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Freebies for fat cats: a loophole Trump partly closed lives large in Canada

Why should working Canadians cover the cost of unnecessary perks for high-income corporate managers and their clients?

Economic CrisisCanadian Business

Lord Green, Minister of State for Trade and Investment and Libya’s Prime Minister Abdurrahim al-Kib at a business lunch with members of the CEO Forum in London, May 2012. Photo from Wikimedia Commons.

A tax loophole so bad that President Trump had it partly closed in the United States is still wide open in Canada.

The business meals and entertainment expense deduction allows businesses to deduct half the cost of fancy restaurant meals and drinks, private boxes and tickets to sporting events and concerts, even full vacations, and much more. Some forms of meal and entertainment expenses such as office parties can even be fully deductible.

In theory, actual business is conducted during these meals and events, but that is widely abused by big corporations that spend big money on their CEOs and clients, then deduct those expenses from their taxable income.

Canada’s rules are so lax that even the alleged bribery of Muammar Gaddafi’s son with escorts and Spice Girls box seats could be claimed for a corporate tax deduction.

Meanwhile, the taxes paid by small businesses subsidize big corporate meal and entertainment budgets, with which small businesses can’t compete. For the rest of us, taxpayers who can’t afford the high price of tickets to sports games and events end up paying for millionaires and their friends to go instead.

In fact, these freebies for fat cats cost the federal government almost $500 million every year. That’s half-a-billion dollars that won’t go to health care, education, infrastructure, public transport or other public services that taxpayers thought we were paying for.

Though meal expense deductions on their own can often be legitimate, such as when employees have to travel, or business is conducted at reasonably priced restaurants, this loophole far too often merely facilitates dishonesty, achieves very little, and takes away resources from hard working Canadians to fund the fun of a privileged few.

Other countries have realized this kind of loophole has to go. President Trump eliminated entertainment expenses for the US version of this loophole, while retaining it for meals. The United Kingdom made most business and client entertainment non-tax-deductible.

Deductions for entertainment expenses should be abolished, and concrete limits should be placed on deductions for meal expenses.

The Liberals promised to close $3 billion worth of tax loopholes. Closing this one is an easy way to make our tax system fairer, and fast.

Read a full explainer of the business meals and entertainment expense deduction loophole on the Canadians for Tax Fairness website.

Darren Shore is the Communications Coordinator for Canadians for Tax Fairness.


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