Restaurant Accounting in Canada: A Practical Guide for Owners

Running a restaurant in Canada means living in two worlds at once. The first is the front of house: the food, the service, the room. The second is the back office: GST/HST returns, payroll for a mix of salaried and tipped staff, food-cost reconciliations, and the never-ending pile of supplier invoices. Most owners are excellent at the first world and survive the second by reading two emails ahead of the deadline.

This guide is for restaurant owners and managers who want the back office to stop being a monthly fire drill. It covers the accounting practices that quietly separate restaurants that grow from restaurants that close. Most of it is specific to Canadian restaurants in Ontario and Alberta, with a particular eye on the GTA where Sapere's Mississauga office serves food-service businesses.

The four numbers every restaurant should watch

Before any tax filing or compliance question, a restaurant's books need to track four numbers. If these are not visible weekly, the business is flying blind.

• 01Food cost as a percentage of food sales. Industry benchmarks fall between 28 and 35 percent for most full-service restaurants. Anything above 35 percent for more than a few weeks usually points to waste, theft, or pricing that hasn't kept up with supplier increases.
• 02Labour cost as a percentage of total sales. Most full-service restaurants in Canada land between 30 and 35 percent, fast-casual between 25 and 30 percent. This includes wages plus employer-side payroll burden (CPP, EI, vacation pay, WSIB or WCB).
• 03Prime cost: food cost plus labour cost combined. Anything above 65 percent leaves very little for rent, utilities, and the owner's draw. This is the number experienced operators check daily.
• 04Cash on hand versus upcoming obligations. Restaurants have lumpy cash flows. The morning after a long weekend looks great. The Tuesday after looks terrible. The owner needs a 14-day rolling cash projection, not a monthly P&L summary.

These four numbers can be tracked in QuickBooks Online, Sage, or any cloud accounting platform with restaurant POS integration. The exact tool matters less than the discipline of looking at them weekly.

GST and HST for restaurants

Food service is one of the more compliance-intensive industries for GST/HST. Restaurants charge tax on prepared food and beverages, including takeout and delivery, and what counts as "prepared" gets nuanced.

In Ontario, restaurants charge 13 percent HST on most meals. There are narrow zero-rated exceptions for some basic groceries sold in restaurants (a sealed bag of coffee beans sold from a cafe, for example) but anything heated, mixed, or served for immediate consumption is fully taxable.

In Alberta, restaurants charge 5 percent GST with no provincial sales tax layer. Same rules on what counts as a taxable supply.

A few details that trip up owners:

• 01Tips and gratuities are not taxable supplies. If a customer adds a 20 percent tip, you do not charge HST on the tip portion. Service charges that the restaurant retains (for example, a mandatory 18 percent for parties of 8 or more) are taxable.
• 02Delivery fees are taxable when the restaurant charges them. Third-party platform fees from Uber Eats or DoorDash have their own structure depending on whether the platform is acting as principal or agent.
• 03Input tax credits (ITCs) on meals and entertainment for staff or owners are limited to 50 percent under the Income Tax Act. Owner meals at the restaurant itself are not deductible. ITCs on operating supplies, food inventory, equipment, and utilities are recoverable in full.

We cover the full HST filing process in the dedicated service page.

Payroll and tips: where Canadian restaurants get burned

Payroll is the area where most restaurant owners eventually pay a penalty. The mix of salaried managers, hourly servers, and tipped staff makes restaurant payroll meaningfully harder than payroll for a regular small business.

The tip-reporting rules. Tips can be classified as either "controlled" tips (the restaurant collects and redistributes) or "direct" tips (the server keeps what they receive). Controlled tips are payroll income. The restaurant must withhold CPP, EI, and income tax on them, and the amounts show up on the T4. Direct tips are the employee's responsibility to report on their personal return, but the restaurant should track them anyway because CRA can deem direct tips to be controlled if there is an automatic tip-out structure (a pooled tip system, for example).

The ROE deadline. When an employee leaves or experiences an interruption of earnings, the restaurant must issue a Record of Employment within 5 calendar days of the end of the relevant pay period. Late ROEs hold up the employee's EI claim and can trigger CRA scrutiny. Restaurants with high turnover sometimes batch them, which is the wrong move.

