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A restaurant owner deals with four kinds of tax: GST/HST on what you sell, payroll deductions plus your own share of CPP and EI on staff wages, income tax on the profit, and provincial sales tax where your province has one. An $80 meal in Ontario carries $10.40 of HST. You collect it at the till and pass it on, so it was never your money.
What sales tax goes on a restaurant bill?
Prepared food is taxable. The CRA also has a 90% rule for eating establishments: if 90% or more of your food and drink sales are otherwise taxable, then all of them are taxable, even items that would be zero-rated in a grocery store, like a glass of milk.
The rate depends on your province, so an Ontario restaurant charges 13% HST and an Alberta one charges 5% GST. The GST/HST calculator confirms it. An $80 meal in Ontario comes to $90.40 with tax. A $40 meal in Alberta comes to $42.00.
Provinces with their own sales tax add another layer. Rules for restaurant food and liquor differ from one province to the next, so look at your province’s tax site before you set up the till.
Are tips taxed?
Yes, for the staff who get them, and how you handle them decides what you owe as the employer. The CRA splits tips into two kinds, and the dividing line is who touches the money.
The term controlled tips refers to tips that an employer controls or possesses and then must pay to the employee.
Tips and gratuities, CRA, canada.ca
| Kind of tip | Who controls it | Employer withholds tax, CPP and EI? | On the T4? |
|---|---|---|---|
| Controlled | You hold the money, then pay it out | Yes | Yes |
| Direct | The customer pays the server directly | No | No |
Direct tips still count as income, so your servers have to report them on their own returns. And a tip that a customer gives freely isn’t subject to GST/HST. A gratuity that you add to the bill as a fixed charge is different: the CRA gives it the same tax status as the meal.
Pooled tips that pass through your till are the risky spot. If you hold the money, it’s likely controlled. Say Friday’s card tips come to $600 and you split them at the end of the week. That $600 goes through payroll, with deductions taken off, and not out of the cash drawer in an envelope. Decide how it works, write it down, and stick with it.
What does payroll cost on top of wages?
Wages are only part of the bill. You match every employee’s CPP, and you pay 1.4 times the employee’s EI premium. The payroll remittance calculator shows it. For four employees in Ontario each paid $1,500 in a pay period, your own share is $461.88 per pay period, on top of what you hold back from their cheques.
That’s the number owners forget when they price a shift. A cook on the payroll costs more than the hourly wage, so build it into your menu costs. Over a year of 26 pay periods, that $461.88 adds up to $12,008.88, a real chunk of change for a small kitchen.
How is restaurant profit taxed?
The answer starts with how you own it. A sole proprietor puts profit on the personal return, and the self-employed tax calculator shows income tax and both halves of CPP. On $80,000 of profit in Ontario it gives $22,126.47 in total.
A corporation pays its own tax. On $100,000 of active business income in Ontario, the corporate tax calculator shows $11,696, or 11.7%, for a calendar 2026 year. Ontario cut its small business rate on 1 July 2026, so that figure is a blend, and a full year at the new rate will be lower. Only Canadian-controlled private corporations get that small business rate.
Either way, profit and cash aren’t the same thing. A good month at the till can still be a month where the sales tax you collected is sitting in your account waiting to go out the door.
Which expenses can you deduct?
Most businesses can deduct only 50% of food, drink and entertainment costs. The CRA says those limits don’t apply when your business regularly provides food and drink to customers for pay, as a restaurant does, and you show the cost on the bill. So the meals you sell are a full cost. A lunch you buy for a supplier isn’t in that category, so the 50% limit is the safe assumption.
Rent, utilities, wages and food cost are the big lines. Keep the invoices.
What should a new owner sort out first?
- Pick a tip policy and write it down before the first shift.
- Park the sales tax you collect in its own account, so a slow week can’t tempt you to spend it.
- Price your menu with payroll costs included, not just hourly wages.
- Ask your province’s tax office how restaurant meals and liquor are handled where you are.
- File every supplier invoice the day it arrives.
Mistakes and limits
Three slips come up again and again. Owners charge tax on some items and not others without checking the 90% rule. They treat pooled tips as if they belong to nobody. And they spend a large sales tax balance as if it were profit.
What about an audit? Records are your defence, so keep sales, tip and payroll records together and consistent. For how long, see the CRA’s current guide to keeping records.
The calculators use one owner and one province at a time. Multi-location groups, associated corporations and liquor rules are outside them.
The sources behind this page
Tip treatment, the 90% rule and the meals limit come from Canada Revenue Agency pages, and the rates come from our 2026 data checked in September 2026. This is an independent guide, separate from any government body.
Frequently asked questions
Do restaurants charge GST/HST on meals?
Yes. Prepared food is taxable, and if 90% or more of an eating establishment's food and drink sales are taxable, all of them are.
Is a tip subject to GST/HST?
A tip freely given by a customer isn't. A gratuity added to the bill as a set charge takes the same tax status as the meal.
Do I deduct payroll tax on tips?
On controlled tips, yes: you withhold income tax, CPP and EI. On direct tips you don't, but staff must still report them.
Can a restaurant deduct all its food costs?
The CRA's 50% limit on food and drink doesn't apply when you regularly provide them to customers for pay and show the cost on the bill.
What does an employer pay on top of wages?
You match each employee's CPP and pay 1.4 times their EI premium. For four Ontario staff paid $1,500 each, that's $461.88 per pay period.
- Self-employed taxes in Canada: income, CPP and GST
How tax works when you are self-employed in Canada: reporting income and expenses, paying both halves of CPP, instalments and when to register for GST