Hospitality business expenses in Canada: the complete guide for cafes, restaurants, pubs and caterers

A Canadian restaurant lives on the other side of the country’s best-known expense rule. The 50% limit on meals and entertainment is written for businesses that buy meals; a business that sells them is carved out, and its food is ordinary cost of sales. Around that carve-out sit the rules that actually shape a hospitality ledger: zero-rated groceries on the way in and taxable meals on the way out, tips that are either payroll or not depending on who controls them, CPP and EI on every hour, provincial liquor licensing, and capital cost allowance on the kitchen. This guide goes through the whole ledger of a cafe, restaurant, pub, bar or catering business, category by category, with a verdict for each one before the detail. Every figure is sourced to the Canada Revenue Agency in the Sources section, retrieved 10 October 2026.

What this guide covers: food and beverage stock, GST/HST on what you sell, tips and service charges, wages, CPP and EI, staff meals and functions, client meals and the 50% rule, rent, property tax and utilities, licences and permits, delivery platforms, software and payment fees, kitchen equipment and capital cost allowance, uniforms and cleaning, vehicles and mileage, and the GST/HST return, records and year-end work that tie it together.

The hospitality ledger at a glance

The rest of this guide walks through each row, and every section opens with its verdict.

Where ExpenseFlow fits

A venue’s purchase ledger is high volume and low value: produce, meat, dairy, beverages, packaging, cleaning supplies, linen, propane, often several invoices a day across a dozen suppliers. ExpenseFlow captures each supplier invoice and receipt (email forward, upload or phone), reads the line items and the GST, HST, PST or QST per line, codes each line to your chart of accounts with a written reason, and routes anything uncertain to a person before it posts. The line-level tax is recomputed against the printed totals and mixed rates on one document are flagged, which is what catches the zero-rated groceries sitting next to the taxable pop. A line that reads as a meal or entertainment is held with the 50% question attached, and the reviewer records whether it is food you sell, an all-staff event or a client lunch. After approval the bill syncs to Xero with the source document attached and the decision trail written to the bill’s history, or to QuickBooks Online as a coded bill.

What it does not do: it does not run payroll or decide whether a tip is controlled, it does not calculate capital cost allowance, it does not count stock, it does not touch the point of sale, and it does not file your GST/HST return or a provincial sales tax return. Those stay with you and your accountant. The matching hospitality charts of accounts for Ontario, Alberta, British Columbia and Quebec give you account names and tax codes that line up with the categories below.

The ExpenseFlow for hospitality businesses page covers these checks across all five countries.

Food and beverage stock

A business that regularly provides food, beverages or entertainment to customers for compensation is outside the 50% limit for the food it serves; the CRA’s own examples are restaurants, hotels and motels ^[1] . Your ingredients are ordinary, reasonable costs of earning business income ^[9] . The GST/HST on them depends on the item. Basic groceries, which cover most food and beverages marketed for human consumption, are zero-rated: fresh meat, poultry and fish, eggs, fresh, frozen and canned produce, breakfast cereals and most milk products ^[2] . Taxable are alcoholic beverages, carbonated beverages, candies and confectionery, chips and similar snack foods, and any food heated for consumption ^[2] . You claim input tax credits only to the extent purchases are used in your commercial activities and the GST/HST was actually charged ^[3] , so the ITC is the tax column added up, not a fraction of the invoice total.

GST/HST on what you sell

Food and beverages sold at an establishment where taxable food and drink make up 90% or more of sales are taxable when sold in a form suitable for immediate consumption there, food or beverages heated for consumption are taxable wherever sold, and sweetened goods such as cakes, muffins and cookies are taxable in quantities of less than six single servings, with the establishment threshold set at more than five items ^[2] . The provincial layer decides the rate: HST in the participating provinces, GST plus PST or QST elsewhere; the GST/HST guide sets out the rates by province and the HST calculator works a figure either way. Registration is compulsory once taxable revenue exceeds $30,000 in a single calendar quarter (charge from the sale that took you over) or over the last four consecutive quarters (charge from your first supply after the end of the month following that quarter), with 29 days from the effective date to register ^[4] .

