Claiming travel expenses for work can go a long way as a small business owner. Those small business deductions help run your daily business, but when it comes to mixing personal vacations with business travel; it can be a taxing situation in the eyes of the Canadian Revenue Agency (CRA).
No need to freak out, travel and entertainment expenses can be vital for small businesses, but there’s no doubt in the eyes of the CRA; the rules are specific. Here’s a simple explanation of some of the travel expenses for business that you can deduct.
Claiming travel expenses for work
Transportation: If you’re travelling to another city, your taxi and public transportation costs to get to the airport or train station are fully deductible. However, the mode of transportation needs to be reasonable. An economy airline ticket is pretty standard, even business class won’t raise an eyebrow. But trying to deduct a 2-week cruise, claiming it ended in your final destination, will almost guarantee an audit from the CRA.
Here are my top safety tips for using credit cards abroad.
Accommodation: Your accommodations are fully deductible but you can only claim the rate of a single standard room. If you prefer, you can still upgrade your room but the added expense will be coming out of your own pocket.
Food and beverage: Only 50% of any money spent on food and beverage can be deducted. This includes anything consumed while on an airplane or during a business meeting with your client. The 50% rule applies to your total bill including tips and taxes. If you’re paying for your client’s meal, it’s probably best to log what business you discussed in the event of an audit.
For accounting purposes, the CRA has two options for reporting: The simplified method and the detailed method.
The CRA claims the simplified method is the easiest way to calculate your meal expenses since no receipt keeping is required. They base it off a meal rate of $17 for each meal (to a maximum of 3 meals a day).
The detailed method requires more work but is my preferred way of claiming expenses. You need to keep every receipt but this is fairly simple if you’re organized. Whenever you have a business receipt, simply write on the back of it exactly what the receipt was for e.g., a business meeting to discuss sales. Keep those receipts in an organizer and there’s no way you’ll lose anything. In the event of an audit, you’ll have detailed records to provide as evidence.
Entertainment: The same 50% rule applies to entertainment but it has to be directly business related. So if you’re treating a client to a concert, sporting event, or even renting a hospitality suite, be sure to keep those receipts. Unlike meals, you don’t have to discuss business during the event; however the CRA would reasonably expect you to have discussed business before or after any entertainment.
There are also times when meals and entertainment are 100% deductible, check out taxtips.ca for some examples.
Is travel insurance tax deductible in Canada?
You’re allowed to claim your travel medical insurance as a deductible medical expense to a certain degree. Only the travel medical insurance portion is deductible. If your policy includes lost luggage and trip cancellation, you would need to call your insurance provider to find out the dollar amount that covers your travel medical insurance. That’s the amount you would be able to deduct as a medical expense.
This deduction doesn’t apply to just business travellers; it can be claimed by anyone who purchases travel medical insurance including snowbirds who normally travel for extended periods of time. Read on for information on travel medical insurance for seniors.
Small business deductions vs. personal expenses
Many business travellers add personal time to their trips, but can the whole trip be claimed? Where does the line between business and personal travel start and end? Let’s take a look at an example.
Mike is a small business owner and is required to travel to China to meet with his manufacturer; he decides to bring his wife and 2 children along. The total length of the trip is 2 weeks; the first week being personal and the second week strictly for business where he’ll be visiting various plants that manufactures his goods.
Mike can claim his flight and visa with no issues. Hotels, food and transportation costs can only be claimed for the portion of the trip that was business related. Let’s also assume that he upgraded to a bigger hotel room to accommodate his family, well the CRA only allows you to claim the rate of a regular room since you would normally be travelling by yourself. With any meals, even though he paid for the entire family, only his portion of the bill can be claimed.
Now let’s say Mike’s wife was a vital part of his business; she’s required to be there to help talk to clients and assist with contracts. If this were the case, Mike could also claim her portion of the expenses. There’s really no legal circumstance where he could claim any of his children’s expenses if it was not directly business related.
Being audited by the Canadian Revenue Agency is a huge fear for many, so hang onto all your receipts and you won’t have any problems claiming tax deductions in Canada.
That being said, having all your receipts may not be enough to satisfy the CRA; it’s recommended to keep a log of who you spoke with and what business you discussed when you’re claiming any expenses. It may sound a little over the top, but consider it good business practice.