Vacation pay accrual. Ontario employers must accrue 4 percent vacation pay for employees with less than five years' service, 6 percent after five years. Alberta uses the same rates. The accrual must be tracked separately and paid out properly. Cash payouts on every cheque ("pay in lieu") are allowed only if the employee agrees in writing and the pay stub identifies the vacation component.

WSIB (Ontario) and WCB (Alberta) classifications. Restaurants fall into specific industry classifications with their own premium rates. Misclassifying a kitchen worker as a server, or vice versa, can trigger an audit and back-assessment. The classification is set at registration and worth reviewing annually as the restaurant evolves.

Sapere's payroll service covers the full payroll-tax stack for restaurants in the GTA and Calgary metropolitan area.

Food cost and inventory tracking

Most independent restaurants do not track inventory beyond a monthly walk-through and a guess. That is the single biggest source of unaccounted-for cash leakage in the industry. A 2 percent food cost overrun on a million-dollar restaurant is $20,000 a year. Most owners would notice $20,000 leaving the bank in a single transaction but tolerate the same loss spread across 365 days of mystery.

Tighter food cost tracking does not require fancy software. A weekly inventory count of high-value items (proteins, alcohol, top-shelf items) catches most of the leakage. Spot-check counts on a few mid-value items rotate weekly. A full physical count at month-end reconciles against purchases minus sales.

When the books are tight enough to support it, restaurants can also track theoretical food cost (what the recipes say should have been used given the dishes sold) versus actual food cost (what was actually depleted from inventory). The gap is your shrinkage number. Anything above 2 percent is worth investigating.

Cloud accounting platforms with POS integration (most modern restaurant POS systems push sales data directly into QuickBooks Online or Sage) automate most of the recording. The decision-making piece, what to do when the numbers move, still requires an owner or operator paying attention. Sapere's bookkeeping service handles the reconciliation and reporting side, leaving the operational decisions to you.

Labour cost as a percentage of sales

Labour cost is the other half of prime cost, and the lever owners control most directly. Three habits keep it in range:

• 01Schedule based on forecasted sales, not last week's schedule. Most modern POS systems can export historical sales by day-part. Use that to staff.
• 02Track manager hours separately. A salaried manager rolled into labour cost makes the percentage look worse than it is. Break out hourly, salaried, and tipped categories.
• 03Watch overtime exposure. Ontario's Employment Standards Act and Alberta's Employment Standards Code both define overtime thresholds (44 hours per week in Ontario, 44 hours per week or 8 hours per day in Alberta). Restaurants that drift into chronic overtime usually have a scheduling problem, not a workload problem.

CRA red flags for restaurants

Restaurants are an audited-heavily industry because of historical cash handling concerns. A few patterns reliably attract attention:

• 01Sales-to-purchases ratios that do not match the food cost industry range. If your books show 50 percent food cost while comparable restaurants are at 30 percent, CRA's automated risk-scoring will notice.
• 02High cash sales without supporting documentation. In 2026, card and digital payments dominate restaurant revenue across most operations. Cash-heavy reporting raises questions and needs documentation to back it up.
• 03Inconsistent ITC claims relative to revenue. If you are claiming ITCs equivalent to 80 percent of your HST collected, the math probably does not work. ITC-to-collection ratios outside the typical range invite review.
• 04Owner draws not reconciling to the T4 or T5. Owners who take large cash draws without documentation invite a review.

These are not reasons to be paranoid. They are reasons to make sure the books are clean enough that an audit, if it happens, takes a week rather than three months.

When to bring in a bookkeeper or accountant

The right time to outsource the back office is usually earlier than owners think. Three rough thresholds:

• 01The owner is spending more than 4 hours per week on bookkeeping. That time is more valuable in the front of house.
• 02Monthly close takes longer than the first week of the following month. Late closes mean stale data and reactive decisions.
• 03HST/GST returns or payroll remittances have been late more than once in a calendar year. CRA penalties compound quickly, and the relationship gets harder once you are behind.

Sapere works with restaurants across the GTA and Calgary, ranging from single-location independents to multi-location operations. The restaurants industry page lists the full service mix.

If you are running a restaurant and the back office has become the dominant stress point, Sapere's team works through the cleanup, sets up the right cloud systems, and handles the ongoing compliance so you can focus on the food. Book a free consultation to talk through the specifics.