Tips, service charges and gratuities

The CRA draws the line on control. Controlled tips are tips an employer controls or possesses and then must pay to the employee, and they are part of the employee’s total remuneration: pensionable and insurable, with CPP and EI deducted at source ^[7] . A mandatory service charge added to the bill, a tip pool the employer runs, and card tips paid out through payroll all sit here. Direct tips are paid by the customer directly to the employee, the employer is merely a conduit, and they are not subject to CPP contributions or EI premiums at source, though the employee can elect to contribute to CPP on them ^[7] . Either way, tips and gratuities are income earned in respect of employment and taxable to the employee ^[7] . In Quebec, employees in a regulated establishment must declare their direct tips to the employer, and declared tips are insurable alongside controlled tips ^[7] . For the books, tips are never your revenue: controlled tips are a liability to staff from the moment they are taken, cleared through payroll; a service charge you impose is part of the taxable price of the meal.

Wages, CPP and EI

Salaries, wages and benefits paid to employees are deductible business expenses ^[9] . In 2026 the CPP contribution rate is 5.95% for both employer and employee on earnings between the $3,500 basic exemption and the $74,600 year’s maximum pensionable earnings, with the second additional CPP contribution applying above that ceiling ^[5] . The EI premium rate is 1.63% of insurable earnings for the employee, up to $68,900, and the employer’s premium is 1.4 times the employee’s, a maximum of $1,572.30 a year per employee; in Quebec the employee rate is 1.30% and the employer maximum $1,253.98 ^[6] . Minimum wage, statutory holiday pay and vacation pay are set by each province’s employment standards, and most provinces also run a payroll health tax or similar levy above a payroll threshold; your province’s employment standards office is the authority. Casual and seasonal staff are employees for all of these rules from their first shift.

Staff meals, functions and benefits

The 50% limit does not apply to an office party or similar event to which all employees from a particular location are invited, up to six such events a year ^[1] . The staff meal before service and the pizzas at the end of a Saturday night are part of the cost of running a kitchen that sells food, not entertainment ^[1] . A function that is not open to everyone, or a seventh event in the year, falls back to the 50% limit ^[1] . The GST/HST on the stock and the catering behind these events is claimable as an ITC to the extent the expense is allowable ^[3] .

Client meals and the 50% rule

The maximum you can claim for food, beverages and entertainment is 50% of the lesser of the amount you incurred and an amount that is reasonable in the circumstances ^[1] . For a venue, that bites when the owner hosts a supplier, an investor or a prospective corporate account, at their own tables or someone else’s. The limit does not apply where you bill the client for the meal and show it on the invoice, where you include the amount in an employee’s income (with extra conditions for remote work locations), to a fundraising event mainly for a registered charity, or to meals at a temporary work camp where the employee cannot reasonably return home daily; long-haul truck drivers get 80% during an eligible travel period ^[1] . The input tax credit on meals and entertainment is available on the allowable part only ^[3] , so the same 50% runs through the GST/HST return. The business meals guide has worked examples.

Rent, property tax and utilities

Rent for business premises, property taxes, and utilities such as heat, electricity, water and telephone are deductible business expenses ^[9] . Commercial rent and utilities usually carry GST/HST that you claim as an ITC from the invoice ^[3] ; property tax does not. A lease deposit is not an expense until it is forfeited, and a tenant’s leasehold improvements are capital, claimed through capital cost allowance rather than as rent.

Licences, permits and fines

Annual licence fees, business taxes, and memberships and subscriptions to trade or commercial associations are deductible ^[9] , and because they are fees to governments and public bodies they carry no GST/HST. Liquor licensing is provincial, so the fee, the renewal cycle and the server-training requirements come from your province’s liquor authority. Membership dues in a club are not deductible where the club’s main purpose is dining, recreation or sports ^[9] , so the golf club where you host suppliers is not a licence cost, whatever the invoice says.

