By OptiVal Editorial Desk

Meals and Entertainment Expenses: CRA Rules for 2026

Client dinner at a decent restaurant. A pair of Leafs tickets for a prospect. The holiday party everyone actually enjoyed. Ask a dozen Canadian business owners what they can deduct for meals and entertainment expenses, and you will get a dozen different answers. The meals and entertainment expenses CRA rules are stricter, and simpler, than most owners expect. Here is the plain-English version, current for 2026.

The 50% rule: half of it is gone

Section 67.1 of the Income Tax Act sets the baseline. When you spend on food, beverages, or entertainment to earn business income, only 50% of the lesser of what you actually paid and what would be reasonable in the circumstances is deductible. The CRA’s own bulletin on the subject (IT-518R) states the rule plainly, and it has applied this way since February 1994.

Some numbers to anchor this. You spend $400 taking a client to dinner, and $400 is reasonable in the circumstances: you deduct $200. You rent a hospitality suite and pay $1,200 for catering at a supplier meeting: you deduct $600. The “reasonable” half of the test matters too. Section 67 denies anything that is not reasonable in the circumstances, so the $900 bottle of wine you bought to impress a prospect is exactly the kind of line the CRA likes to challenge.

The 50% rule reaches further than dinners. It applies to event tickets, drinks, hospitality suites, and even entertainment costs you capitalize into a project. It follows the expense wherever it lands in your accounts.

Meals and Entertainment Expenses CRA Rules: The Exceptions

Here is the good news. The Act carves out several situations where the 50% haircut does not apply at all:

• Staff parties. Up to six employer-sponsored events a year are 100% deductible, as long as they are open to all employees at a particular place of business (your office counts; the warehouse can hold its own). You can host them at a restaurant or a rented hall, and feeding employees’ spouses and kids is included. No taxable benefit lands on anyone’s paycheque.
• Included in an employee’s income. If you pay a meal allowance that is taxed as employment income, you deduct the full amount. The 50% limit then applies on the employee’s side if they deduct it.
• Billed back to a client. If you charge the client for the dinner in the ordinary course of business, the 50% rule applies to the client, not to you. You deduct the full cost you billed through.
• Your business is the meal. Restaurants, caterers, and airlines spend on food and drink as the product they sell. The limit does not apply to them.
• Remote work sites. Food and lodging for employees at a remote site where nobody could reasonably live are exempt.
• Registered-charity fundraising. Costs incurred for a fundraising event held mainly for a registered charity are exempt from the 50% rule.

Golf, Club Dues, and the Absolute No List

Paragraph 18(1)(l) of the Income Tax Act surprises owners more than any other rule here, and it has been on the books since 1971. You cannot deduct membership fees or dues in any club whose main purpose is to provide dining, recreational, or sporting facilities. Golf club membership: not deductible. Green fees: not deductible. Athletic club dues: not deductible. The same paragraph also kills deductions for the use or maintenance of a yacht, camp, lodge, or golf course.

Here is the consolation prize many owners miss: food and beverages you buy at the clubhouse are deductible at the usual 50%, as long as they are clearly itemized and separated from the membership and green fees on the bill. Taking a client to the golf club costs you; taking the same client to lunch costs you half.

Professional memberships are different. Dues to a chamber of commerce, a trade association, or a professional body connected to your work are deductible. The test is the club’s main purpose: business and professional, yes; recreation, no.

GST and HST: The Haircut Follows You

The sales-tax side mirrors the income-tax side. You cannot claim input tax credits on club membership fees, period. But the HST you pay on the deductible half of a client meal is claimable like any other business input. Most small businesses claim the full ITC on the HST paid for business meals, then halve the income-tax deduction. (Large businesses, generally $10 million or more in taxable supplies, have to recapture ITCs on meals and entertainment under subsection 236(1) of the Excise Tax Act, so the paperwork looks different at that scale.) Match the two halves in the same year to keep your books clean.

Convention fees get their own special rule. If the registration fee for a convention includes meals and the organizer never broke out the food portion, $50 per day is deemed to be paid for food, beverages, and entertainment, and the 50% rule applies to that deemed amount. If the organizer did break it out, use their number.

The Receipt Habit That Saves You in an Audit

Meals and entertainment is one of the first lines the CRA asks about in a review, because it is one of the most abused. Protect yourself with a boring habit: for every receipt, note the date, the amount, who was there, and the business purpose. “Dinner, March 12, with Jane Doe of ABC Ltd, discussed the Q3 supply contract” beats a pile of anonymous receipts every time. Keep these records for at least six years after the end of the tax year they relate to, alongside everything else.

Run this quick test on last year’s books before you close the year:

• Client dinners and drinks: $2,400 spent, $1,200 deductible.
• Hockey tickets for a prospect: $800 spent, $400 deductible.
• Holiday party, all staff invited: $3,000 spent, $3,000 deductible.
• Golf club membership: $1,500 spent, $0 deductible.

Do this split every year and you will never be surprised at tax time.

Get Your Deductions Right Before Year-End

Meals and entertainment is a small line with an outsized audit risk. If your books do not split these costs cleanly, or you are not sure which of last year’s expenses were really deductible, we can sort it out before your year-end close. Book a free consultation: bookkeeping from $199 a month, cleanup at $45 an hour, and a team of qualified professionals with more than 75 years of combined experience, PwC-trained, who have worked at world-leading multinationals in CFO-level positions. See our services for the full lineup, and get your deductions standing up to scrutiny before the CRA ever asks.