You have probably been hearing a lot about the upcoming marijuana legalization in Canada. First, Senate recently passed the marijuana legalization bill C-45. Now Prime Minister Justin Trudeau just announced that recreational use of marijuana will be legal in Canada as of October 17, 2018. With that being said, we thought we would start a conversation of our own, except with an accounting twist; should there be a marijuana business deduction?
Marijuana Business Deduction
Legalization of marijuana has been a huge debate for years. Now that it’s being legalized, a lot is about to change. One potential change from an accounting standpoint is whether there should be a marijuana business deduction. The CRA has already confirmed that medical cannabis purchased under prescription is an allowable medical expense to the medical tax credit. So if the CRA is allowing this, what else will they allow once it becomes legal?
Let’s go back in history for a moment. Remember the prohibition from 1920 to 1933? Alcohol was banned once too. However, now it’s even allowed as a business deduction under certain circumstances. For instance, currently you can deduct up to 50% of the cost of drinks during a business meeting as a meals and entertainment expense. Will that be the same with business meetings over a joint as opposed to drinks? Let’s walk through it.
Stance 1: It Should be Included as M&E
First of all, this could be beneficial to creative professionals. Certain strains of marijuana promote creativity. In other words, marketers may want to have a meeting over a shared joint instead of over drinks to induce creative thinking and ideas that they wouldn’t have thought of otherwise. Or graphic designers might want to use it to get their creative juices flowing as they design your innovative logo with fine details. However, even if you don’t mind your graphic designer working high, you might not want your accountant or lawyer doing the same.
Let’s move on to comparing alcohol with cannabis. Alcohol is a depressant and marijuana is a hallucinogen with depressant effects. This means that both intoxicating substances are similarly categorized with soon-to-be similar legal rights. So how different are they really besides differing societal standards?
Another consideration has to do with health. Alcohol is fine in moderation and is often thought to be beneficial to your health. Although, in excess alcohol can also be addicting, damaging to your liver, lead to cancer and even death. On the other hand, cannabis is actually used medically for several health conditions. Marijuana provides plenty of health benefits and research shows that it is much safer than alcohol (once you are over the age of 25). So if marijuana is similar to but safer than alcohol, should there be an allowable marijuana business deduction under the meals and entertainment expense?
Stance 2: It Should NOT be Included as M&E
Despite marijuana being “legalized”, it will still be illegal to smoke everywhere except on private property in Ontario. This law will vary by province. As a result, you won’t be able to go to your regular restaurant and enjoy some marijuana with your meal like you can with alcohol. The only way you can legally conduct your business meeting over say a joint is if it’s in your house or on a private property that allows marijuana use. As a small business owner, would you want to hold a meeting in your own house? Probably not as it is less professional.
Another issue is that marijuana is still taboo. Marijuana is not widely accepted like alcohol has become. There is a stigma attached to it. BUT you could still say the same for alcohol. This stigma could make it a questionable and risky decision to request a business meeting over a shared joint. Just like some people don’t drink and might feel strongly against it, the same is true for marijuana. You would have to tread cautiously here.
One last issue has to do with the difficulty in distinguishing the amount used for business during meetings. Unless you buy a single joint to share for that specific meeting, it’s not as simple as ordering a drink or two. If you buy it by the gram, you would have to somehow verify that the amount you claimed was solely for business use. This would be challenging and cause potential dispute by the CRA.
Final Thoughts
In the end, it’s all perception and societal constructs. Now that you read our thoughts on this debate, let’s start a discussion. What are your thoughts? Should there be a marijuana business deduction for meals and entertainment purposes? Whether you think yes or no, we want to listen to what you have to say!
Are you a creative professional reading this? If so, creative professionals like yourself are our specialty! Please feel free to contact us and we would be happy to set up a free meeting to find out how we can help you and your business.