How to write off business travel and not trigger red flags with the CRA
If you are wondering whether you can write off gambling expenses in Las Vegas the answer is no (even if they are with a client). But as for just about everything else related to your travels, you can write it off so long as the purpose was work related.
In this article, we will walk you through how and when you can write a trip off on your taxes, without crossing the line with the Canada Revenue Agency (CRA), as business travel is one expense category that often attracts a second look in the form of an audit.
If you run into an audit on a questionable expense, it will cost you enough that you’re unlikely to come out ahead.
So, keep reading to avoid losing money from your travel deductions!
In order for travel expenses to be tax-deductible, they need to be incurred primarily for business. The Canada Revenue Agency (CRA) does not want you to take a personal vacation and then deduct the related expenses because you discussed business for one hour. The following rules will help to determine exactly what qualifies as a travel expense, and how to not cross the line.
The travel needs to qualify as a “business trip”
Unfortunately, you can’t just jump on the next plane to the Bahamas and write the trip off as one giant business expense. To write off travel expenses, the CRA needs to see that the primary purpose of the trip was for business purposes.
Here’s how to make sure your travel qualifies as a business trip:
1. You need to leave your tax home
Your tax home is the locale where your business is based. Traveling for work isn’t technically a “business trip” until you leave your tax home for longer than a normal work day, with the intention of doing business in another location.
2. Your trip must consist mostly of business
For a getaway to qualify as a business trip, you need to spend the majority of your trip doing business. But, if you are travelling primarily for business and want to have a vacation, you might still be eligible to deduct some of the direct business related expenses. You might also be eligible to deduct meals and entertainment expenses if you accompany your client. Expenses incurred on personal entertainment and travelling are not deductible.
If any part of the trip is personal, expenses that occur at the destination will need to be allocated between work-related and personal. This includes accommodation, food and other minor costs.
For example, A doctor lives in Vancouver, BC, and is going to London for a medical conference for his business. The conference is five full days long and he plans on staying two extra days after the conference for vacation before flying home. He would not stay in London if there was not a conference. Therefore, he can deduct as a business expense the full amount of the flight costs to and from Vancouver and London, the transportation costs to and from the airport, as the conference is the primary reason for the trip. The accommodation, food and other costs relating to the conference would be deductible for the five days he attends the conference. For the two days after the conference, these costs would be considered personal and therefore, not deductible.
3. The trip needs to be an “ordinary and necessary” expense
“Ordinary and necessary” is a term used by the CRA to designate expenses that are “ordinary” for a business, given the industry it’s in, and “necessary” for the sake of carrying out business activities and earning income.
If there are two virtually identical conferences taking place—one in Honolulu, the other in your hometown—you can’t write off an all-expense-paid trip to Hawaii.
Likewise, if you need to rent a car to get around, you’ll have trouble writing off the cost of a Range Rover if a Toyota Camry will get you there just as fast.
What qualifies as “ordinary and necessary” can seem like a gray area at times, and you may be tempted to fudge it. Our advice: err on the side of caution. Should the CRA chose to investigate and discover you’ve claimed an expense that wasn’t necessary for conducting business, you could face serious penalties.
4. You need to plan the trip in advance
You can’t show up at Universal Studios, hand out business cards to everyone you meet in line for the roller coaster, call it “networking,” and deduct the cost of the trip from your taxes. A business trip needs to be planned in advance, and documented.
Before your trip, plan where you’ll be each day, when, and outline who you’ll spend it with. Document your plans in a travel log. This helps prove that there was professional intent behind your trip in case of an audit.
List of travel expenses
Here are some examples of business travel deductions you can claim if you have determined the travel is for business purposes:
Plane, train, and bus tickets between your home and your business destination
Baggage fees
Laundry and dry cleaning during your trip
Rental car costs
Hotel and Airbnb costs
50% of eligible business meals
50% of meals while traveling to and from your destination
Convention fees
Travel
On a business trip, you can deduct 100% of the cost of travel to your destination, whether that’s a plane, train, or bus ticket. If you rent a car to get there and to get around, or use gas driving your own vehicle, that cost is deductible, too.
Lodging
Hotel accommodations or Airbnb stays are usually 100% deductible when there is an overnight stay away from your town, and it is for business purposes. The CRA doesn’t care if you decide to stay for an extra couple of days and sightsee, however, they will object if you try to include the cost of those extra personal days as part of your tax deduction.
