A while back, I wrote an article about tax auditors not knowing your business. In today’s post, we will look at the CRA’s appeal department’s knowledge of the restaurant business. I wish I could say that Appeals Officers are better equipped to deal with restaurant tax audit issues, but I can’t. Continue reading “CRA Appeals Officers Don’t Know Your Business”
A restaurateur approached me just after he had received notice that his bar was going to be reassessed for HST on unreported sales. This was a fairly typical situation that many bar and restaurants find themselves in after an audit. There is always a way to “fight” or appeal these cases, at least in part. So, I took the case. Continue reading “Another Tax Appeal Home Run”
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?
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.
When the Ontario government repealed the Retail Sales Tax (RST) in favour of the new Harmonized Sales Tax (HST), it transferred audit and collection activities to the Canada Revenue Agency.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.
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.
You may not be aware, but there is a Taxpayer Bill of Rights in Canada. There’s even a CRA Guide. I have to admit, I’ve rarely had occasion to look at it, until recently. Today’s post covers several key taxpayer rights that are likely to be trampled upon during an audit. This is especially true for audits of restaurants and bars.
If you have been following the posts on this site (and several others on the internet), you know that your restaurant or bar business faces a serious risk when it is audited by CRA or the provincial auditors. In most cases, your licensed business will be audited, it is just a matter of when.
This post concerns customer comps or promotional drinks served by restaurants and bars. The issue is: how much is too much?
Most restaurants and bars offer promotional drinks to their customers from time to time. Sometimes it is to acknowledge frequent visits, high spending or special occasions. Other times it may be to “compensate” a customer for a service or quality issue. In either case, the customer receives a free (complimentary) drink. All restaurateurs know that this is an effective method of promoting and growing a restaurant business. However, if you don’t keep track of these types of promotions properly, customer comps could be your downfall.
I’m going to describe a real case study and let you decide if the title of today’s blog is true. This situation occurred several years ago at a client’s restaurant in Ontario.
My client operated a small, reasonably successful, restaurant in a fashionable downtown neighbourhood. She was the head chef, general manager and office administrator. She did everything but wait on tables. I found her to be scrupulously honest in every respect. One day she received notice that her restaurant had been selected for a retail sales tax audit. She wasn’t concerned, at all. In fact, she relished the opportunity to show the auditor her impeccably accurate and organized accounting records. She knew that she had always collected and remitted the correct tax from all of her sales transactions. She recorded every single sales transaction, even the few that were settled with cash. In short, she thought it would be an impossibility that the auditor could reassess her business for any unpaid taxes. She was about to experience the the impossible!