Why restaurant books are different
Most small-business bookkeeping is reconcile, categorise, report. Restaurants add three complications that a generalist often gets wrong: tips that have payroll consequences, a sales tax structure where liquor is taxed differently than food, and a daily volume of transactions that has to be closed cleanly or the whole month drifts.
Get these three right and the rest of restaurant bookkeeping is manageable. Get them wrong and you face CRA payroll trouble, PST that does not reconcile, and a P&L you cannot trust. Here is how each one works in British Columbia, with the rates checked against the province and the CRA.
Tip pooling and what it does to payroll
This is the one most operators underestimate. Whether tips run through your payroll depends on whether they are controlled or direct, and the distinction is set by the CRA.
Controlled tips are tips the employer controls or possesses before paying them out. The CRA treats these as part of the employee's pay, which means they are pensionable and insurable — you deduct CPP and EI on them at source and they show on the T4. Tips become controlled when, for example:
- You add a mandatory service charge to the bill and distribute it to staff.
- You run a tip pool and redistribute it using a formula you set.
- Staff hand tips to you and you pay them back out.
Direct tips are tips that go from the customer to the employee without the employer controlling them — cash left on the table, or a tip-out the staff arrange among themselves. Direct tips are not subject to CPP and EI deductions at source. (An employee can choose to make CPP contributions on direct tips, but that is their election, not your payroll obligation.)
The practical line: if the employer sets or administers the tip-pool formula, those tips are controlled and must run through payroll. If employees pool and split tips among themselves, they are generally direct. How you structure your tip pool literally changes your payroll obligations, so it is worth setting up deliberately rather than by accident.
This is verified against the CRA's guidance on tips and gratuities. Because it drives source deductions, it is exactly the kind of thing your bookkeeping and payroll need to handle together rather than in separate silos.
The sales tax split: GST, food, and the 10% liquor PST
A single restaurant receipt in BC can carry more than one tax rate, and the bookkeeping has to map each correctly or the PST return will not reconcile.
The rates, confirmed against the BC Ministry of Finance guidance on food and beverage service providers and retail liquor sellers:
- GST applies at 5% across the board — food and liquor both.
- Prepared food and most basic restaurant meals are not subject to PST. This is why a meal often shows only GST.
- Liquor sold in a restaurant is subject to 10% PST, on top of the 5% GST.
- Soda (soft drinks) is subject to 7% PST.
So one table's bill can show 5% GST on the food, 7% PST on the soft drinks, and 10% PST on the wine. Your point-of-sale system has to be configured to apply the right rate to each item category, and your bookkeeping has to map each tax to its own liability account so the GST return and the PST return each reconcile cleanly at filing time.
A common error is treating all PST as one rate. When liquor PST at 10% is lumped in with the 7% rate, the PST return is wrong and the variance is painful to unwind later. Mapping liquor PST, soda PST, and GST to separate accounts from the start is the fix.
The daily sales close
Restaurants do not get one deposit a month — they get a flood of small transactions every day across cash, debit, multiple card types, and delivery platforms. The daily sales close is the discipline that keeps this from becoming an unsortable mess.
A clean daily close records, for each day:
- Gross sales by category — food, liquor, soda, and any other taxable categories kept separate.
- The tax collected — GST, food, liquor PST, and soda PST broken out.
- Tips collected, separated into controlled and direct.
- Payment types — cash, each card type, gift cards, and delivery-platform settlements.
- Comps, voids, and discounts.
Done daily, this produces a single clean journal entry per day that ties out to your bank deposits and processor settlements. Done monthly instead, you are reconstructing weeks of activity from memory, and the gaps hide everything from skimming to a miskeyed tax rate. The daily sales close is the single highest-leverage habit in restaurant bookkeeping.
Cost of goods and the numbers that matter
Beyond tax and tips, restaurant profit lives in two ratios your bookkeeping should surface every month:
- Food cost percentage — cost of food sold divided by food sales. Watch it move, not just the level.
- Labour cost percentage — total labour including the employer-side payroll costs, divided by sales.
When your books separate food, liquor, and labour cleanly, these ratios fall out of the monthly statements and you can see margin slipping while there is still time to act. When everything is lumped together, you find out at year-end, which is too late to change anything.
Frequently asked questions
Are tips taxable for restaurants in BC?
Tips are taxable income to the employee in all cases. Whether you, the employer, deduct CPP and EI on them depends on the type: controlled tips (mandatory service charges, employer-administered tip pools) are pensionable and insurable and run through payroll; direct tips that pass from customer to employee without employer control are not subject to CPP and EI at source. This follows the CRA's controlled-versus-direct tip rules.
What is the PST rate on liquor in a BC restaurant?
Liquor sold in a restaurant in BC is subject to 10% PST, plus 5% GST. Prepared restaurant food is generally not subject to PST, and soft drinks carry 7% PST. This is set out in the BC Ministry of Finance guidance for food and beverage service providers and retail liquor sellers (https://www2.gov.bc.ca/gov/content/taxes/sales-taxes/pst/publications/food-beverage-service-providers-retail-liquor-sellers).
Why does my restaurant PST return never reconcile?
The most common cause is mapping liquor PST (10%) and soda PST (7%) to the same account, or not separating taxable categories in your point-of-sale system. When each tax rate maps to its own liability account and your daily close keeps food, liquor, and soda separate, the return reconciles cleanly.
Get restaurant books that hold up
Restaurant bookkeeping rewards getting the structure right early — tips, tax mapping, and a daily close that ties out. We do this for BC restaurants every month, bookkeeping and payroll under one roof so tips and source deductions line up. Book a free call and we will look at your setup, calendar booking, no obligation.