Cash vs Card: Tax Reporting for Restaurant Owners
Running a cash-heavy business? CRA is watching. Learn proper cash handling, Z-tape requirements, and how to avoid audit triggers.
- CRA specifically targets cash-based businesses for audits
- Z-tape (end-of-day) reports must be kept for 6 years
- Bank deposits should match reported sales
- Lifestyle audits compare spending to reported income
- Proper documentation is your best defense
Why CRA Watches Cash Businesses
Let's be honest: cash is hard to track. CRA knows this. That's why restaurants, especially those with significant cash sales, are high-priority audit targets.
- Low reported income vs. industry benchmarks
- Cash sales percentage much higher than card sales
- Personal lifestyle doesn't match reported income
- Large unexplained bank deposits
- Missing Z-tapes or gaps in records
- Tip of from disgruntled employee
Z-Tape Requirements
Your Z-tape (end-of-day POS report) is mandatory documentation.
- Date and time of report
- Total sales (by payment type: cash, credit, debit)
- Number of transactions
- Tax collected (GST/HST, PST)
- Voids and discounts
- Cumulative totals (running grand total)
CRA can audit any of the past 6 years. If you don't have Z-tapes, CRA can estimate your income using industry benchmarks - and they won't be generous.
Bank Deposit Matching
This is where many restaurants get caught. CRA compares:
The Simple Math CRA Uses:
- Your bank deposits should = Card sales + Cash deposited
- If you report $500,000 in sales but deposit $600,000...
- Where did the extra $100,000 come from?
- You'll need to explain or it becomes "unreported income"
- Deposit ALL cash sales daily (or every 2-3 days)
- Don't pay expenses from the cash drawer
- Pay yourself by cheque or transfer (documented)
- Keep petty cash minimal and documented
Lifestyle Audits
CRA doesn't just look at your business books. They look at your LIFE.
- Home purchase price and mortgage payments
- Vehicle registrations and values
- Travel (passport stamps, flight records)
- Children's private school tuition
- Property tax records
- Social media posts (yes, really)
If you report $40,000 income but drive a $80,000 truck, live in a $800,000 house, and vacation in Mexico twice a year... CRA has questions.
Industry Benchmarks CRA Uses
CRA knows what typical restaurants earn. They compare your numbers to:
Typical Restaurant Ratios:
- Food cost: 28-35% of food sales
- Labour cost: 25-35% of total sales
- Net profit: 3-10% for full service, 6-15% for fast food
- Cash sales: 10-30% (declining with more card usage)
If your numbers are far outside these ranges, expect scrutiny.
Proper Cash Handling Procedures
- Ring up EVERY sale on POS (no "off-book" cash sales)
- Count cash drawer at shift start and end
- Document any overages or shortages
- Deposit daily, keep deposit slips
- Never pay personal expenses from cash drawer
- Keep petty cash under $200 with receipts for every use
- Run Z-tape at end of every business day
- Store Z-tapes in organized, dated files
What If You Haven't Been Compliant?
If you've underreported income, CRA's VDP lets you come clean with reduced penalties:
- Must be before CRA contacts you about an audit
- Full disclosure required
- Pay back taxes owed + interest
- Penalties may be waived or reduced
- No criminal prosecution
Concerned About Past Compliance?
Tax Punjabi can review your records and advise on the best path forward - confidentially.
This article is for educational purposes only. Consult a tax professional for your specific situation.