Introduction
Meals, travel, and client entertainment are common expenses in legal practice, but they are also frequently reviewed by the CRA. Law firms often assume these costs are fully deductible, only to face reassessments later.
Understanding how the CRA treats these expenses helps law firms claim deductions correctly and avoid unnecessary audit risk.
Key takeaways
Meals are generally subject to deduction limits
Travel must be directly related to earning income
Client entertainment is closely scrutinised
Documentation matters as much as the expense itself
Who this applies to
This applies to law firms of all sizes, solo practitioners, and incorporated legal practices across Canada.
How the CRA treats meals and entertainment
Meals and entertainment expenses are generally limited to a percentage of the cost when incurred to earn business income. The CRA focuses on whether the expense was reasonable and directly connected to business activity.
Client entertainment that appears personal or excessive is more likely to be challenged.
Travel expenses for law firms
Travel expenses may be deductible when incurred for business purposes such as court appearances, client meetings, or professional obligations. Personal components of travel must be separated and are not deductible.
Poor separation between business and personal travel is a common issue during reviews.
Common mistakes law firms make
Issues often arise when meals are claimed without clear business purpose, travel expenses include personal components, or documentation does not support who attended and why the expense was incurred.
Charging personal meals or vacations through the firm can also result in shareholder benefit assessments.
Frequently asked questions
Are client meals always deductible?
No. They must meet business purpose tests and are subject to limits.
Can travel between home and the office be deducted?
No. Commuting is generally considered personal.
Does the CRA review these expenses often?
Yes. Meals and travel are common audit focus areas.
Closing
Meals, travel, and entertainment can be deductible, but only when claimed carefully and supported properly. Clear policies and consistent documentation help law firms reduce CRA risk while still claiming legitimate expenses.