If your restaurant pools or shares tips, charges automatic gratuities, or receives a tip-out “to the house”, this article could save you thousands of dollars.
If you’re like most restaurateurs, you probably think that the Canada Revenue Agency’s only concern about tips and gratuities is that servers report them on their personal income tax returns. While the CRA is concerned about this, now, they are even more interested in restaurants that fail to report certain types of tips.
The CRA’s policy on tips and gratuities can be found here. The rest of this article may shock you.
Continue reading “Tips on Tipping Policies”
I’m certainly not saying that all, or even a significant number, of CRA’s tax auditors are corrupt, but this story in the Montreal Gazette highlights some very interesting issues surrounding restaurant tax audits.
The corrupt tax auditors seemed to focus on restaurants, knowing that they could “justify” large reassessments, unless the owners paid them bribes. In at least one case, the auditor asked for the bribe before auditing the restaurant! Finally, the auditors could just as easily make a restaurant appear to be reporting all of its income as it could make it look like they were evading large amounts of tax.
An RCMP investigation of Canada Revenue Agency employees has resulted in three former auditors being accused of shaking down restaurant owners for cash.
Continue reading “CRA Auditors Charged”
There are about 80,800 restaurants in Canada (CRFA), and about half are audited every four years. That’s a lot of restaurants being audited, and you just know that the majority of them receive reassessments at the end of each audit.
Rather interestingly, there are only about 10 significant court cases involving restaurants that had been audited using the mark-up method. How can this be?
Continue reading “Why Aren’t There More Court Cases?”
Many restaurant owners think they’re protected from the tax auditors, simply because they have a good accountant. While that’s true in some cases, just about every restaurant that gets hit with a tax audit reassessment (and usually a large one at that) had a “good accountant”!
In Canada, every restaurant that appealed tax audit reassessments in court had an accountant. In the U.S., many states publish details of tax appeals by restaurants (informal tribunal appeals, roughly equivalent to Canadian appeals by Notice of Objection). There are literally thousands of cases and virtually every one had an accountant. In the vast majority of cases, the restaurants lost their appeals. I’m sure most of these restaurants thought that their accountant would protect them from these tax reassessments.
Continue reading “A False Sense of Security”
When the Ontario government repealed the Retail Sales Tax (RST) in favour of the new Harmonized Sales Tax (HST), it transferred audit and collection activities to the Canada Revenue Agency. Unfortunately, that doesn’t mean Ontario restaurants can forget about the old RST!
Ontario is still responsible for auditing the old RST for periods up to June 30, 2010. Under the Statute of Limitations, Ontario has up to four years to audit the RST. Actually, they can go back more than four years, if they can show fraud or misrepresentation or if they obtain a waiver from the taxpayer.
Many of these Ontario auditors will be transferring to the CRA in 2012. So, they are racing to complete audits of most Ontario RST vendors. This is especially true for Ontario restaurants, which have always been a target of the Ministry of Revenue.
Continue reading “Beware Harried Ontario Tax Auditors!”
Here’s a bold statement: tax auditors don’t know your business.
It’s true! You know it, I know it, even the tax auditors know it!
As a result, you may think you have an advantage over the tax auditors. Unfortunately, you don’t. What tax auditors lack in knowledge they make up for by making assumptions about your restaurant. Often, these assumptions are nothing more than the tax authority’s decisions to use certain “standards”. For example, the “industry average” shrinkage allowance for draft beer (or liquor, or wine). Here’s a surprise: there isn’t one! In almost every case, the tax auditor makes assumptions that are not favourable to your tax position, leading to large tax reassessments.
Continue reading “Auditors Don’t Know Your Business”
Here are the top five qualities of a “good” restaurant accountant:
- Understands your restaurant and uses this knowledge to offer strong advice for improving your operations and finances;
- Analyses sales, expenses and margins to identify problems and improve profitability;
- Provides sound tax advice to legitimately maximize your deductions and minimize your taxes;
- Ensures that you comply with all tax laws, and
- Knows how to document and prove your margins to a tax auditor.
The last point deserves a bit of an explanation.
Continue reading “Qualities of a “Good” Restaurant Accountant”
While this story originates in the United States, it is just as applicable here, in Canada.
Reuters’ David Cay Johnston noted today that IRS auditors “assigned to the 14,000 or so largest corporations found $9,354 of additional tax owed for every hour spent testing tax returns in the 2009 fiscal year.” [bold italics are mine]
A few things to note.
Continue reading “Highly Profitable Tax Auditors”
We all know that some amount of alcohol will be pilfered. Don’t you love that word? Pilfered. Sounds like a mere pittance. It is anything but. As a rule of thumb, the cost of the theft will be about three times the cost of the alcohol that is, ah, pilfered.
If you’ve been following recent posts on my sister blog, Canadian Restaurateur, you may have noticed a theme. Theft. All restaurateurs know that theft is a significant issue that requires our constant vigilance. The cost of the stolen product is bad enough, but if you also have to pay tax (plus penalties and interest) on the retail value of the stolen product, it becomes a huge issue. Everyone knows it isn’t right that a restaurateur should have to pay tax “as if” the stolen alcohol had been sold. Unfortunately, that isn’t the way it works in most tax jurisdictions.
Continue reading “Taxing Theft”
The Canada Revenue Agency released some details of their 3-year pilot study (it was only supposed to run two years) of fraud in the restaurant industry. While not many details were released, you can read the Globe and Mail article, Taxman finds rampant restaurant fraud.
The media’s interpretation of the details that were released is a bit misleading. Of the 424 restaurants that were subject to scrutiny, it was determined that 143 of them exhibited evidence of fraud by erasing evidence of cash sales from their electronic POS systems. This is how they arrive at the “one-third” of all restaurants fraudulently hide sales from the taxman. Further, almost $1 million of hidden sales were revealed for each fraudulent establishment ($141 million).
So what’s misleading about that?
Continue reading “Rampant Restaurant Fraud”