April 2002 volume 6 issue 1 

by Stephen D. Thompson, CA, CFP, TEP, Tax Partner

Perception is reality, especially Canada Customs and Revenue Agency’s perception of legitimate business entertainment versus pleasure. Traditionally, the CCRA has taken a very strict view on entertaining clients, employees and suppliers at clubs, camps, lodges, golf courses, and on yachts. Unless your business involves the ownership and renting of a club, camp, lodge, yacht or golf course, as a general rule, no deduction is permitted relating to the use of these facilities. Therefore, if you take a client out for a round of golf, you cannot deduct the cost of that round in your business for tax purposes. Even though business may be discuused on the course, and you may have even closed a deal, you cannot deduct the cost of the green fees or membership.

When it comes to golf course green fees, the rules are very clear. Golf is considered a recreational activity and therefore the expenses related to that activity are not tax deductible.

As the entertainment of key clients, suppliers and employees is becoming such an important aspect of doing business, an informal war has developed between taxpayers and the CCRA concerning what is considered an acceptable deduction for entertainment expenses.
The latest clash involved the deductibility of meals at a golf course.

A few years ago, the CCRA was asked if the cost of business meals at a golf course was deductible, subject of course to the government’s 50% limitation rule. The CCRA’s response was that any meals or entertainment of clients, employees, suppliers, etc. at a golf facility were not tax deductible; further, the cost of green fees were also not deductible.

This policy position lead to a somewhat confusing and inconsistent result: should a business owner have dinner with a client across the street, the meal would be deductible, but in the golf course dining room, there could be no deduction.

Obviously, many golf course owners were concerned and affected by this interpretation. Fortunately, the CCRA has reconsidered its position and has now agreed to allow the deductibility of business meals and entertainment expenses incurred at a golf course, subject to the 50% limitation rule. (Green fees remain non-deductible.) This is good news for both owners of businesses and golf courses. However, to ensure you get to deduct the cost of entertaining your clients, make sure that the meal and beverage expenses are clearly noted on your bill or receipt. If your receipt is all inclusive without a breakout of the cost for meals and beverages, the CCRA will disallow the entire expense.

Steve Thompson, CA, CFP, TEP is a tax partner and Certified Financial Planner with Wilkinson & Company LLP. He is a graduate of the Canadian Securities Course, and author of the best-selling tax guide, Beat the Taxman: Easy Ways to Save Tax in Your Small Business.