Navigating Sales Tax in Canada:
How Restaurant and Delivery Platform Discounts Impact Sales Tax
A Guide for Franchisees and Restaurant Owners

The Adventures of Sarah, Ace, and Patrick

Navigating Canada’s Sales Tax Maze with Food Delivery Discounts

In a bustling town called Seashell Bay, three extraordinary individuals live out their daily adventures.
Together, they navigate the winding roads of sales taxes and promotions in Canada’s food delivery world. Let’s follow these heroes through three different scenarios that explain the twists and turns of sales tax rules, promotions, and discounts in the wild world of online food delivery.

Use Case #1

Just Another Day in Seashell Bay

It’s a typical sunny afternoon, and Sarah is behind the counter of her iconic Krabby Patty Shack. Business is booming, and Patrick is ordering his daily dose of deliciousness.

Patrick orders his favorite, the legendary Krabby Patty, priced at $100. Sarah does a little victory dance behind the counter—her cooking magic strikes again.

Ace, the speed racer, gets the notification. In a blink of an eye, he’s revving up his delivery bike and flying over to pick up Patrick’s meal.

Patrick, being a rock star who loves convenience, orders through an online marketplace, let’s call it "SkipFastDashEats" (you know the type). He clicks "order now," and Sarah rings up $100 for the Krabby Patty.

But here’s where the tax man enters the story. In Canada, the government has to get its cut.

• Sarah’s Responsibility: She collects GST/HST on the Krabby Patty sale. Let’s say it’s 5% GST in this case (it varies by province). So, Sarah charges Patrick $5 in GST.
• Ace’s Involvement: SkipFastDashEats charges a platform fee of $20 to Patrick for using the service. They also have to collect GST on that service, which is $1.
• Patrick’s Contribution: Patrick doesn’t mind. He happily pays on the Krabby Patty and delivery and munches away like a true rock star.

Tax Breakdown:

• Krabby Patty: $100
• GST on Krabby Patty (5%): $5
• Delivery Fee: $20
• GST on Delivery (%5): $1
• Total Paid by Patrick: $126

Use Case #2

The Restaurant-Funded Discount: Sarah’s Big Promotion

One day, Sarah, in a moment of pure generosity (and a clever marketing move), decides to give her customers a 20% discount on the Krabby Patty. Patrick is ecstatic because what’s better than a Krabby Patty? A discounted Krabby Patty.

Patrick orders again, but this time, Sarah’s 20% discount applies. Instead of $100, the Krabby Patty is now only $80. Patrick can barely contain his excitement as he places the order.

Ace gets the call—he’s off to the races to deliver this discounted masterpiece.

Now, here’s where the tax calculation gets interesting. Since Sarah is funding the discount (and it’s coming out of her revenue), the GST is calculated on the new discounted price of $80.

• Sarah’s Responsibility: Sarah collects GST on the discounted price of $80. That means the GST is now only $4.
• Ace’s Role Remains the Same: The delivery fee is still $20, but Patrick’s overall cost is lower now.
• Patrick’s Savings: Patrick gets to enjoy his Krabby Patty for a total of $105—now that’s a rock star deal.

Tax Breakdown:

• Discounted Krabby Patty: $80
• GST on Krabby Patty (5%): $4
• Delivery Fee: $20
• GST on Delivery: $1
• Total Paid by Patrick: $105

Sarah is happy because she’s kept her customers excited, and Patrick feels like he’s scored big!

Use Case #3

The Platform-Funded Discount: Ace Takes the Lead

One fateful Friday, the food delivery platform SkipFastDashEats decides to run a special promotion. This time, they are offering a 20% discount, but it’s coming out of their pocket, not Sarah’s. Ace is feeling generous and happy to represent the platform’s offer.

The Order:

Patrick places yet another order for his beloved Krabby Patty, and he’s surprised to find that this time, the platform is offering a $20 discount.

The Transaction:

Ace gears up, ready to zoom across town once again. But what about taxes?

Here’s the twist: the platform-funded discount does not reduce the taxable amount for the restaurant. Sarah still charges the full price of $100 for the Krabby Patty and collects GST on that full price.

• Sarah’s Responsibility: She collects the full GST based on the original $100 Krabby Patty price. That means the GST is still $5, even though Patrick gets a $20 discount on his total bill.
• Platform’s Involvement: The delivery platform absorbs the $20 discount. So, Patrick pays less, but it doesn’t affect the sales tax Sarah collects.
• Patrick’s Final Cost: Thanks to the platform discount, Patrick only pays $106 in total ($105 for the Krabby Patty, plus the $21 delivery fee, minus $20 from the platform discount). He still pays GST on the original price of goods and services.

Tax Breakdown:

• Krabby Patty: $100
• GST on Krabby Patty (5%): $5
• Delivery Fee: $20
• GST on Delivery (5%): $1
• Platform-Funded Discount (rebate): -$20
• Total Paid by Patrick: $106

Ace zooms off, and Patrick gets his meal at a bargain. The tax man, however, still gets his full cut. And Sarah? She doesn’t lose a dime to the discount—it’s all on the platform.

The platform discount is typically treated as a rebate or marketing expense by the platform, and it does not reduce the tax base for the goods or services provided (like the meal or the delivery service). This means that the GST charged on both the food and the delivery fee remains unchanged.

The Moral of the Story

As Sarah, Ace, and Patrick learned, understanding how sales tax works with discounts and delivery platforms can be a bit of a maze. But whether the discount is funded by the restaurant or the platform, the key takeaway is that GST/HST is calculated differently in each case:

1. On a normal day: Everyone pays GST on the full price of the meal.
2. On a restaurant-funded discount day: GST is calculated on the discounted price.
3. On a platform-funded discount day: GST is still based on the full price, even if the customer pays less overall.

So, the next time you order a Krabby Patty (or any meal for that matter), remember that behind the scenes, heroes like Sarah, Ace, and Patrick are navigating taxes and discounts, all while making sure your food gets to you just the way you like it—delicious and on time!

GST/HST/PST/QST Collection

In Canada, GST/HST is generally collected by the restaurant as the supplier of the goods (the meals). UberEats or DoorDash, acting as intermediaries, collect the payment on behalf of the restaurant. However, depending on the terms of the agreement, the delivery platform might also be responsible for collecting and remitting the tax on behalf of the restaurant, especially in marketplace facilitator models where platforms handle payments directly.

In cases where a platform funds the promotion and offers a rebate, it’s crucial that the platform clarifies the tax implications to the restaurant, as the taxable amount (for GST/HST purposes) would not decrease unless the restaurant funds the discount.

From an accounting perspective, restaurants and platforms must ensure they properly record who is responsible for funding the discount to ensure compliance with tax regulations. If the platform funds the discount, the restaurant should not reduce the taxable amount on their invoices or receipts unless the restaurant itself is directly reducing the price.

When the restaurant funds the promotion or discount, the discount is treated as a reduction in the selling price of the meal or service provided by the restaurant. In this case, the tax (GST/HST/QST) is applied to the reduced price after the discount.

If the promotion or discount is funded by the delivery platform (e.g., UberEats or DoorDash), the tax treatment depends on how the platform structures the discount. Generally, the original price of the meal remains taxable, and the platform’s discount is seen as a rebate or a form of marketing incentive to the customer. The delivery platform may treat the discount as a marketing expense rather than a price reduction.