Quick answer
Your corporation can pay, but that does not make the lunch a business expense. A meal with a real business purpose generally counts for only half of a reasonable cost, while an everyday personal lunch is not a business expense at all.1,2 If the corporation pays for a personal lunch anyway, it is generally a taxable benefit to you, not a cost to the business.3
Is it business or personal?
The Income Tax Act draws the line plainly: an expense counts only to the extent it was made to earn income from the business, and personal or living expenses do not count at all, apart from travel away from home for the business.4 The CRA puts it the same way: in most cases you cannot deduct personal and living expenses.2
A lunch you eat on an ordinary working day, on your own, is generally the everyday living cost those rules have in mind. Paying for it with the company card does not change what it is; it only changes whose money paid for it.
A meal has a business purpose when the business is the reason for it: taking a client or a supplier out, eating while you are travelling away from home for work, or feeding your team at a work event.5,6
What happens when the corporation pays for a personal lunch?
When a corporation pays a shareholder’s personal expenses, that is a shareholder benefit. The corporation cannot claim it as a business expense, reports it on a T4A slip, and the shareholder includes it in income.3
If you are also an employee of the corporation and the benefit comes to you as an employee, the rules for employee taxable benefits apply instead.3 Either way, the lunch is taxed in your hands rather than deducted by the business.
Recording the lunch as an amount you owe the corporation, through the shareholder loan account, is the other common route, and it has rules of its own about repaying it in time.7 Our guide to how owners pay themselves covers that account.
Why does only half of a business meal count?
For food, drinks and entertainment, the amount a business can deduct is limited to half of the lesser of what it actually paid and what would be reasonable in the circumstances.1,8 An expensive dinner is held to a reasonable amount first, and then halved.
The same limit applies to meals while you travel for the business, and to meals at a convention or conference.5,6 Long-haul truck drivers have a higher limit for food and drinks on eligible trips.5
It carries over to GST/HST as well. When the income tax deduction is limited to half of the cost, a registered business can claim back only half of the GST/HST it paid on those meals as input tax credits.9
What are the exceptions?
The half limit does not apply in a few situations the Income Tax Act sets out, and the CRA describes:1,5
- the business sells food, drinks or entertainment, such as a restaurant or a hotel
- the cost is billed to a client or customer and shown on the bill
- the meal is part of a fundraising event that mainly benefits a registered charity
- the meal is a taxable benefit included in an employee’s income
- an office party or similar event open to all employees at a location, for up to six such events a year
- meals at certain remote work sites and construction work camps
Most of these are about the business’s customers and staff. The taxable benefit exception does not make a meal tax-free: it moves the tax from the business to the person who ate the meal.
Staff events have a second, separate test. The CRA has its own conditions for when an event is a taxable benefit to the employees who attend, and meeting them is a different question from the event exception above.10
What about meals for your employees?
Meals an employer provides or pays for are generally a taxable benefit to the employee.11 There is a narrow exception for occasional overtime meals, when the overtime is two or more hours right before or after the shift, it is not frequent, and the cost is reasonable.12
When meals are included in employees’ income as a benefit, the business’s deduction for them is not limited to half.1 That benefit then has to be reported on the employees’ slips, which is why daily crew lunches are a payroll question as much as a meals one.
What records should you keep?
The law requires records that support your income and expense claims. A receipt should show the date, the seller’s name and address, the buyer, and what was bought.13
A receipt shows that a meal happened, not why. A short note of who was there and the business reason is what lets the books, and anyone reviewing them later, tell a client lunch from a personal one.
With monthly bookkeeping, meals are sorted as they come in, and the ones that are not clear are asked about while the answer is still fresh. At year-end the deductible part flows into the corporation’s T2 return, which we prepare and file.
Frequently asked questions
Is a coffee meeting with a client deductible?
A coffee is food and drink like any meal, so the same rule applies: it needs a business purpose, and then half of a reasonable amount counts.5
What if I put a personal lunch on the company card?
Record it as personal, not as a meal expense. Repaying it, or recording it as an amount you owe the corporation, keeps it out of the business’s expenses; booked as a business meal, it is a shareholder benefit.3,7
Can the corporation buy lunch for my crew?
It can, but meals for employees are generally a taxable benefit to them, apart from occasional overtime meals.11,12
Do I need a receipt for every meal?
You need records that support every expense you claim, and a receipt is the usual one.13 For meals, a note of who was there and why makes the receipt mean something.
Sources
- Income Tax Act, section 67.1 (Expenses for food, etc.), Justice Laws Website (Government of Canada). Accessed .
- Types of operating expenses, Canada Revenue Agency. Accessed .
- Income Tax Act, section 18 (General limitations), Justice Laws Website (Government of Canada). Accessed .
- Business expenses, Canada Revenue Agency. Accessed .
- Line 9200 – Travel expenses, Canada Revenue Agency. Accessed .
- T2 Corporation – Income Tax Guide – Chapter 3: Page 3 of the T2 return, Canada Revenue Agency. Accessed .
- General Information for GST/HST Registrants (RC4022), Canada Revenue Agency. Accessed .
- Meals provided by the employer, Canada Revenue Agency. Accessed .
- Employers’ Guide – Taxable Benefits and Allowances (T4130), Canada Revenue Agency. Accessed .
- Business records, Canada Revenue Agency. Accessed .
This article is general information about how things usually work in Canada, current as of the date it was last updated. It isn’t advice about your own tax or accounting position, which depends on facts we haven’t seen.