Huh? Do you mean that if I never over-pour drinks, my establishment can still be accused of under-reporting my sales (and taxes) during an audit? That can’t be right! Can it? Unfortunately, it IS true for almost every restaurant and bar in Canada! Today’s post explains how this happens and what you can do about it.
Most restaurants and bars use shot glasses or portion control pourers to accurately measure the amount of liquor that goes into cocktails, mixed drinks and shots. Meticulously training bartenders and monitoring pouring, you’re fairly confident that your pouring is fairly accurate, if not “perfect”. Even if it is, your establishment will be over-pouring all of your liquor drinks by at least 4%!
The reason for this is that we think we’re measuring our pours in Canadian (actually UK or Imperial) ounces, but we’re actually pouring in US ounces. The US ounce is slightly larger than a Canadian one. The conversion is 1.0 oz. US = 1.041 oz. CAN. So, perfect pours result in a shortage of 4%, through inadvertent over-pouring.
For example, a 1.14l bottle of Vodka has 40.12 oz. (CAN), but only 38.55 oz. (US). When you pour a 3 oz martini, you’re really pouring 3.123 ounces of alcohol.
How Much Does It Cost You?
On a typical bottle, the cost of over-poured liquor would be about $1.50. It adds up over the course of a year! As if this isn’t bad enough, it’s actually quite a bit worse. While this type of systematic over-pouring is not the same as theft, the tax implications are similar. I wrote about this, here.
When the tax auditor arrives, this systematic over-pouring will result in a finding that the establishment’s sales should have been higher. The auditor assumes that you sold all 40 “ounces” in each bottle, when you really only sold 38.5 ounces. The under-reported sales might be about $5.00/bottle (typical selling price, based on a cost of $1.50). The number of liquor bottles purchased times the drink price will be your under-reported liquor sales during the year.
The tax auditor will calculate the under-reported income tax to be approximately $1/bottle. The establishment will also be charged HST of 13% in Ontario (sales taxes will be different in other Provinces). In our example, the HST will be $0.65/bottle. Penalties and interest will increase the combined tax liability to well over $2.00 per bottle. Now, those inaccurate shot glasses and portion control pourers are costing you at least $3.50 per bottle sold.
You Need to Take Action
All liquor statutes specify maximum drink sizes and minimum drink prices based on Canadian measurement units, yet almost every establishment in Canada uses US-based shot glasses and portion control pourers. Sales tax auditors falsely assume everyone uses Canadian ounces. While they allow some allowances for spillage, over-pouring and theft, generally, they do not consider the systematic over-pouring resulting from the use of inaccurate shot glasses.
It is up to you or your advisor to ensure that the auditor gives due consideration to this important factor.
There may be systematic over-pouring of your wine and draft beer portions, depending on how these are measured. Where this is true, the effect in a tax audit can be even more dramatic.
Until recently, it was somewhat difficult to obtain UK shot glasses. Now, a new company, Can-Pour, is distributing Canadian shot glasses. (I have no relationship with this company). Their web site claims a 7% cost saving, but it is really only 4%. However, they did miss the tax audit savings.
With a simple change in the way you measure drink portions, you can save $3.50 (CDN) per bottle.