During a typical audit, the tax auditor interviews the taxpayer about the business operations and various factors that influence sales, such as portion standards, selling prices, theft, spillage, own-use and over-pouring. If the auditor exercises sound judgment, the taxpayer’s assertions will be considered prima facie evidence that the assumptions are reasonable in the circumstances. These assumptions form the basis for most audit assessments of restaurants and bars. What if they’re just plain wrong?
Most restaurateurs know they lose the cost of the pilfered product, but few understand that they may be responsible for the sales and income taxes (plus penalties and interest) that would have been incurred had the stolen product been sold. Significant tax liabilities often arise from sales (and income) tax audits of restaurants and bars. This can occur anytime purchased wine, beer and liquor is not sold, and one of the most common (and largest) causes of these items not being sold is theft and fraud.
Recently, the Canadian Restaurant and Foodservices Association (CRFA) published three calculators to help restaurateurs determine the effect on the new HST, effective July 1, 2010, on their prices. The calculators cover wine, spirits and beer. I’ve included the links, below. You can read more and find a discussion on their use and potential effects on your menu pricing in July, here.
Today’s Toronto Star ran an article about restaurants hiding cash income. You can find it here: Restaurant probe finds $40M in ‘phantom’ sales.
Until recently, most detective work surrounding the use of zappers had been focused in Quebec. Now, we find out that the CRA has been involved in a two year, national probe of the restaurant industry. So far, they’ve found about $40 million of unreported income, though they expect to find much more by next March when the study is completed.