How to Start a Restaurant Business in Ontario
The complete step-by-step guide to starting a restaurant in Ontario. Covers incorporation, business licensing, health unit approval, liquor licence, HST registration, payroll, insurance, bookkeeping setup and every restaurant-specific tax rule you need to know before opening day. Written by a licensed Ontario CPA.
Step 1: Incorporate Your Restaurant Business
The first decision for any new restaurant owner in Ontario is the business structure. Most restaurant businesses should incorporate as an Ontario or federal corporation rather than operating as a sole proprietorship. Incorporation creates a separate legal entity that protects your personal assets from restaurant-related liabilities: slip-and-fall lawsuits, customer injury claims, supplier disputes, lease obligations and foodborne illness claims. In an industry with above-average litigation risk, the liability shield alone justifies incorporation.
Beyond liability protection, incorporation provides a significant tax advantage. A Canadian-Controlled Private Corporation (CCPC) pays 12.2% combined tax on the first $500,000 of active business income under the Small Business Deduction, compared to personal tax rates of 29% to 53.53% in Ontario. If your restaurant generates $150,000 in net income and you leave $70,000 in the corporation, you defer approximately $10,780 in tax per year compared to a sole proprietorship. Over five years, that is $53,900 working inside your business instead of going to CRA.
Incorporate Your Restaurant for $35
Federal incorporation includes government fee, NUANS, Articles, minute book and CRA registration.
Sole Proprietorship vs. Corporation for Restaurants
| Factor | Sole Proprietorship | Corporation (CCPC) |
|---|---|---|
| Liability protection | None. Personal assets at risk. | Separate legal entity. Personal assets protected (with exceptions for director liability). |
| Tax rate on net income | 20% to 53.53% (Ontario combined personal rates) | 12.2% on first $500,000 active business income |
| Tax deferral at $150,000 net income | $0 | Approximately $10,780 per year |
| Credibility with landlords and suppliers | Lower. Many commercial landlords require incorporation. | Higher. Required for most commercial leases and supplier credit applications. |
| Liquor licence application | Can apply as sole prop | Corporation applies. Easier transfer of ownership. |
| Lifetime Capital Gains Exemption on sale | Not available | Up to $1,016,836 per shareholder on qualifying shares |
| Incorporation cost through Gondaliya CPA | N/A | $35 federal or $335 Ontario (all-inclusive) |
Step 2: Prepare Your Restaurant Business Plan
A business plan is not optional for a restaurant. Landlords require one before signing a commercial lease. Banks require one for any loan or line of credit. And you need one to make realistic financial projections before committing to a lease, equipment purchase and build-out that can easily cost $150,000 to $500,000.
| Business Plan Section | What to Include |
|---|---|
| Concept and menu | Restaurant type (full-service, fast-casual, takeout, ghost kitchen), cuisine, target customer, average cheque size, menu pricing strategy |
| Location analysis | Foot traffic, parking, transit access, competitor density, municipal zoning confirmation (must be zoned for restaurant use) |
| Financial projections | Revenue forecast (covers per day x average cheque x operating days), food cost target (28-35% of revenue), labour cost target (25-35%), rent target (6-10% of revenue), break-even analysis |
| Startup cost budget | Lease deposit, build-out and renovation, kitchen equipment, furniture, POS system, signage, initial inventory, licensing fees, working capital (minimum 3 months operating expenses) |
| Funding sources | Personal savings, business loan, investor capital, BDC financing, CSBFP loan (government-guaranteed up to $1,000,000 for equipment and leaseholds) |
CSBFP Loan for Restaurants: The Canada Small Business Financing Program (CSBFP) provides government-guaranteed loans up to $1,000,000 for equipment and leasehold improvements, and up to $150,000 for working capital. Most Canadian banks participate. The corporation must have annual revenues under $10 million. This is the most accessible financing option for new Ontario restaurants because the government guarantee reduces the bank's risk, making approval more likely for first-time restaurant operators. You must be incorporated to apply through most participating lenders.
