Entertainment expenses are among the most tightly regulated expenses in accounting and taxation. While they are common in business life, they are also subject to strict rules to prevent abuse... and unpleasant surprises during an audit.
This guide explains how to properly classify, justify and deduct them according to the rules applicable in Quebec and Canada.
What is an entertainment expense?
An entertainment expense is an expense incurred to develop or maintain business relationships. It typically involves meals, entertainment, or events provided to clients, partners, or suppliers in a professional context.
Examples:
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Dinner with a client to discuss a contract renewal
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Show tickets offered to a business partner
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Corporate reception to thank customers
Please note : there must be a direct, real and justifiable business connection .
Accounting according to CPA Canada standards
Canadian accounting standards recommend:
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Create a separate category for representation expenses (apart from travel or training expenses)
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Carefully document each expense:
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Names of guests
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Date, place, objective
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Proof of payment (invoice or receipt)
-
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Adopt a clear internal policy to regulate these expenses
These good practices help to guarantee the accuracy , traceability and comparability of financial statements.
Tax treatment in Quebec and Canada
General rule:
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Representation expenses are 50% deductible from taxable income
-
The recoverable portion of GST/QST is also limited to 50%
Exceptions – 100% Deduction:
Certain expenses can be deducted in full, if they meet specific criteria:
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Official employee events , such as:
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End of year celebrations
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Summer BBQ
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Reconnaissance activities
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Maximum of 6 events per year
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Offered to all employees , without distinction
-
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Training activities including a meal , within certain limits
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Expenses incurred in connection with a promotional campaign , with supporting documentation
Examples of classification
|
Spent |
Deductible? |
Rate |
Comment |
|---|---|---|---|
|
Meal with a client |
✅ |
50% |
Business connection required |
|
Hockey tickets to a partner |
✅ |
50% |
Proof of presence required |
|
Unofficial team 5 to 7 |
❌ |
0% |
Not eligible except for officially recognized events |
|
Meal alone without customer or supplier |
❌ |
0% |
Not considered a business expense |
|
Christmas party for all employees |
✅ |
100% |
Official event, open to all, max 6/year |
Good practices to adopt
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Create a “Representation Expenses” category in your accounting software
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Add a clear description : client or partner met, objective, date
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Scan your receipts (photos and save in the cloud)
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Train your team to properly document these expenses
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Keep supporting documents for 6 years in case of audit
Frequently Asked Questions
Can I deduct 100% if I am self-employed?
No. The tax treatment is identical to that of a company: 50% deductible , except for specific exceptions.
Can representation expenses be included in my start-up costs?
Yes, if they were hired before the company officially launched , and they have a documented business objective.
Can we recover the GST/QST on these expenses?
Yes, but recovery is limited to 50% of the eligible portion.
Is a team meal 100% eligible?
Only if it is part of an official event , offered to all employees , and within the limit of 6 events per year .
Can I deduct a meal with a supplier?
Yes, provided it is justified by a business objective.
Conclusion
Entertainment expenses are necessary to maintain strong business relationships, but they must be managed rigorously. Clear categorization, comprehensive documentation, and a good understanding of tax rules can prevent many problems.
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