Non-Deductible Corporate Expenses You Shouldn’t Ignore
Running a corporation comes with plenty of legitimate deductions, but not everything that feels like a business expense will pass CRA scrutiny. Some costs are partially deductible, while others are completely off-limits. Misclassifying these can lead to reassessments, penalties, or missed tax savings. This post highlights the most common non-deductible expenses and how to handle them properly.
Meals and Entertainment
Deductibility: Only 50% of eligible meal and entertainment expenses are deductible, even if they’re 100% business-related.
Examples:
Client lunches
Tickets to sporting events
Staff parties
Best Practices:
Keep detailed receipts with names, dates, and business purpose
Separate fully deductible items (e.g., staff events under $150/person) from partially deductible ones
Avoid claiming personal outings or lavish entertainment as business expenses
Interest and Penalties
Deductibility: Interest on late tax payments and CRA penalties are not deductible.
Examples:
Interest on overdue GST/HST or payroll remittances
Penalties for late filings or errors
Best Practices:
Pay taxes on time to avoid non-deductible costs
Track these separately in your accounting software
Don’t confuse deductible bank interest with CRA-related charges
Gifts and Donations
Deductibility:
Cash gifts to employees are taxable benefits
Charitable donations are not deductible as business expenses, but may qualify for a corporate donation tax credit
Best Practices:
Use non-cash gifts under CRA’s $500 annual limit to avoid taxable benefits
Record donations separately from operating expenses
Avoid claiming political contributions or gifts to individuals
Personal Use of Corporate Assets
Deductibility: Personal use of corporate assets, like vehicles, phones, or laptops, is considered a taxable benefit, not a deductible expense.
Best Practices:
Track business vs. personal use
Report benefits on T4 slips
Avoid claiming 100% of mixed-use assets unless justified
Club Memberships and Recreational Fees
Deductibility: Fees for golf clubs, gyms, or recreational facilities are not deductible, even if used for networking or client meetings.
Best Practices:
Avoid charging these to the corporation
If used for staff wellness, consider alternative benefits that qualify
Keep these expenses personal to avoid CRA scrutiny
Capital Expenses Mistaken as Operating Costs
Deductibility: Large purchases like equipment or renovations must be capitalized and depreciated, not deducted in full.
Best Practices:
Use CRA’s Capital Cost Allowance (CCA) system
Classify assets correctly in your books
Consult your accountant before claiming large purchases
Conclusion
Knowing what not to deduct is just as important as knowing what you can. By keeping clean records and understanding CRA’s rules, you’ll avoid costly mistakes and keep your corporation’s finances in top shape. Whether it’s a client dinner or a late GST payment, proper classification is key to staying compliant and maximizing your tax efficiency.