The meals and entertainment deduction in Canada is still capped at 50% of the cost for 2026, and no change to the rule has been announced. It is one of the deductions businesses search for most every year, and it comes up again at year-end when owners plan the holiday party: is the staff party only half deductible like a client dinner?
Usually it is not. A business can deduct 100% of the cost of up to six special events a year that are open to all employees at a location. Everything else, such as client lunches, tickets and travel meals, generally stays at 50%.
What the rule is, when it applies, and who it affects
- The rule: Section 67.1 of the Income Tax Act limits the deduction for food, beverages and entertainment to 50% of the lesser of the amount paid and a reasonable amount.
- Status in 2026: Unchanged. The 50% limit and the six-event exception are in the Act and in the CRA's current guidance. The federal budget is scheduled for November 5, 2026. Nothing has been proposed for these rules so far, and we will update this page if that changes.
- Who it affects: Every business that deducts business expenses: corporations on the T2 return and sole proprietors and partners on Form T2125 (line 8523).
- Who has different rules: Long-haul truck drivers in eligible travel periods deduct 80%. Businesses that sell food or entertainment to customers are not limited on what they serve in the ordinary course of business.
Sources: CRA: Line 8523, Meals and entertainment (allowable part only) and Income Tax Act, section 67.1.
Meals and entertainment deduction in Canada: the numbers
| Expense | Deductible share | Condition |
|---|---|---|
| Client and business meals, drinks, entertainment | 50% | Business purpose, reasonable amount |
| Meals while travelling for business (owner or employee) | 50% | Including reimbursed employee meals |
| Staff party or event open to all employees at a location | 100% | Up to six such events per calendar year |
| Fundraising event for a registered charity | 100% | Event's main purpose is to benefit the charity |
| Meals billed to a client as a separate item | 100% for you | The client is limited to 50% instead |
| Meals at a remote work site or temporary construction camp | 100% | Conditions on the site and on daily travel home |
| Long-haul truck driver meals | 80% | Eligible travel period of 24 hours or more, beyond 160 km |
| GST/HST input tax credits on meals and entertainment | Follows the income tax limit | 50% ITCs where the deduction is limited to 50% |
Sources: CRA Guide T4002, Chapter 3, CRA IC73-21, Meals and lodging of transport employees and CRA: Calculate input tax credits.
What the 50% rule covers
The limit applies to the cost of food, beverages and entertainment, wherever they are consumed. That includes:
- Restaurant meals and drinks with clients, suppliers or prospects.
- Tickets to concerts, games and shows, and private boxes at sports venues.
- Meals while travelling on business or attending a conference.
- Meals an employer reimburses to employees, whether through an expense claim or receipts.
- Tips and taxes on those costs, which are part of the amount subject to the limit.
Two points owners often miss. First, the rule applies on top of reasonableness: an extravagant amount is first cut back to a reasonable amount, then halved. Second, it does not matter who pays. A corporation that pays the owner's client lunch and a sole proprietor who pays it personally are both at 50%.
The six-event exception: when a staff party is 100% deductible
Under paragraph 67.1(2)(f) of the Act, the 50% limit does not apply to the cost of one of six or fewer special events held in a calendar year where the food, beverages or entertainment are generally available to all employees at a particular place of business.
What that means in practice:
- All staff at the location must be invited. A dinner for managers only, or for the owners and shareholders, does not qualify and stays at 50%.
- The venue does not matter. The event can be held at the office, a restaurant or a rented hall.
- The employer must provide it. The business pays for or arranges the food and entertainment directly. Allowances or reimbursements paid to employees to buy their own do not qualify.
- Six per year, per location. A business with two locations can hold events for each location's staff.
Sources: CRA: Business expenses and CRA IT-518R (archived), Food, beverages and entertainment expenses.
The other side: is the party a taxable benefit for employees?
The deduction for the business and the tax position of the employee are separate tests. Under the CRA's administrative policy, an in-person social event is not a taxable benefit to employees if it is open to all employees and costs $150 or less per person, including taxes. Spouses or common-law partners who attend count as persons. Transportation home, taxi fares and overnight accommodation are not counted toward the $150.
If the cost goes over $150 per person, the entire amount is a taxable benefit, not just the excess. The policy also does not cover an event that celebrates a finished project or rewards a job well done. Virtual events have their own, lower limits.
For gifts, gift cards and how benefits are reported on the T4, see our post on whether employee gifts are taxable.
Source: CRA: Social events and hospitality functions.
Worked example
A corporation with 20 staff at one office holds a holiday party at a restaurant on December 11, 2026. Everyone on staff is invited, with partners, and 34 people attend. The bill is $4,420 including taxes and tip, or $130 per person. The company also pays $300 for taxis home.
- Deduction: It is the corporation's first staff event of the year open to everyone at that office, so the full $4,420 qualifies for the six-event exception and is deductible at 100%, not $2,210.
- Employees: The cost is $130 per person, under $150, so there is no taxable benefit. The taxis are not counted toward the limit.
- Compare: If the same dinner were for the five managers only, the deduction would be limited to 50% and the event would fall outside the CRA's social event policy.
Edge cases
Owner-only companies. An event aimed mainly at the owners, partners or shareholders does not qualify for the exception. A one-person corporation's dinner for the owner and spouse is not a staff party.
Counting the six events. The limit is six per calendar year, not per fiscal year. A corporation with a June year-end counts the events held from January to December.
Billing meals to clients. If you bill a client for a meal as a separate, reasonable line item, you can deduct 100% and the client takes the 50% limit. Rolling the meal into your fee does not have the same effect.
Charity events. A ticket to a charity's fundraising gala is not limited, but tickets to its ordinary programming, such as a theatre season, are.
GST/HST. Registrants claim input tax credits for the tax on meals and entertainment, limited to 50% where the income tax deduction is limited to 50%. Charities and public institutions are not subject to that limit on their ITCs.
Golf and club dues. Membership fees and dues for a club whose main purpose is dining, recreation or sport are not deductible at all, separately from the 50% rule.
Sources: CRA: Calculate input tax credits and CRA Guide T4002, Chapter 3.
What to do before year-end
- Plan the holiday party as an all-staff event at each location, and keep the guest list to show every employee was invited.
- Keep the cost per person at $150 or less, including taxes, if you want to avoid a taxable benefit.
- Track special events by calendar year so you know how many of the six you have used.
- Code meals and entertainment separately in your books from staff events, so the 50% and 100% items are not mixed at year-end.
- Record who attended and why on client meal receipts. Our guide to small business tax deductions in Canada covers the records the CRA expects.
Key takeaways
- The meals and entertainment deduction in Canada is capped at 50%, including tips and taxes, and the rule is unchanged for 2026.
- Up to six events a year open to all staff at a location are 100% deductible.
- $150 per person, including taxes, keeps an in-person staff event from being a taxable benefit to employees.
- Long-haul truck drivers deduct 80%; charity fundraisers and meals billed separately to clients are not limited.
- GST/HST ITCs follow the income tax limit.
RN Canada prepares corporate and personal income tax returns for owner-managed businesses and keeps their books ready for year-end, from offices in Edmonton and Vancouver and remotely across Canada. If you want your meals, entertainment and staff events coded correctly before year-end, our corporate and personal tax team can help.