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”
A few months ago, Dining Date Night began offering customers a 30% discount at various restaurants in Toronto. In order to get the discount, a customer books a reservation on a website and pays a $10 fee to Dining Date Night. When the customer visits the restaurant, 30% of the total bill (before taxes) is deducted as a discount. This type of promotion is relatively good for both the consumer and the restaurant that provides the discount, because the restaurant can restrict the hours when reservations may be taken.
Continue reading “Percentage Discounts”
So far, I’ve discussed the POS system and how to maintain it for accurate reporting, how to document your sales mix for all audit periods, and the importance of maintaining an accurate history of your menu prices. Taken together, these bookkeeping tasks are crucial in helping the restaurateur determine, and properly support, accurate weighted average prices. This is a crucial component of the mark-up calculation performed during a typical audit.
Now we’ll take a look at the actual cost of the alcoholic beverages purchased for sale.
Continue reading “Auditproofing – Average Costs”
As a restaurateur, you probably have a general idea how your menus and prices have changed over the last few years. Unfortunately, only having a “general idea” can land you in a big pot of trouble when your restaurant is audited. This post reviews a few of the methods of documenting key changes to your menu and prices. When the time comes, you will have accurate, credible information to support your actual margins and document the reasons for variances from the expected margins.
Continue reading “Auditproofing – Tracking Menu Changes”
This is the second post in the series on auditproofing your restaurant from an unfair audit. Most restaurants and bars with weak internal controls (almost all independent establishments), will be audited by the Canada Revenue Agency (CRA) or a provincial tax authority using an indirect audit approach. In most cases, this approach will be the mark-up method, which seeks to project the sales level that was likely to have been generated based on the amount of alcoholic beverages purchased by the establishment. As we have seen in other posts, this audit method involves making a number of assumptions about the operation. Determining what these assumptions should be, can be quite complicated.
Continue reading “Auditproofing – Know Your Mix”
Today’s posting is the first in a series of articles about “auditproofing” your restaurant. By this, I mean taking proactive steps to help ensure that your restaurant or bar is not unfairly reassessed for sales and income taxes when it is audited by the CRA or provincial tax ministry. Please check back regularly for other methods of auditproofing your business. If you have any questions, please post comments to the articles, and I will do my best to respond. If you prefer, you can email your questions to me.
Most restaurants have a computerized point of sale (POS) system to keep track of items ordered by each guest, send orders to the kitchen or bar, and process guest check settlements. Most systems can keep track of many other important transactions, such as discounts given (by type and employee), voids (with reasons, by type and employee), ingredient usage, and many others. From a tax perspective, the POS system keeps track of every item ordered and calculates the appropriate sales tax. Just like your car, the POS needs to be maintained properly.
Continue reading “Auditproofing – POS Housecleaning”
When the auditor arrives to audit your bar or restaurant, he or she will review your internal controls to ensure the accuracy and completeness of your recorded sales and the taxes thereon. If the documentation is not available to determine that appropriate controls were effective throughout the audit period, the auditor will conclude that the controls were lacking and that the books and records may not be relied upon to support the sales taxes collected by the restaurant. Most independent restaurants will fall into this category. As a result, the auditor will proceed to apply an indirect audit approach to estimating the amount of sales that were likely to have been generated, based on your purchases of alcoholic beverages. Several key assumptions are used in this method, which I will describe in the remainder of this post.
Continue reading “Restaurant Audit Assumptions”
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.
Continue reading “How Much is Too Much?”