BC restaurants: PST on liquor, GST on gratuities, and tips on payroll

Short answer: a BC restaurant charges 10% PST on liquor, no PST on food or non-alcoholic drinks, and GST on its sales. A mandatory or suggested gratuity added to the bill carries GST and no PST. Tips the employer controls, such as a service charge, go through payroll with CPP, EI and tax withheld and appear on the T4. Tips a customer hands directly to an employee do not.

PST: liquor yes, food no

• Liquor carries 10% PST: beer, ciders and coolers, mixed drinks, spirits and liqueurs, wine, and any beverage over 1% alcohol.
• Food for human consumption is exempt from PST, including meals and non-alcoholic hot or cold drinks.
• A mandatory gratuity does not carry PST, because it is not part of the purchase price the customer pays for the food and drink.
• The province says opening and corkage fees for a customer’s own bottle do not carry PST either.
• The province says a meal package that includes a glass of wine carries 10% PST on the fair market value of the wine.

GST: meals and service charges

The CRA treats food and beverages sold by an eating establishment as taxable for GST/HST, with certain exceptions. The CRA’s page says that if you add a mandatory or a suggested amount to the customer’s bill as a service charge, you charge GST/HST on that amount. A tip freely given by the customer, such as cash left on the table and not recorded on the bill, is not subject to GST/HST. So the same gratuity can be outside PST and inside GST. A fictional example: a CAD 100 bill for food with a CAD 15 mandatory service charge added. GST applies to the CAD 115. No PST applies, because the bill has no liquor and the service charge carries none. The figures are invented.

Tips on payroll

The CRA splits tips into two kinds. Controlled tips are tips the employer controls or holds and then pays to the employee. Examples are a mandatory service charge added to the bill, tips shared out by a formula the employer sets, and cash tips deposited into the employer’s account and paid out later. Direct tips are paid by the customer straight to the employee, with no employer control over the amount or how it is shared. Tips that the employees themselves decide how to pool are direct tips.

• Controlled tips are treated as paid by the employer, so income tax, CPP and EI are deducted at source, and the amounts are reported on the T4 in boxes 14, 24 and 26.
• Direct tips have no CPP, EI or tax withheld by the employer, and nothing is reported for them on the T4.
• An employee can receive both kinds, and only the controlled tips count toward pensionable and insurable earnings.
• Direct tips are still income to the employee, who reports them. An employee can choose to pay CPP on direct tips by filing Form CPT20.

What your books need to show

• Sales split into food, non-alcoholic drinks and liquor, so the PST base is clear.
• Mandatory gratuities and tips you hold for staff kept apart from sales, so the GST and the payroll on controlled tips can each be worked out.
• Which tips are controlled and which are direct, written down for each way your restaurant handles tips.

GST and PST in BC, side by side →

Payroll basics for BC employers →

Registering for PST in British Columbia →

Ask for a written quote →