Alcoholic Beverages

RST Small Business Pointer 907, August 2006

This Pointer will help you if you sell alcoholic beverages in an establishment such as a restaurant, bar, pub, hotel, resort or as a caterer. It explains the basic Retail Sales Tax (RST) rules for your type of business.

What are alcoholic beverages?

Alcoholic beverages include liquor, beer, wine, premixed cocktails, and alcoholic coolers. Businesses that sell alcoholic beverages often sell prepared foods too.

What are prepared foods?

Prepared foods are ready-to-eat foods bought from an eating establishment, and include take-out and eat-in service. Examples of prepared foods are meals, pizzas, sandwiches, hand-scooped ice cream, five or fewer pastries, and non-alcoholic hot or cold drinks.

Charging RST

Two RST rates may apply to your business. You charge RST at:

10 per cent on alcoholic beverages, sold at any price
8 per cent on prepared foods sold for more than $4.00 (excluding alcoholic beverages), and on snack foods such as candies, gum, chips, and pretzels.

When you sell prepared foods along with alcoholic beverages, show the two charges, and the related RST, separately on the customer's bill. For example:

Chicken wings	$5.00
Salad	3.00
Food total	$8.00
Draft beer	3.50
Rum & coke	4.00
Alcohol total	$7.50
Subtotal	15.50
RST on food (8 per cent)	0.64
RST on alcohol (10 per cent)	0.75
GST (6 per cent)	0.93
Total bill	$17.82

If you serve liquor and mix separately (not premixed) to your customer, you charge 10 per cent RST on the liquor and 8 per cent RST on the mix provided the charges are also shown separately on your customer's bill.

Can I use tax included pricing?

Tax-included pricing means that RST is included in your prices and you do not show RST separately. If you choose this method, you must use it consistently. You must also state on a sign or in your menus that the prices include the 8 per cent or 10 per cent RST. You can use this method:

for all alcoholic beverages; and
for prepared foods if the prices of all prepared foods are over $4.00.

How to calculate RST with tax included pricing

You calculate Retail Sales Tax (RST) on the sale price without the federal Goods and Services Tax (GST). If your prices include GST, use a factor, as described below, to determine the correct RST amount.

If your price includes both RST & GST and you do not state the actual RST included in each item, then multiply the total tax-included price by:

8/114 to arrive at the RST amount (8 per cent rate)
10/116 to arrive at the RST amouunt (10 per cent rate).

If your price includes both RST & GST and you state the actual RST included in each item, then multiply the actual RST amount included in the price by the number of items sold.

Example: If the RST amount included in the price of a beer is $0.40 and you sell 10 beers, the RST on the sale is $0.40 × 10 beers = $4.00.

If your price includes GST and you charge RST separately, then multiply the GST-included price by:

7.5472 per cent for prepared foods over $4.24 ($4.00 + 6 per cent GST), and
9.4340 per cent for all alcoholic beverages.

This method is the same as applying 8 per cent and 10 per cent RST on the GST-excluded prices. Do not show these factors on your customer's bill.

For more details, please refer to RST Guide 208 - Tax-Included Pricing.

Gratuities

The gratuities or service charges must be for serving food and drinks, and must be 20 per cent or less. Otherwise, these charges are taxable. If you bill your customers separately for gratuity or service charges, do not charge RST on these charges.

On what do I pay RST?

You must pay RST on all taxable items that you use in your business but do not sell to your customers, such as drinking glasses, bar equipment and supplies to prepare food. If you give away free alcoholic beverages to anyone including yourself, you must pay 12 per cent RST on your cost of the alcoholic beverages. Report the RST on Line 3 of your RST return. Please refer to RST Guide 302 - Alcoholic Beverages for details. Instructions on how to complete your RST return are included with your return card.

What can I purchase without paying RST?

You do not pay RST on your purchase of items that you sell to your customers. These include alcohol and drink mixes, and disposable items that you use to serve drinks, such as straws and napkins. To claim an exemption from RST, you must give a valid Purchase Exemption Certificate (PEC) to your supplier. For details on PECs, please refer to RST Guide 204 - Purchase Exemption Certificates.

Liquor licences

To sell alcoholic beverages, you must have a liquor licence. To obtain a liquor licence, register with the Alcohol and Gaming Commission of Ontario (AGCO) at 1 800 522-2876. The AGCO can refuse to issue, renew or transfer a liquor licence if you have any past due RST returns or you owe RST to the Ontario Ministry of Revenue. If this happens, call the collection officers at the telephone number provided by the AGCO or contact the nearest Ontario Ministry of Revenue Tax Office.

Keeping records

You must keep all books and records to support your sales and purchases for at least seven years. Such records include detailed cash register tapes (X and Z tapes), guest checks, sales invoices and journals, purchase invoices and journals, bank records and financial statements.

For more information

The information contained in this publication is only a guideline. For more information, please contact the Ontario Ministry of Revenue at 1 866 ONT-TAXS (1 866 668-8297) or visit our website at ontario.ca/revenue.

ISBN 1-4249-1893-6