Published | Categories: Better tax practices – businesses, GST and QST

ITCs and ITRs in Respect of Expenses for Food, Beverages and Entertainment

Generally speaking, you can claim input tax credits (ITCs) and input tax refunds (ITRs) for all of the GST and QST you paid on goods and services you acquired and used exclusively (100%) for commercial activities.

However, ITCs and ITRs that can be claimed in respect of expenses for food, beverages and entertainment are limited in the same way that the deduction for these expenses is limited for income tax purposes. Thus, when the expense can be deducted at a rate of only 50% in the calculation of income, only 50% of the GST and QST paid can be claimed as an ITC and ITR.

With respect to expenses for which you may claim 50% of the GST and QST paid, you may choose one of two methods to make your claim:

  • You may claim ITCs and ITRs in respect of 100% of the GST and QST paid and remit the excess amount claimed (50%) in the first reporting period following the end of the fiscal year in which you claimed those amounts.
  • On each of your returns, you may claim ITCs and ITRs corresponding to 50% of the tax paid on the expenses incurred.

However, you can deduct other expenses at 100% and thus claim ITCs and ITRs for 100% of the taxes paid. Such expenses include

  • expenses reimbursed by another person (for example, when meal expenses are billed to a client and the amount is indicated on the invoice);
  • expenses incurred to organize one of up to six special events held in a calendar year for all of your employees working at the same place of business (for example, a Christmas party).

Under the QST system

There is a ceiling on the amount of expenses for food, beverages and entertainment that can be deducted when calculating a taxpayer's income. Generally speaking, entertainment expenses are capped at 1% of the business’s sales (note that expenses that are 100% deductible are not subject to this ceiling). Thus you cannot claim ITRs in respect of expenses for food, beverages and entertainment that are not deductible by virtue of the ceiling calculated on the basis of sales.

If your business is considered a large business, you cannot claim ITRs in respect of expenses for food, beverages and entertainment for which the allowable deduction when calculating income is limited to 50%.

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