You can even deduct expenses like paying for access to the hotel’s internet, tips, laundry/dry cleaning, and cancellation fees.
Meals and entertainment
Even on a business trip, you can only deduct a portion of the meal and entertainment expenses that specifically facilitate business. So, if you’re in Nova Scotia closing a deal over some fresh crab and lobster, you can write off 50% of the bill.
Just make sure you make a note on the receipt, or in your expense-tracking app, about the nature of the meeting you conducted—who you met with, when, and what you discussed.
On the other hand, if you’re sampling the local cuisine and there’s no clear business justification for doing so, you’ll have to pay for the meal out of your own pocket.
Cost Of Conventions/Conferences
If attending conventions related to your profession or business, you can deduct these costs but these costs are limited to two conventions per year. While on these conventions you may be eligible to deduct some meals and entertainment expenses subject to a 50% deduction limit. The conference taken must relate to the company’s business. If you attend a convention or conference primarily for personal knowledge or enjoyment, then any costs associated with it would not be deductible. So, a Star Trek conference in Las Vegas is not a write-off. Even if you are a computer nerd. But if you are in the business of selling cosplay costumes to Trekkies? Maybe.
Red Flags to Avoid
Red Flag # 1: Overdoing it on expenses -
When it comes to staying off the CRA’s radar, it is important to look at your expense categories as a whole, and try to ensure you’re not taking an overly aggressive approach to all of them. If you’re paying your kids, deducting a home office and entertainment expenses through the year and on top of that, deducting high business travel expenses, maybe you should dial it back a bit. There comes a time when you’re likely to catch the attention of the CRA.
When we look at clients’ expense reports, if we see more than 10 per cent allocated to travel, we ask about it.
Even if you’re able to justify those expenses, there’s still an accounting cost associated with an audit and you’re unlikely to come out ahead in the end. A conservative approach in relation to your business income and what is typical to your industry is key to avoiding an audit.
Red Flag # 2: Bringing a spouse, or worse, kids -
Writing off the expenses of a spouse as a business expense can be tricky. The rule of thumb for the CRA is to say, ‘No, no, no,’ to a spouse coming along on a business trip. But there are certainly good justifications. For example, if you’re meeting with a client and he is bringing his wife, it may not be good for business to go without yours.
If your spouse is there to help staff the trade show booth, that’s a write-off. For most entrepreneurs, the business is a family affair and the spouse is an integral part of it. If you want to be conservative, you could claim 100 per cent of the expense for you and 80 per cent for your spouse.
If your husband’s job is to decorate the trade show booth, however, that’s probably not a good enough reason to fly him to Hawaii. And, we almost always say no to writing off expenses for kids, unless they are of working age and already an active, integral part of the business.
Red Flag # 3: Taking too many conferences -
One conference, two conference, three conference, more? The rule on conferences: officially, you can write off two per year if the business purpose of the conference makes sense. But the two-conference rule is flexible. First of all, more than one person from your company can attend. And if your business takes in several different segments, you can go to two conferences for each.
I could potentially go to two bookkeeping conferences and two tax conferences per year, because Small-Books deals with both.
Red Flag # 4: Travelling for business outside your jurisdiction -
Another factor to the above point # 3: the conference or convention must take place in the jurisdiction covered by your trade or profession, or where you do business. I couldn’t go to a tax conference in Europe, as that has nothing to do with my work.
The same can be true for businesses who only deal with customers from certain locations. I wouldn’t be able to write off a business expense for travelling to Texas, as Small-Books only works with Canadian businesses, so I would have no reason to meet with any clients in the US.
In the end, the overarching factor in whether the CRA considers travel deductible as a business expense is whether there’s a reasonable expectation it will help your business.
How Small-Books can help
Surprised at the kinds of expenses that are tax-deductible? Travel expenses are just one of many unexpected deductible costs that can reduce your tax bill. But with messy or incomplete financials, you can miss these tax saving expenses and end up with a bigger bill than necessary.
Enter Small-Books! As a monthly bookkeeping member, your team of bookkeepers imports every transaction from your bank, credit cards, and receipts, accurately categorizing each and reviewing for hidden tax deductions. We keep your books up-to-date, guaranteeing that you won’t miss a single opportunity to save.
Need help with your tax deductions?
Want more info on how Small-Books can help your business?
Put your contact info below and we will be in touch!
