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I’ve written a couple of articles about Groupon on my sister blog, Canadian Restaurateur.  This is part of a series that will cover accounting for Groupon certificates, setting up your Point of Sale (POS) system to properly track coupons and discounts, using QuickBooks to enter Groupon transactions, examining the tax treatment of Groupon certificates (this one), and finally, determining whether your restaurant should consider Groupon.

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I had an interesting conversation with a restaurant owner the other day.  We were discussing tax audits and he mentioned that he wasn’t worried, because his accountant had signed off on his financial statements.  He thought that his accountant was responsible for paying any additional tax that might be reassessed by the CRA!

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Many restaurant owners use their automobiles for picking up supplies for the business, researching other restaurants, and making trips related to the restaurant’s operations. In Canada, individuals are able to claim a reasonable portion of their automobile expenses against their employment income from the business.  Even if you don’t draw a salary, you’re still considered an employee, by being a director of the company.

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If  your restaurant pools or shares tips, charges automatic gratuities, or receives a tip-out “to the house”, this article could save you thousands of dollars.

If you’re like most restaurateurs, you probably think that the Canada Revenue Agency’s only concern about tips and gratuities is that servers report them on their personal income tax returns.  While the CRA is concerned about this, now, they are even more interested in restaurants that fail to report certain types of tips.

The CRA’s policy on tips and gratuities can be found here.  The rest of this article may shock you.

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I’m certainly not saying that all, or even a significant number, of CRA’s tax auditors are corrupt, but this story in the Montreal Gazette highlights some very interesting issues surrounding restaurant tax audits.

The corrupt tax auditors seemed to focus on restaurants, knowing that they could “justify” large reassessments, unless the owners paid them bribes.  In at least one case, the auditor asked for the bribe before auditing the restaurant!  Finally, the auditors could just as easily make a restaurant appear to be reporting all of its income as it could make it look like they were evading large amounts of tax.

An RCMP investigation of Canada Revenue Agency employees has resulted in three former auditors being accused of shaking down restaurant owners for cash.

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There are about 80,800 restaurants in Canada (CRFA), and about half are audited every four years.  That’s a lot of restaurants being audited, and you just know that the majority of them receive reassessments at the end of each audit.

Rather interestingly, there are only about 10 significant court cases involving restaurants that had been audited using the mark-up methodHow can this be?

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Many restaurant owners think they’re protected from the tax auditors, simply because they have a good accountant.  While that’s true in some cases, just about every restaurant that gets hit with a tax audit reassessment (and usually a large one at that) had a “good accountant”!

In Canada, every restaurant that appealed tax audit reassessments in court had an accountant.  In the U.S., many states publish details of tax appeals by restaurants (informal tribunal appeals, roughly equivalent to Canadian appeals by Notice of Objection).  There are literally thousands of cases and virtually every one had an accountant.  In the vast majority of cases, the restaurants lost their appeals.  I’m sure most of these restaurants thought that their accountant would protect them from these tax reassessments.

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