What is the current situation for restaurant owners in Canada or Toronto? Here is what’s going well, what’s challenging, and what to watch out for? And what you can plan as well.
The overall commercial food-service sales in Canada recently reported rising by about 6.4% year-over-year in June 2025, with full-service restaurants up ~6.2% and quick-service up ~6.8%, according to Restaurant Canada. Some operators are seeing benefit from improved consumer confidence and easing of some pandemic impacts. Growth remains possible in certain segments (e.g., catering, events) which can be leveraged by restaurants willing/able to pivot.
Given all the positive signals mentioned above, there are many big challenges. One of them is high costs and tight margins For example,Food costs (fuel, imports, ingredients) and labour costs are cited by ~80-83% of operators as top challenges. Insurance, utilities, rent and other overheads are rising — adding to the burden on an industry with already slim operating margins. Many restaurants are raising menu prices, reducing staffing/hours, changing suppliers or ingredients to stay afloat.Other than operational challenges, the economic outlook is cautious for the entire Canadian economy. According to a report published in the Toronto media: “three in four Canadians are eating out less.That share is even higher among those aged 18-34 at 81 %.” This absolutely puts pressure on restaurant owners.
What does this mean for a restaurant owner?If you own or are planning to own a restaurant in Canada (or Ontario specifically), here are some practical implications and action points:
Price strategy: You may need to pass some costs to customers, but rising prices continuously can reduce traffic, especially among price-sensitive diners. If you rely heavily on dinner/take-in traffic from offices or bars (e.g., near downtown Toronto), you may see recovery slower or more uneven because of remote work and changing habits.
Monitor labour/training: With labour shortages, investing in staff training, retention, and efficient scheduling may pay off.
Watch margins per item: With overheads up, pay close attention to menu items that give the best margin and consider phasing out low-margin items. In addtion, invest in productivity, cross-training, scheduling efficiency; manage labour cost while ensuring service quality.
Be flexible/adapt: Consider adjusting hours, shifting to more profitable dayparts, or pivoting to catering, take-out, delivery, and lesser staff hours.
Cash-flow and risk management: Since a large proportion of restaurants are operating at break-even or loss, ensure you have contingency for tougher months (slow traffic, cost spikes). Particularly, Independents may have less cash-flow cushion to weather cost spikes or slow periods.
Local marketing: Local differentiation, loyalty programs, community engagement might matter more now to drive traffic. Also, owners need to monitor consumer behavior. The drop in dining frequency implies you may need stronger marketing, loyalty programs, or value propositions to keep guests coming back.
Given what we discussed above, especially given how thin restaurant margins are right now. Below is a comprehensive tax-planning checklist for restaurant owners,
🧠1. Longer-term strategies
Succession & exit planning:
If you plan to sell or pass it to the second generation, ensure your shares qualify for the Lifetime Capital Gains Exemption (LCGE) — up to $1,016,836 (2025) tax-free for QSBC shares. That requires the corporation to be “active business” with 90%+ active assets for 24 months before sale.
Tax deferral on retained earnings:
Keeping profits in the corporation (instead of drawing salary/dividends) can defer personal tax, allowing reinvestment in equipment or expansion. If you compare the 53% highest marginal tax rate on personal income to the 12% small business corporate tax rate, you can tell right away that the impact is significant.
🏦 2. Cash flow & loss utilization
Net operating losses:
If you had pandemic or 2024 losses, you can carry them back 3 years or forward 20 years to offset taxable income (CRA extended this from 10 to 20 years).
Inventory write-downs:
If you have perishable stock that expired or was discarded (especially after events or supply disruptions), it can be deducted as inventory shrinkage or loss.
CEBA loan forgiveness:
The Canada Emergency Business Account (CEBA) forgiveness portion (up to $20,000) is taxable in the year received, but the interest and repayment are deductible. Plan accordingly if repayment was made in 2024–25.
💸 3. Manage GST/HST strategically
Ensure you claim all Input Tax Credits (ITCs) — for rent, utilities, equipment, repairs, delivery fees, and software subscriptions. If you have multiple locations, use centralized HST registration to manage credits efficiently. For 2024–25, CRA continues increased audits of tip and delivery income — ensure POS systems and cash handling align with HST reporting.
🇨🇦 4. Optimize your business structure
✅ Incorporation (vs. sole proprietorship)
If you haven’t already, consider incorporation to take advantage of the small business deduction (SBD). The federal small business tax rate (combined with Ontario) is ~12.2% on the first $500,000 of active business income in 2025 — versus 26.5% at the general rate. This can be significant for retained earnings and reinvestment.
Incorporation can also allow income splitting with a spouse/family member who meaningfully works in the business.
✅ Holdco structure
If your restaurant owns property, equipment, or trademarks, consider a holding company to protect and isolate assets from operating risk and possibly facilitate succession or sale. If you plan to sell your business or pass it to the second generation, a holding company may be a better idea.
🍽️ 5. Deduct and capitalize wisely
Food & beverage inputs
100% deductible if used for resale.
Staff meals are 50% deductible if for employee benefit (e.g., meals during shift) and part of regular practice.
Vehicle & delivery costs
Delivery vehicles: You can claim CCA (Capital Cost Allowance) and related expenses. For EVs used for delivery, zero-emission vehicle incentives and accelerated CCA (up to 100%) may apply.
Equipment & renovations
Many restaurant owners can use the Accelerated Investment Incentive (100% first-year depreciation) for new equipment like ovens, fridges, POS systems, etc.Leasehold improvements (renovations) are eligible for Class 13 CCA with accelerated write-off for improvements made before 2028.
Home-office or admin use
If you run payroll/bookkeeping from home, a portion of home utilities, rent, and internet may be deductible.
Lastly, and one many restaurant owners face sooner or later. The CRA (Canada Revenue Agency) treats restaurants as a “high-risk” audit sector because of cash transactions, tips, and complex inventory systems.
🔍What Triggers an Audit?
Typical CRA audit triggers that we have seen:
Large swings in income year to year: e.g., sales drop 30% while supplier invoices remain steady, or expenses ratio is out of whack;
High expense claims: Meals/entertainment, vehicle, home office;
Mismatch between POS and bank deposits:Especially with high cash ratio
Supplier cross-audits: CRA audits your supplier and finds invoices to you not reported;
T4/T5 slips & payroll mismatch: Employee numbers vs. reported wages or tip handling;
GST/HST refunds:If you claim large input credits;
Anonymous tip or complaint: A staff or customer report
So, what can restaurant owners do? What strategies can you play?
Use a tamper-proof POS – CRA-approved systems that keep audit trails and prevent sales suppression.
Reconcile daily – cash, credit, debit, and delivery-platform deposits. Also, by year-end, ask your accountant to review the financials to ensure all numbers are in line with expectation.
Document waste and comps – record reasons for food loss, staff meals, and customer comps.
Keep payroll/tip systems clean – declare tips properly and remit CPP/EI if controlled by the employer.
Maintain management notes – if business was slow due to weather, construction, or events, note this; it can justify income dips.
Use a separate business account – never mix personal and business funds.
Given that the overall market is growing but fragile, restaurant owners need to run lean, smart and compliant. From a tax planning perspective, use every single legal tool to plan and keep good records to support every claim to avoid any unnecessary CRA audit. CRA audit is normal in this industry but restaurant owners will stay audit-ready and be proactive.
With restaurant owners facing rising costs, CRA audits, and thin margins, our accounting services are designed to help you strengthen cash flow, plan taxes strategically, and stay audit-ready year-round.
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