Do I charge GST/HST on tips in Canada?

Not on a tip the customer gives freely. If you add a mandatory or suggested service charge to the bill, you charge GST/HST on it.

Are tips part of my restaurant's revenue?

Tips the customer chooses belong to your staff. Card tips arrive in your deposits, but they aren't your sales. Tips you control, like a mandatory service charge or a pool you split by your own formula, are paid to staff through payroll with CPP, EI and income tax deducted.

Can I claim the GST/HST on food I buy for the restaurant?

Most basic groceries carry no GST/HST, so there's nothing to claim on them. On taxable things you buy, like pop, chips, equipment and supplies, you claim it as an input tax credit if you're registered.

Restaurant bookkeeping in Canada

Food and drink you buy for the kitchen is cost of sales, and wages are usually the biggest line after it. What makes restaurant books different is tips: a tip the customer chooses has no GST/HST, but a service charge you add to the bill does. And tips you control go through payroll.

Where the money goes in your books

What a restaurants business usually spends on, and the account in a Canadian chart of accounts it belongs in. The numbers are the account codes in Spark’s starting chart.

Typical costs and the account each goes to
What you pay for	Account
Food and drink bought for the kitchen and bar	5000 Purchases and materials
Kitchen and floor staff	6800 Wages and benefitsThrough a payroll service.
Rent	6700 Rent
Gas, hydro and water	6950 Utilities
Card processing fees	6310 Bank fees
Fridge, fryer and dishwasher repairs	6750 Repairs and maintenance
New kitchen equipment	1500 Equipment and furnitureAn asset, not an expense.
Food handling and liquor licences	6400 Licences, dues and memberships
POS, reservation and scheduling software	6520 Software and subscriptions

How a chart of accounts works · The whole chart, as a template

The tax rules that are different for you

Each one is from the CRA, checked in October 2026. The link goes to the page it came from.

Tips the customer chooses: no GST/HST

A tip a customer gives freely, like cash left on the table, isn't subject to GST/HST. If you add a mandatory or suggested amount to the bill as a service charge, you charge GST/HST on it, the same as on the food.

CRA: GST/HST in special cases

Controlled tips go through payroll

If you control the tips, they're paid to staff through payroll with CPP, EI and income tax taken off. That includes mandatory service charges, a tip-sharing formula you set, and cash tips deposited into your bank account. Card tips handed back to the server in cash at the end of the shift are direct tips, with no deductions.

CRA: tips received by employees

Your groceries are zero-rated; what you serve is taxable

Most basic groceries you buy, like fresh meat, vegetables, eggs and milk, carry no GST/HST. Food heated for eating is excluded from zero-rating, so the meals you sell are taxable. Pop, candy and chips are taxable even when you buy them.

CRA: GST/HST Memorandum 4-3, basic groceries

Food you sell isn't held to the 50% meals rule

The 50% limit on meals doesn't apply when your business regularly provides food and drink to customers for payment. Your food cost is a cost of sales. Taking a supplier out to dinner is still 50%.

CRA: line 8523, meals and entertainment

Records to keep

The POS end-of-day report: sales, GST/HST, tips and how each was paid.
Tip-out sheets showing who got what, and whether you or the staff decided it.
Your card processor's monthly statement, showing sales, fees and tips before they're netted into one deposit.
Supplier invoices, so you can see what carried GST/HST and what didn't.

Common mistakes

Recording card deposits as sales. A deposit is sales plus card tips, minus fees.
Counting card tips as your revenue when they're owed to staff.
Adding an automatic gratuity for large tables and charging no GST/HST on it.
Claiming GST/HST input tax credits on grocery purchases that didn't carry any.

How Spark Books handles it

Fits, with a payroll service

Does the books. Wages and tips need a payroll service.

What it does

Sorts supplier, rent, utilities and card-fee payments into the accounts above, with the GST/HST split out.
Records grocery-type purchases that carry no GST/HST as zero-rated, so they don't inflate your input tax credits.
Works out your GST/HST return figures, regular or quick method.
A 13-week cash forecast, for the slow months and the quarter's GST/HST payment.

What it doesn’t

No payroll, so no tip distribution. Use a payroll service and Spark sorts the payments it makes.
No inventory counts. Spark books food purchases when you pay for them.
It reads what reaches your bank. Keep your processor's statements so your accountant can separate sales, tips and fees.
No live bank feed: you upload statements. Not available in Quebec yet.

Free, with no card. If you’d rather not do it yourself, a Spark bookkeeper keeps your books for $350 a month. How Spark Books works

Questions

Do I charge GST/HST on tips in Canada?: Not on a tip the customer gives freely. If you add a mandatory or suggested service charge to the bill, you charge GST/HST on it.
Are tips part of my restaurant's revenue?: Tips the customer chooses belong to your staff. Card tips arrive in your deposits, but they aren't your sales. Tips you control, like a mandatory service charge or a pool you split by your own formula, are paid to staff through payroll with CPP, EI and income tax deducted.
Can I claim the GST/HST on food I buy for the restaurant?: Most basic groceries carry no GST/HST, so there's nothing to claim on them. On taxable things you buy, like pop, chips, equipment and supplies, you claim it as an input tax credit if you're registered.
Is my restaurant's food cost limited to 50% like business meals?: No. The 50% limit doesn't apply when your business regularly provides food to customers for payment.

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