Canadian pharmacy owners can claim meals and entertainment expenses as business tax deductions, but they need to be legitimate, work-related claims. It’s important to carefully follow CRA guidelines and rules to avoid an audit.
What Pharmacy-Related Situations May Allow for Claiming Meals and Entertainment Expenses?
There are specific conditions and restrictions for complying with tax legislation that mean many pharmacists won’t be able to claim meal and entertainment costs under general circumstances. However, there may be cases where deductions can be claimed.
Meal expenses are eligible for deduction if they are incurred for the purpose of earning income from the pharmacy business. This could include meals at conferences.
A self employed pharmacist or pharmacy owner will have difficulties justifying entertainment expenses, which are subject to more stringent rules compared to meal expenses. Entertainment isn’t common in the pharmacy industry, and it may be hard to prove it is required for business. Office parties for your employees may be reasonable, however.
Claiming Expenses for Pharmacy Staff and Client Social Events
To ensure compliance with CRA rules when claiming a pharmacy office party as business expense, you should emphasize the business purpose of the event, whether celebrating milestones or strengthening employee bonds. These purposes should be clearly documented.
Make sure to include primarily or only employees and business clients, to demonstrate it is an eligible, professional, work-focused event.
Document the attendees as evidence and if possible, keep a copy of the event invitation as backup to highlight the event’s connection to business goals. Whether this is an email sent to clients to invite them to your annual client appreciation event, or email sent to staff to RSVP for your annual Christmas party. This all serves as documentation to protect you in the event of a CRA audit.
Keep costs reasonable and track all expenses scrupulously, and include specific details with receipts. Be careful if alcohol is included at the event, as having excessive alcoholic beverages consumed may undermine the event’s legitimacy.
Key Tips When Trying to Claim Expenses
Whenever claiming meals and entertainment expenses, be sure to be detail-oriented, and follow rules carefully.
Maintain Detailed Documentation
Thorough documentation is essential. Maintain clear records that show the date, amount, location, who attended, and the purpose of each expense. Keep any supporting documents like receipts, invoices, and your own notes that demonstrate the business connection.
Demonstrate a Clear Business Purpose
Meal and entertainment expenses need to have a clear, legitimate business purpose. They should be directly related to the growth, advertising, or operating goals of your pharmacy. Keeping notes on how each expense relates to business objectives as you go along will help.
If a meal has a combined personal and business purpose, allocate only the portion that is fully business related for the meals deduction.
Be Prepared to Justify Your Claim
The CRA may ask for further evidence or details, including additional documentation, explanations of the business purpose, and more. Maintaining accurate and detailed records as you plan the office party will help with any future audit.
Be Consistent and Be Reasonable
Review any claimed expenses to make sure they are appropriate and reasonable, given the specifics of your pharmacy business. You should also be consistent with the kinds and sizes of claims that other, similar pharmacy businesses make.
Know What You Can (and Can’t) Claim
It’s important to review the CRA’s guidelines carefully or discuss your specifics with a tax specialist, preferably one who is familiar with common allowable claims in the pharmacy industry, to ensure you understand what can be claimed.
Eligible Percentages for Claiming Meal and Entertainment Costs
Typically, you can claim only 50% of these types of expenses. However, your pharmacy business can claim up to six meals a year at a 100% deduction rate for office events with your pharmacy staff.
The CRA allows only a certain percentage of meal and entertainment expenses to be deducted. Known as the 50% rule, you can deduct 50% of the eligible expenses, so if you spent $100 on a business meal, you can deduct $50 on your claim. The expense still needs to be a legitimate business expense, and fully business related.
This includes situations such as when you pay for lunch for your employees, or they have to travel for work.
Situations Where the Full Amount Can Be Claimed
You can claim 100% of meals and entertainment expenses in certain circumstances:
- Spending money on a charity event to raise funds
- Holding an employee party
- When adding expenses to an employee’s income
- Claiming as part of travel costs when travelling by bus, train, or airplane
When holding an employee party, CRA usually deems $150 per person to be a reasonable cost. Any higher and the difference over and above could be considered a taxable benefit to employees.
Note that if you go to conferences or seminars that provide food and drinks as part of the convention costs, you can only claim half of a small amount for each day.
Pharmacy owners in Canada can claim meal and entertainment expenses as legitimate business deductions, but CRA guidelines and documentation requirements need to be followed. Tax regulations change regularly, so consulting with a tax professional who is familiar with the types of deductions that self-employed pharmacists and pharmacy owners can claim is recommended.
Pharma Tax specializes in helping pharmacists reduce their taxable income, and can help you leverage every tax deduction possible.