Step 3: Obtain All Required Licences and Permits
Ontario restaurants require multiple licences and permits from different levels of government. Missing any single licence can result in a closure order, fines or inability to open. The following table lists every licence and permit required for a typical Ontario restaurant.
| Licence or Permit | Issuing Authority | Cost | Timeline |
|---|---|---|---|
| Business licence | Municipal government (City of Toronto, Region of Peel, etc.) | $200 to $600 per year (varies by municipality) | 2 to 6 weeks |
| Food premises inspection and approval | Local public health unit (Toronto Public Health, Peel Public Health, York Region Public Health, etc.) | Included in business licence fee in most municipalities | 2 to 8 weeks. Inspector visits before opening. |
| Food handler certification | Approved training providers (municipal requirement) | $40 to $100 per person | 1-day course. At least one certified food handler must be on-site during all operating hours. |
| Liquor licence (if serving alcohol) | Alcohol and Gaming Commission of Ontario (AGCO) | $645 to $1,365 depending on type and capacity | 6 to 12 weeks. Background checks on all principals and directors. |
| Building permit (if renovating) | Municipal building department | Based on construction value ($500 to $5,000+) | 4 to 12 weeks depending on complexity |
| Sign permit | Municipal planning or sign by-law department | $100 to $500 | 2 to 6 weeks |
| Patio permit (if outdoor seating) | Municipal government | $200 to $1,000 per year | 4 to 12 weeks (seasonal application deadlines apply) |
| Music licence (if playing music) | SOCAN + Re:Sound | $150 to $500 per year combined | Apply online before opening |
DineSafe and Public Health Inspections: In Toronto, the DineSafe program requires all food premises to display their health inspection results (Green Pass, Yellow Conditional Pass or Red Closed) in a visible location. Inspections are unannounced and can happen anytime. Common infractions that trigger a Yellow or Red result include improper food storage temperature, cross-contamination risk, pest evidence, inadequate handwashing facilities and expired food. A Red closure notice stops all revenue immediately. Invest in proper food safety systems before opening, not after the first failed inspection.
Step 4: Register with CRA (HST, Payroll, Corporate Tax)
After incorporation, your restaurant corporation must register for a CRA Business Number and the following program accounts.
| CRA Account | When to Register | Key Details |
|---|---|---|
| GST/HST account | Before your first day of business (mandatory once revenue exceeds $30,000 in any 4 consecutive calendar quarters) | Most restaurants register immediately at incorporation. HST collected on all food and beverage sales (13% in Ontario). ITCs claimable on business purchases. File monthly, quarterly or annually depending on revenue. |
| Payroll account (RP) | Before paying your first employee | Restaurants must deduct CPP, EI and income tax from every employee's pay and remit to CRA by the 15th of the following month. Directors (owners) who receive salary also need payroll processing. |
| Corporate income tax account (RC) | Automatically created at incorporation | T2 corporate tax return due 6 months after fiscal year-end. Tax balance owing due 2 months after year-end (3 months for CCPCs with prior-year income under $500,000). |
CRA Registration Included Free with Every $35 Incorporation
We register your Business Number, HST, Payroll and Corporate Tax accounts as part of your incorporation.
Step 5: Understand HST Rules for Ontario Restaurants
HST is one of the most complex areas for Ontario restaurants because food products span the full HST spectrum depending on how they are prepared, packaged and served.
| Product | HST Treatment | Rate |
|---|---|---|
| Basic groceries (unprocessed, not heated, not sold at a restaurant) | Zero-rated | 0% |
| Prepared food sold at a restaurant (dine-in, takeout, delivery) | Taxable | 13% |
| Non-alcoholic beverages (sold individually, 600ml or less) | Taxable | 13% |
| Alcoholic beverages | Taxable | 13% |
| Catering services | Taxable | 13% |
| Gift cards | Not taxable at time of sale | HST applies when the gift card is redeemed |
| Tips and gratuities (voluntary) | Not subject to HST | 0% (but mandatory service charges are taxable) |
Mandatory Service Charges vs. Voluntary Tips: A voluntary tip left by a customer is not subject to HST. However, a mandatory service charge (e.g. "18% gratuity for parties of 6+") added to the bill by the restaurant is considered part of the price and is subject to 13% HST. This distinction matters significantly for restaurants with large-party policies, banquet services and catering. Configure your POS system to apply HST correctly on mandatory charges but not on voluntary tips.
