How to run a bakery in Canada: GST on baked goods, home baking and allergen labels

A bakery sells staple food, and Canadian tax law treats a lot of it as staple. That is good news until you sell a muffin to eat in the shop. The rule moves with the quantity, the sweetness, the heat and where the customer eats it. Add the rules for home bakers and allergen labels, and a bakery owner has three things to get right.

When do baked goods carry GST/HST?

The Canada Revenue Agency (CRA) zero-rates basic groceries, which means no GST/HST is charged, and most bread-type products are included. The tax comes back in at the edges:

• Sweetened baked goods, such as muffins, cakes, pies, cookies and doughnuts, are taxable when sold in quantities of fewer than six single servings.
• Six or more single servings, whether pre-packaged or bought together, are zero-rated when they are not sold for consumption at the establishment. The CRA counts a mixed purchase, such as two bagels, two muffins and two doughnuts.
• Plain bagels, rolls and bread without a sweetened filling or coating are generally zero-rated, whatever the quantity.
• Anything heated for consumption is taxable. A warm cookie from a heated cabinet is taxable even if it is taken away.
• A business whose taxable food and drink sales make up 90 percent or more of its sales is treated as an establishment, and the six-item relief applies only to food not sold for eating there. The CRA's list of establishments includes take-out outlets and catering.

Your register should therefore carry rules for quantity, not only product. A box of six muffins to go is a different sale from one muffin with a coffee. Set up the till with the right tax setting for each, and train counter staff to ask if a customer is eating in. In Ontario, the point-of-sale rebate can remove the provincial 8 percent on small qualifying purchases, covered in the Ontario prepared food rebate guide. For the rest, read HST on restaurant meals for owners and BC PST and GST on restaurant sales.

Can you bake from a home kitchen?

In some provinces, for some foods. Ontario's food premises regulation exempts premises that prepare only low-risk food from several requirements, and the province has had guidance for home-based food businesses since 2021. Low-risk foods are those that do not need time and temperature control, such as most breads, plain baked goods and some candy and preserves. Items with custard or cream fillings are not low-risk. Home-based businesses are generally asked to notify the local public health unit before they start, and some municipalities add their own rules about home businesses. British Columbia and the other provinces are stricter or different, and the health authority decides what a home kitchen may do.

Before you sell from home:

• Call the local health unit and ask in plain terms what it allows.
• Check municipal zoning for a home business.
• Confirm that your insurance covers products you sell.
• Plan for the day you outgrow the kitchen. A shopfront or wholesale to cafés usually needs a licensed commercial premises.

The guide to food premises permits and food handler certification in Canada shows the next step up, and starting a catering business in Ontario and BC covers kitchens you can share.

What allergen labels does a Canadian bakery need?

Canada has eleven priority allergens: eggs, milk, mustard, peanuts, fish, crustaceans and molluscs, sesame, soy, sulphites, tree nuts and wheat or triticale. On a pre-packaged food, they must be declared in the ingredient list, in a "Contains" statement, or both, using the source names set out in the Food and Drug Regulations. Sulphites must be declared when present at 10 parts per million or more. Sesame matters for bakers, since seeded buns and bagels carry it.

Some food packed at the bakery for sale from the same premises is exempt from parts of the labelling rules, but the exemptions are narrow and they change. Check the Canadian Food Inspection Agency's guidance for your product, or ask the inspector. The detail is in food allergen labelling rules for Canadian restaurants and allergen labelling and priority allergens in Canada.

Even where a label is not required, customers still ask. Keep an ingredient sheet for every item, update it when a supplier changes a flour, and train counter staff to say "I will check" rather than "I think so".

How do you avoid cross-contact?

A label tells the truth about the recipe. It does not protect a customer from flour dust. Bake nut-free items first, wash tools between batches and store allergen ingredients low and covered. A "may contain" statement is voluntary wording for cross-contact risk, and it is a prompt to improve your process, not an excuse.

What should a bakery owner do this week?

• Print a receipt for one muffin, a box of six and a plain bagel, and check each tax line.
• Write an allergen card for each item in the case, including sesame.
• If you bake at home, call the health unit and write down what it says.
• Keep your permits, ingredient sheets and supplier lists in one folder.

More guides for your business:

• How to run a hotel restaurant in Canada
• How to run a food hall stall or market stand in Canada
• How to organize a food festival in Canada

More in the Canadian guides for food businesses.