Restaurants run on high volume, thin margins and a lot of cash and card sales every day. The tax rules that matter most are the ones that touch every shift: how tips flow through payroll, when HST applies, and what the point-of-sale system records.
The points where tax and accounting rules come into play are numbered.
Numbered points are explained below.
At: Serve
HST missed on automatic gratuities adds up over a year of large-group bills. A tip the customer chooses to give is not subject to GST/HST, but a gratuity added to the bill as a charge for a taxable service is, so HST applies to the total including that charge.
We check how your point-of-sale system handles each and reconcile it to your HST return.
At: Take payment and tips
Getting the rebate wrong at the till means either overcharging customers or underpaying HST. In Ontario, the provincial part of the HST is rebated at the point of sale on qualifying prepared food and beverages when the total price, before HST, is $4 or less.
We check that your till applies it correctly and that your HST return matches.
At: Pay suppliers and payroll
Tips touch every pay run, and how they are paid decides what you deduct. Tips the employer controls, such as a mandatory service charge shared out to staff, are part of pay, with CPP and EI deducted at source; tips a customer gives directly to an employee, where the employer only passes them on, are not subject to CPP or EI deductions but are still taxable income for the employee.
We set up payroll to treat each kind of tip correctly.
Daily sales, tips, payroll and HST all need to be recorded and reconciled every month.
The corporate return and HST returns depend on correct treatment of tips and rebates.
Cash-heavy businesses and tip reporting draw CRA questions that need records behind the answer.
Food and labour costs move quickly; a monthly look at margins shows where money is lost.
On controlled tips, yes. On direct tips paid straight to the server, no, although the server still reports them as income.
Yes. When the gratuity is added to the bill as part of the charge for the meal, HST applies to it.