% of meals and entertainment deductible
Common questions
Can I deduct 100% of a business meal? +
No. Even with a fully business purpose, s.67.1 limits the deduction to 50%. The exception is meals that are part of the core business (e.g., a catering company's costs) or meals on a remote work site.
Are golf club memberships deductible? +
No. Membership fees for golf, country, or social clubs are 0% deductible under s.18(1)(l). Green fees for taking a specific client to play may be 50% deductible if the business purpose is documented.
Are office holiday party costs subject to the 50% rule? +
CRA's administrative position is that office parties open to all employees (like a Christmas party) may qualify for a full deduction (not subject to 67.1) as an employment benefit rather than entertainment. The amount must be reasonable — CRA's guidance suggests up to $150/person per event (up to 6 events/year).
Key terms
Related sections
Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 67.1. — Read the official text on Justice Canada
These summaries are for educational purposes only and do not constitute legal or tax advice. Speak with a CPA for advice on your specific situation.