For Businesses

Is it a Write-off?

Businesses are allowed to hold up to 6 parties per year where the normal Meals and Entertainment deductibility rate of 50% does not apply. For these expenses to be taken as a 100% tax deduction, you must invite your entire team for the location (if you have multiple locations) to the party and there is a limit to the cost of $150 per person. 

Should this amount be exceeded, it becomes a taxable benefit to the employee and needs to appear on their T4.

In the past, the CRA has taken action against business owners who hold such parties but do not invite the entire team, or invite a significant number of people from outside the company. For instance, in one case, an owner held a 50th birthday party for his wife and invited the senior staff along with friends and family, but they did not invite all the staff. 

CRA found that this was a personal expense and the entire amount was assigned to his shareholder loan, which needed to be repaid by the owner.

Gifts

Gifts to employees can become a taxable benefit. If you’re giving cash or gift cards that have a specific monetary value, these should be reported on an employee’s T4. If you want to provide other gifts, the limit for these is up to $500 per employee per year.

Whenever you’re buying gifts, make sure you indicate who the gift was given to and their contact information on the receipt – or at least keep a schedule. There have been several instances of gift expenses being denied due to poor documentation – more on that later.

Beware of Gift Cards

There are some less-scrupulous business owners out there who will buy, for example, a lot of Liquor Store gift cards and indicate they are gifts, but keep them for themselves. This is inappropriate as by keeping the gift, the owner is deriving the benefit. 

This would be a personal expense, not a business expense. CRA knows about this type of scheme.

Bonuses

Bonuses should be run through your payroll system and have the appropriate taxes taken off of them. If you want it to be a specific amount, you can backwards-calculate the amount that needs to be run through payroll to ensure the net amount matches what you intended to give.

Documentation

Be sure to keep detailed records of who was invited, who accepted the invitation, which gifts were given to whom, and, of course, all of your bills and receipts related to the party.

Budgeting

Be sure to have a budget for your holiday party. At this time of year, we all tend to be a bit more generous than at other times. Make sure that whatever you’re planning, the business can afford it. You should also keep the $150 per person limit in mind if you don’t want your employees to get a taxable benefit on their T4.

Use Company Resources

In order to keep things easy to track, it’s best that the party be paid for through the corporate credit card. Then, all expenses are in one place and you can have more financial control over the spending that occurs. Juggling several expense reports to ensure all the costs are captured and appropriately recorded can be quite a headache – and often result in overspending.

Set Expectations

Make sure that your team is aware of your normal policies and procedures. This is, after all, a work event. Communicate a clear code of conduct and make sure they are aware they are responsible for their behaviour and alcohol consumption.

Picking a Venue

A great way of supporting a small business and ensuring compliance with liquor laws is to hold your party at a restaurant or some other venue that already has you covered. In Ontario, servers are required to be Smart Serve Certified, and the establishment should have rules and policies to ensure guests are not over-served.

Overserving

To avoid overserving, you can limit the number of drinks per guest. You could do this by providing drink tickets or by having a cash bar.

Be sure to provide plenty of non-alcoholic beverages for those who don’t partake.

Festive Food

Food is a must-have for any successful party!  Serving food throughout the event helps with the absorption of alcohol if your guests are imbibing.

Make sure that your menu is sensitive to the needs of your guests. Avoid serving things that particular eaters may not enjoy. Gather information about food sensitivities and allergies ahead of time, and make sure that you have options for those individuals. 

Also, make sure you’re sensitive to cultural needs. Make sure there are vegetarian options and consider serving kosher or halal food if the situation warrants.

Transportation

Ensure your guests have a safe way to get home. Whether that’s shuttle services, taxi chits, using the company’s Uber account, or taking public transportation, options need to be provided to prevent drunk driving.

Limit Liability

Nothing can cover every situation that might occur, but there are things you should do to ensure that your holiday party is remembered as a great time, not an incident. Some things you should do are:

• Check with your insurance company to make sure your business and employees are covered should something bad happen.
• Moderate your alcohol consumption, and ensure that your guests aren’t overserved.
• Make sure your guests have a safe way home.
• Be sensitive to your team’s needs.
• Ensure that employees are aware they are still bound by the code of conduct.

Should something terrible happen, be sure to have an emergency plan in place or follow-up on the incident as soon as you get back to work.

Lead by Example and Have Fun!

As the business owner, make sure you are setting a positive tone and example for the party.  This will help put everyone at ease and help everyone enjoy themselves. Make sure to do the rounds and speak to everyone so nobody feels left out.

Have fun, and learn from the party to plan the next one!