Recording GST on Meals and Entertainment
Monday, August 11th, 2008For a Canadian business with a GST numer, one area that can be confusing is the handling of GST on Meals and Entertainment. The reason that this is perplexing is that you can only claim a 50% tax deduction on Meals and Entertainment expenses in Canada, and this 50% rule also applies to the GST on the Meals and Entertainment.
Here is a simple summary of how to account for GST on meals as I understand it:
- Claim all of the GST on your meals an entertainment as part of your GST Receivable
- At the end of the fiscal year, calculate (or estimate) 50% of the meals and entertainment GST amount, and do an adjustment to move that amount from GST Receivable to a GST Expense account.
- The GST Expense account is not tax deductible
- If you file your GST quarterly, you actually get half your meals and entertainment GST as a kind of “government loan” for the three quarters that don’t match your year-end
Disclaimer: I’m not an accountant! Here’s an article on this topic by someone who is: Meals and GST
You may also consider using the “quick method” for GST, which is to record the total amount of each gst eligible meal and then when tax time arrives, adjust 2.5% of your meals and entertainment into GST Receivable and 2.5% into GST Expense (not tax deductible). Be sure to record tips and other non-GST-eligible expenses seperately in this case, or you’ll have to use a lower estimated GST rate.
It’s also worth mentioning that these rules also apply to other expenses for which you pay GST, but only claim a percentage of the expense on tax return. A great example is Vehicle Fuel and Gas expense, which you can only claim partly if you also use the vehicle for personal use.
Currently my online accounting software allows business owners to track their GST payables and receivables and I am working on categorizing GST by expense account. A demo is avaialbe at:
https://www.clarityaccounting.com/demo
