Restaurant and Hospitality Accounting in Alberta

Not every tip is treated the same way

The CRA separates tips into controlled and direct. A controlled tip is one the employer has a hand in: a service charge added to the bill, a pooled house arrangement the employer administers, amounts the employer collects and then redistributes. Those are part of the employee’s remuneration, treated as paid by you, and CPP and EI come off at source.

A direct tip goes from customer to employee without you controlling the amount or its distribution, and it is not subject to CPP or EI at source. It is still taxable income to the employee, and an employee who wants CPP credit on it can elect to contribute using form CPT20.

A server can be receiving both kinds in the same shift, and only the controlled portion belongs in pensionable and insurable earnings. The line is drawn by how your tip-out actually operates, not by what the staff handbook calls it. Restructuring a tip pool without thinking about this can quietly move the whole thing onto your payroll.

All of it taxable, or almost none of it

Basic groceries are zero-rated, while prepared food and beverages sold in an eating establishment are taxable. A restaurant that only serves meals never has to think about this. A place that also sells food to take home does.

There is a threshold that decides it. Where 90 percent or more of an establishment’s food and beverage supplies are otherwise taxable, all of its food and beverage supplies become taxable, subject to certain exceptions. So a cafe adding a retail shelf, or a restaurant selling frozen portions of its own product, needs to know which side of that line it sits on before it prices the new offering rather than after.

Feeding your own staff is a payroll question

A free or subsidised meal given to an employee is generally a taxable benefit. The relief in the CRA’s administrative policy is for subsidised meals where the employee pays a reasonable charge, meaning one that covers the cost of the food, its preparation, and its service, and where you can justify why the charge is reasonable.

Staff meals are close to universal in this industry and almost never documented. It is not usually a large amount per person, but it is a live payroll question across every employee on the schedule, and answering it starts with knowing what a plate actually costs you.

Your fit-out does not depreciate like equipment

Money spent improving premises you lease, the kitchen build, the millwork, the washrooms, goes into Class 13 as a leasehold interest, along with amounts paid to the landlord to obtain or extend the lease. It is not treated like the equipment classes. The write-off runs against the term of the lease rather than at a fixed declining-balance rate, and Class 13 is not subject to the half-year rule.

Because the term drives the deduction, the lease and the renewal options you negotiated affect your tax result directly. So does what happens at the end: a leasehold interest is generally disposed of when the lease expires without renewal, unless you carry on occupying the premises on a continuing basis. A fit-out and a lease negotiated as separate exercises can produce a worse answer than the same two decisions made together.

Your point-of-sale records are the audit

Since 2014 there have been specific penalties, in both the Income Tax Act and the Excise Tax Act, for the use, possession, sale, or development of electronic sales suppression software: the point-of-sale tools that delete or alter transactions and leave no trace of the original. Sanctions start at 10,000 dollars and rise on a subsequent infraction, with criminal offences available as well.

Most operators are not going anywhere near this. It matters anyway, because it tells you how the CRA looks at this sector. Cash-heavy food service attracts attention, and the defence is unremarkable: a point-of-sale system whose records reconcile to your deposits and your GST returns, kept for the retention period, with voids and discounts explainable. Records that hold together are worth more than any argument made after the fact.

How we work with restaurants and hospitality operators

One room, several locations, or a franchise with a system to report into: the pressures differ, but the numbers that decide the month are the same three.

• Payroll for shift staff, with the controlled and direct tip distinction applied to your actual tip-out, plus WCB-Alberta.
• GST registration and filing, including where retail and prepared food sit in the same room.
• Bookkeeping tied to the point-of-sale system, reconciled to deposits so sales, GST, and tips all agree.
• Food and labour cost reporting at a frequency you can act on, not once a year.
• Corporate and personal returns, with leasehold improvements and equipment classified properly.
• A view before you sign on new locations, leases, and renewals, while the terms can still change.