I started writing this blog in September, 2009. At that time, there was very little useful information about restaurant tax audits in Canada (or anywhere). In the 42 articles that I have written so far, I have tried to fill this gap with practical information geared towards restaurateurs. Based on the comments I’ve received from a number of readers, I think I have succeeded. There still isn’t much useful information about restaurant tax audits, other than what you will find in this blog. That’s a shame, but it keeps me motivated to continue helping as many restaurateurs as I can.
Even though the title of this blog includes the word “Canadian”, it has attracted readers from 57 countries other than Canada. That surprises me, even though much of the information written for Canadians does apply to most other jurisdictions.
While it’s hard to figure out which articles were the most popular (many readers land on the home page, which had different articles at different times), it is clear that anything to do with “zappers” was incredibly popular. This subject attracted a lot of readers from Quebec, where zappers have been a hot topic for quite some time. Based on some of the searches that led to my site, it appears that quite a few people wanted to know how to get a zapper! My response was to write an article about How to Get Caught Using Zappers. This is a site dedicated to helping restaurateurs legitimately minimize their taxes. For those that don’t know, zappers are used to evade taxes!
The subject of theft was covered in my sister blog, Canadian Restaurateur. Theft usually results in significant tax reassessments when restaurants are audited, because it is extremely difficult to prove to an auditor and they don’t provide any allowance for theft in Canada ( the IRS and many States do provide theft allowances). Many readers found this blog from links in the theft articles.
Today, the subject of tipping is in the news quite a bit in Canada. Who owns the tips received from guests? How does the government ensure that they are reported for tax purposes? Should they be considered employment income, subject to withholdings? All good questions that will be resolved in the future. Savvy restaurateurs are monitoring tip issues closely.
Discounts can cause significant problems during restaurant audits. Groupon, Living Social and other daily deal promoters have exploded onto the market in the last couple of years. No one (except me) is writing about the tax implications of accepting these types of certificates at restaurants. Yet this is a very serious issue that must be addressed by any restaurant that is considering these types of coupons. You can read about the tax implications here. Whether you should even consider Groupon deals is another matter. If you really feel that you must use them, at least account for them properly (almost no one does). You can read about these and other issues on the Canadian Restaurateur blog.
Another relatively recent phenomenon is the use of percentage discount coupons. Promoters take reservations for member restaurants for a small fee, and the restaurants provide a percentage discount on the entire guest check (usually 30%). This type of discount is much better for restaurants, because they can control the time of day when the discounted reservations are taken (slower periods). However, there is a hidden trap that needs to be addressed. Read about the tax implications of providing percentage discounts, here.
I have written about the major changes in how restaurant tax audits are being conducted and how taxpayer rights are being trampled upon on a regular basis. Every owner needs to be aware of these aggressive new audit practices and take the necessary steps to protect themselves and their restaurants. Unless you do, you’re needlessly increasing the risk of a major tax reassessment that could be devastating. Fore warned is fore armed. If you need help understanding the issues and what you need to do to protect your restaurant, please contact me about my short informational presentation, “Surviving a Restaurant Tax Audit”.
There is one thing I would like my readers to do. Send me your comments about the various articles! If there’s something that I haven’t explained clearly, let me know. You can ask me questions about your situation on an anonymous basis, too. That way, we can all learn from new situations that arise in the area of restaurant tax audits.
Governments will continue to aggressively audit restaurants for sales and income taxes. They will intensify their efforts to ensure that employee tips are reported for tax purposes. Ultimately, they will be controlled and reported by restaurants, and all tip income will be subject to withholdings, as is the case with wages.
Tax auditors will eventually figure out that restaurants providing Groupon certificates or percentage discount coupons are much more likely to have “unreported sales”, based solely on the method of auditing that is used. Restaurants can prevent this, but only with proper documentation of such discount programs. Few, if any, are doing this now.
Why not subscribe to this blog and receive updates as soon as they are published? It is the best way to ensure that you stay on top of all major tax issues facing your restaurant, and it is free! Soon, I hope to turn my Surviving a Restaurant Tax Audit presentation into a short webinar. Please email me if you are interested in this. If you think your restaurant might be at risk during a tax audit and you would like to avoid reassessments, please contact me for a no obligation consultation.
Finally, if you have friends or colleagues that would benefit from the information provided in this blog, please spread the word!
I hope you all have a great year and that it will be less taxing.