Boston Pizza - Fraud?

Date visited: October 18, 2012

Food ordered and eaten by me: Smokey Spaghetti

Click to enlarge

Do you notice anything wrong with this receipt?





Highlight here for answer: Tax is 15%. In Ontario, Canada, effective July 1, 2010, the Harmonized Tax Rate (HST) is 13%. Up to here.
 
By daytime, I'm an auditor, by nighttime, a blogger. Using my auditor cap, this was the first thing I noticed. Normally, with big franchises, you won't expect this to happen.

You only suspect the Chinese restaurants. They will charge you tax but pocket the 13%. This is my second mission: To crack down on business/individuals evading taxes. Here is a lesson in Income Taxes. Taxes support the social services in Canada. Rob Ford, Toronto's mayor, wants to shut down libraries, pools and other social programs. In Ontario, the provincial government is cutting funding to the education system. If the government is not generating revenue from taxes, the only solution is to either raise taxes or shut the programs. If you own a restaurant and deal mostly in cash, you are my target. (end rant)

I asked the waitress why I was charged 15%, she didn't understand what I was talking about. She just said that the gratuity is charged before tax. Another rant, some Chinese restaurants, especially All You Can Eat (AYCE), will charged tips on top of the tax portion, so essentially, you are paying tax on the tips. This is not the proper way, besides tips is subject to the service. You give crappy service, you deserve less tips. It's all relative. (end 2nd rant)

Boston Pizza could be pocketing the 2% as revenue. This is considered fraudulent. Technically the tax amounts belongs to Canada Revenue Agency (CRA), as a business owner, you are responsible for withholding taxes and remitting that amount to CRA.

Secondly, if Boston Pizza is remitting 15% to CRA, this is not correct, they have not updated their system since our GST was reduced from 7% to 6% to 5% from 2006 and 2008, respectively. The fact that the term GST (right above PLEASE PAY SERVER) was not updated to HST, indicates that their system could be out of date. They are over-remitting to the CRA and this is unfair to the consumers.

I submitted a feedback to Boston Pizza through the link on the receipt. I am waiting for a response. They will most likely bribe me with a gift card. In any case, I might raise this issue with CRA. This is a matter of principle, not about the extra 34 cents they charged me. Dragon's Den will need to find a new host for their show.

I will provide updates when available (if they ever get back to a little potato like me).

Update 1 - Oct 31, 2012: I was contacted via e-mail by, presumably, the manager of the restaurant. He asked what the tax issue was about. I replied back within the same day with a copy of the receipt.

Update 2 - Nov  1, 2012: It is being investigated.

Update 3 - Nov 6, 2012:
 E-mail from manager:

Hi XXXX,

I got to bottom of this for you. The tax is on the automatic gratuity, it adds up to the correct math if that is taken into consideration. Thanks for bringing this to my attention as it will be much quicker for us to respond to this from now on.

XXXX

I audited his statement:

Meal            16.99
Tax @ 13%    2.21 (16.99 x 13%)
Tips @ 15%   2.55  (16.99 x 15%)
Tax on tips     0.33   (2.55 x 13%)
Total            22.08  Agreed to receipt (above)


Update 4 - Nov 6, 2012:
 My reply:

Hello XXXX,

Thanks for the reply.

This opens another can of worms. Why was I charged HST on the gratuity? Based on my understanding, it is not correct to charge tax on the tips.

Currently, the 13% HST (in my case - $16.99 * 13% = $2.21) is remitted to the CRA. Gratuity is paid to the waitress. The gratuity is included in their T4 slip and the waitress will report the $2.55 on her personal tax return. The waitress SHOULD be the one that pays taxes on the gratuity not the customer on her personal tax return. Going by the current method that Boston Pizza is using, this means that the CRA is earning double the revenue, once through the customer and secondly by the waitress.

Based on my analysis, it appears that Boston Pizza is overremitting the taxes to the CRA, which is not correct. Taxes should not be charged on top of the gratuity. If you would like to discuss this further, we can have a call/meet up at your location. Alternatively, you can send this information to the tax department, if any or to the accountants. They will understand this.

Hope this helps and rectify your tax isssues. I would like to follow this issue to the end. Please keep me in the loop.

Thanks,

XXXX 

Update 5 -  Dec 7, 2012
No reply from the manager. My e-mail sounded threatening. Anyway, I spoke to the HST expert in my office. This is the conclusion from our conversation:

Boston Pizza is the one forcing the gratuity. As a business, they are registered for HST, therefore they are able to charge HST on the gratuity. At the end of the day, Boston Pizza needs to remit the $0.33 to the CRA. Although I don't agree with this, this is how it works. Can't do anything unless I'm the one creating policies.

VERDICT: No fraud, it's not a Chinese business.

Case Closed.