Navigating Sales Tax in Canada: A Guide for Restaurants

Managing sales taxes can be intimidating and confusing. With varying rates, taxes like the GST, PST, and HST, and regional rules, it’s easy to feel overwhelmed. This guide is intended to simplify the process, helping you set up your sales taxes correctly so you can focus on running your restaurant.

This is the start of a series of articles to help you navigate and understand the sales tax that affect your restaurant menu.

Understanding Sales Tax in Canada

Restaurants in Canada are subject to two types of taxes namely goods and services tax and provincial sales tax. Depending on the province, these taxes are collected under different names and rules, let's look at the four main tax types that you need to know about.

• Goods and Services Tax (GST): A 5% federal tax applied across the country.
• Provincial Sales Tax (PST): Added by certain provinces, with varying rates:
• • British Columbia (7% or 10% on some items)
  • Manitoba (7% on most items)
  • Saskatchewan (6%)
• Harmonised Sales Tax (HST): A combined GST and PST, found in:
• • Ontario (13%)
  • New Brunswick (15%)
  • Nova Scotia (15%)
  • Prince Edward Island (15%)
  • Newfoundland and Labrador (15%)
• Quebec Sales Tax (QST): The provincial sales tax for Quebec:
• • Quebec (9.975%)

Province-by-Province Breakdown of Sales Tax Rates

Here’s a quick guide to the sales tax in each province:

• Alberta: 5% GST (no PST)
• British Columbia: 5% GST (+7%/10% PST on some items)
• Manitoba: 5% GST + 7% PST
• Newfoundland and Labrador: 15% HST
• New Brunswick: 15% HST
• Nova Scotia: 15% HST
• Ontario: 13% HST
• Prince Edward Island: 15% HST
• Quebec: 5% GST + 9.975% QST
• Saskatchewan: 5% GST + 6% PST

Territories (Yukon, Northwest Territories, Nunavut): 5% GST (no PST)

Complexity in Special Menu Items

Handling special items on your menu, like combo meals or alcohol, can add another layer of complexity. Each province might have specific regulations about how these items should be taxed. As an example of this, we can look at how tax applies to combo meals in British Columbia. For a combo meal, the 7% PST would typically only apply to the alcohol or high-sugar drink portion and not to other food items.

Handling Tax Rates Across Multiple Locations

For franchise owners, managing tax settings across locations in different provinces can be tricky. You might have one restaurant in Ontario (13% HST) and another in Alberta (5% GST). Using a centralised menu management system like MenuBuddy can ensure your tax settings are accurate and compliant.

Applying Sales Tax to Alcoholic Beverages

Alcohol is a heavily regulated item across Canada, and special taxes are often applied in addition to general sales tax. Both federal excise duties and provincial taxes may apply to alcohol sold in your restaurant.

When Alcohol and Food Are Combined

If you offer food items that contain alcohol (like an alcohol-infused dessert or a cocktail with a meal), you may need to apply alcohol taxes in addition to standard sales taxes.

Handling Sugar Taxes on High-Sugar Beverages

Some provinces are beginning to implement sugar taxes on beverages with high sugar content. While this isn’t standardised across the country, it’s important to keep an eye on regions where these taxes might apply.

Managing Tax Exemptions for Basic Groceries

Certain provinces exempt basic groceries (e.g., unprepared food items) from sales tax. However, prepared meals sold in restaurants are generally taxable. The key is understanding which items fall under the exemption and which do not.

Conclusion

Although sales tax can feel intimidating, good tax management starts with knowledge. It is important not only to understand the tax rules that affect your restaurant, but also to understand your products how their individual properties affect their tax profile.