Company Vacation Trip

by Amber
(St Paul AB Canada)

My employer took his company employees and their families on a vacation. I'm a new freelance bookkeeper, so this is new to me.

S/he did keep track of all their receipts. I'm not sure if it would be better to put all of them in a lump sum amount under 'Entertainment Expense' or if I should be dividing them up according to Meals, Fuel etc.. and then inputting it as a entertainment expense.

I need some advice please!

Amber,

I'm confused. If you are a freelance bookkeeper ... you don't have an employer ... you are self-employed. So for the rest of the post I'll assume that "your employer" is really "your customer / client".

The thing I learned quickly when I started self-employed bookkeeping is that not all small business owners know the rules or follow the rules. And, as most entrepreneurs are very creative, their ideas on what constitutes a business expense can be pretty creative too!

I'm not sure expenses related to a company vacation for the entire company is tax deductible ... which doesn't mean you can't record it as a business expense if they are adamant ... it just means s/he won't be able to deduct it on their tax return ... so the account should clearly state not deductible in the name. (I'd be careful here though if it is a corporation and not a sole proprietorship.)

A company is allowed to deduct 100% of the meal and entertainment charges for a company party if it was for all employees ... but this is limited to 6 per year. It's a bit of a stretch to go from a company party to a company vacation.

Generally, you can't deduct meals and entertainment expenses unless you are traveling for business purposes. Another limitation is the amount must be reasonable AND incurred for the purpose of earning business income.

I guess you have to determine if any business was conducted while on vacation. It is my understanding that if you add a personal vacation onto your business trip, you must prorate expenses between business and personal.

Another possibility would be to add the cost of the paid vacation to each employee's income ... i.e. treat it as a taxable benefit.

If I were you (assume you are not trained in tax preparation), I would code the whole kit and caboodle to an expense account called "Ask the Accountant".

For your future reference, you always need to pull out meal and entertainment costs from any travel expenses and book them to a separate account. Perhaps review my chat on sole proprietor tax deductions. To be a good bookkeeper, you need to know a little bit about tax ... okay a lot ... specifically income tax, sales tax and payroll tax.

I'd also like to bring to your attention CRA's third party civil penalties.