How to run a hotel restaurant in Canada: room charges, tips and HST

A hotel restaurant answers to two kinds of customer: the guest who is staying upstairs and the neighbour who walked in off the street. Both pay for the same dinner, and the tax office wants the sale recorded the same way. The tangle starts when a meal lands on a room bill, when a package bundles food into a room price, or when a tip has to travel from a folio to a pay packet.

Is a meal charged to a room taxed as a meal?

Yes. The Canada Revenue Agency (CRA) says GST/HST applies to food and drinks sold in hotel dining rooms, coffee shops, bars and lounges, and through room service. Room service is taxable no matter how long the guest stays. Signing a check to a room number does not change what was sold. The guest still bought a meal.

Ask your point of sale and your hotel system to do three things:

• Tag every restaurant sale as food or beverage, with the right tax code, whether it is paid by card or posted to a room.
• Keep room service, the minibar, banquet food and the restaurant in their own categories.
• Report the tax the same way on a room charge and on a card payment, so that the daily total matches.

Provincial sales taxes add a layer where your province has one. In Ontario the single 13 percent HST covers both parts. In British Columbia, GST and PST are separate, with PST rules for food and liquor that differ from those for rooms. Read HST on restaurant meals for owners or BC PST and GST on restaurant sales for your province. In the Prairies and Atlantic Canada the rates and rules differ again, and that guide sets them out. Quebec runs its own sales tax beside the GST and is not covered here.

What about a package that bundles the room and breakfast?

This is where the CRA's rules get specific. A package counts as a tour package only if it includes at least one service, such as transportation or guide services, along with property such as accommodation, sold for one price. Meals and admissions are property, so a package of only accommodation, meals and admission is not a tour package. In an all-inclusive resort the meals and amenities are treated as part of the accommodation. Where a mixed package is taxed, the tax is worked out by splitting the price by the cost of each part.

Do not guess at a split. Ask the CRA, or your accountant, how your package should be taxed, and write the answer into your rate sheet. A complimentary breakfast raises its own questions, since a free item can be treated differently from a sold one, so get that confirmed before you advertise it.

Do municipal levies change the picture?

Many cities and tourism bodies add a charge on room nights, and the rules for it are set locally. Those levies apply to the room, not to the dinner, so make sure your system never puts one on a restaurant check. Ask your municipality and your provincial tourism body what applies to your property, since the CRA's guidance does not cover them.

Who gets the tip on a room bill?

The server does. In Ontario, a tip is a payment voluntarily left by a customer, and an employer generally cannot withhold, deduct from or make an employee return it, except as the Employment Standards Act allows. Tips must be paid by cash, cheque or direct deposit, and the employer can decide which. A tip pool, where the employer collects tips and redistributes them among some or all employees, is allowed. If the employer, a director or a shareholder shares in a pool, the policy must be posted in a place employees will see.

Tips charged to a room go through your payroll. Track each tip by check so no server is short, and pay it out on time. The guides to the Ontario tip law, BC tip pooling and gratuity rules and tips on payroll cover the rest.

How are service charges and banquet gratuities taxed?

A voluntary gratuity paid directly to an employee is not subject to GST/HST. A gratuity included in the invoiced charge is. The CRA's example is a 1,000 dollar banquet with a 150 dollar service charge, taxed on 1,150 dollars. Many hotels add an automatic charge to banquets and room service, so say clearly on the menu, the contract and the folio what the charge is and who gets it. Do not call it a tip if guests have no choice. The longer discussion is in GST/HST on tips and service charges.

Who holds the licences?

A hotel restaurant usually needs its own public health approval and, if it serves alcohol, its own liquor licence or a licence the hotel holds for the whole property. When an outside company runs the restaurant, write down who holds the permits, who files the tax and who trains the servers. Read liquor licences by province for how your province handles it.

Which records should you keep?

• A daily report that splits food, beverages, room service, banquets and service charges, tied to the hotel folio.
• Tip records by check, with the date each tip was paid.
• Every package rate sheet and the tax treatment you confirmed.
• Permits and licences, and who holds each.

If those four things are in order, a review is short.

More guides for your business:

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

More in the Canadian guides for food businesses.