Delivery platforms, software and payment fees

Delivery platform commissions, online ordering fees, reservation and scheduling software, point of sale subscriptions and terminal rental are ordinary costs of earning income ^[9] . Claim ITCs only where GST/HST was charged and only to the extent the purchase is used in commercial activities ^[3] . Card processing fees are typically exempt financial services with nothing to claim, while terminal rental and software carry tax; a platform or software vendor billing from outside Canada may charge GST/HST under the registration rules for non-resident suppliers or may not, so the invoice is the authority every time.

Kitchen equipment and capital cost allowance

Commercial ovens, refrigeration, espresso machines, dishwashers and furniture are depreciable property. Class 8, with a CCA rate of 20%, takes property not included in another class, which covers most restaurant equipment and furniture ^[8] . Class 12 covers tools, medical or dental instruments and kitchen utensils that cost less than $500, at 100% ^[8] . Class 50, at 55%, takes general-purpose electronic data processing equipment such as POS terminals and computers ^[8] , and Class 10, at 30%, takes motor vehicles ^[8] . The first-year and accelerated-investment rules change the timing of the first claim, and the equipment guide sets them out. Repairs that keep equipment in working order are deductible as you go ^[9] ; replacing a kitchen with a better one is capital.

Uniforms, laundry, cleaning and pest control

Uniforms the venue supplies and launders are reasonable costs of earning income ^[9] , and the GST/HST on them is claimable ^[3] . Cleaning contracts, pest control, grease trap servicing and waste collection are the same. Whether a uniform you provide is a taxable benefit to the employee depends on whether it is distinctive and required for the job; a plain allowance for clothing is pay.

Vehicles, delivery and mileage

A catering or delivery vehicle the business owns is claimed through CCA at 30% as Class 10 property ^[8] , with fuel, insurance, maintenance and licence costs deductible at the business share. Staff who use their own cars for deliveries or supply runs are reimbursed at a per-kilometre rate; the CRA’s prescribed rates and the logbook rules are in the vehicle and mileage guides, and the mileage log template carries the record. Meals while travelling for an off-site event follow the travel guide.

Marketing, insurance, bank charges and the small stuff

Advertising, insurance premiums on buildings, machinery and equipment, interest on money borrowed for the business, bank charges, delivery and freight, and office and small supplies are deductible business expenses ^[9] , and the GST/HST charged on them is claimable as an ITC ^[3] . Insurance and most bank charges carry no GST/HST.

GST/HST return, records and year end

Every ITC rests on a supplier invoice that shows the tax charged ^[3] ; the GST/HST return guide covers the filing and the record-keeping guide sets out the six-year retention rule. For payroll, keep the records that show which tips were controlled and ran through source deductions, and for the 50% rule keep the guest list and purpose for every meal outside the restaurant exception, plus a count of the all-staff events. The tax deadlines calendar has the GST/HST, payroll remittance and T4 dates, and the year-end checklist walks the close, including the CCA schedule.

Common mistakes

• Applying the 50% limit to the food you sell, and losing half of your largest cost ^[1] .
• Claiming 100% of a supplier dinner or a client lunch ^[1] .
• Claiming ITCs across a whole produce invoice when half the lines are zero-rated groceries ^{[2] [3]} .
• Charging no tax on cold items sold for eating in, or on heated food sold to go ^[2] .
• Treating a mandatory service charge or an employer-run tip pool as direct tips and skipping CPP and EI ^[7] .
• Running a seventh all-staff event in the year at 100% ^[1] .
• Expensing a $3,000 oven as a repair instead of adding it to Class 8 ^[8] .
• Missing the $30,000 small supplier threshold on a growing takeout trade ^[4] .
• Claiming ITCs on property tax, insurance or bank charges, none of which carry GST/HST.