Step 6: Get Restaurant Insurance
| Insurance Type | Why You Need It | Typical Annual Cost |
|---|---|---|
| Commercial general liability (CGL) | Covers slip-and-fall, customer injury, property damage to third parties. Most landlords require $2M minimum. | $1,500 to $4,000 |
| Property insurance | Covers kitchen equipment, furniture, inventory and build-out against fire, theft and water damage. | $1,000 to $3,000 |
| Business interruption insurance | Replaces lost revenue during forced closure (fire, flood, extended health department closure). | $500 to $1,500 |
| Liquor liability insurance | Covers claims arising from serving alcohol (required if you have a liquor licence). Ontario's Smart Serve requirements do not replace insurance. | $500 to $2,000 |
| WSIB (workers' compensation) | Mandatory for Ontario restaurants with employees. Covers workplace injuries. Rate varies by classification. | Based on payroll (typically $1.50 to $3.00 per $100 of insurable earnings) |
Step 7: Set Up Bookkeeping and POS Integration
Restaurant bookkeeping is more complex than most small businesses because of the volume of daily cash and card transactions, tip tracking, inventory management and the need to reconcile POS system totals to bank deposits daily. Set up bookkeeping correctly from day one and you avoid the $5,000+ year-end cleanup that restaurants with no systems consistently face.
| System | What to Set Up | Why |
|---|---|---|
| Point of Sale (POS) | Square, Toast, Lightspeed, Clover or TouchBistro. Configure HST codes, menu categories, tip tracking and daily Z-report generation. | The POS is your primary revenue record. CRA compares POS Z-reports to bank deposits during audits. |
| Cloud accounting software | QuickBooks Online or Xero. Connect bank feeds, configure chart of accounts for restaurant (revenue, COGS, labour, rent, utilities), set up HST tax codes. | Monthly bookkeeping, HST filing, financial statements and T2 preparation all flow from properly configured accounting software. |
| Bank account | Dedicated business chequing account. All revenue deposited here. All business expenses paid from here. No personal transactions. | Mixed personal and business accounts are the number one audit trigger for restaurants. CRA compares total deposits to reported revenue. |
| Payroll system | QBO Payroll, Wagepoint or ADP. Configure CPP, EI, income tax deductions for all employees. Process bi-weekly or semi-monthly. | Restaurants with 5+ employees must process payroll on schedule. Late remittances trigger escalating CRA penalties (3% to 20%). |
| Receipt management | QBO Mobile or Xero Hubdoc. Scan every receipt within 48 hours. Match to bank transactions weekly. | Missing receipts = denied deductions on CRA audit. Restaurant supply purchases are high-volume and easy to lose. |
Restaurant Bookkeeping from $100/month
QBO or Xero setup, POS reconciliation, HST filing, payroll and your annual T2 filed FREE.
Step 8: Understand Restaurant-Specific Tax Rules
| Tax Rule | What It Means for Restaurants | Dollar Impact |
|---|---|---|
| Cash revenue reporting | CRA audits restaurants by comparing total bank deposits to reported revenue. Every unexplained deposit is treated as unreported income. Daily POS Z-reports must match daily bank deposits. | A $30,000 unexplained deposit gap over 2 years = $3,660 additional tax + $2,400 interest + potential gross negligence penalty |
| Tip reporting | Tips paid to employees (both direct and controlled tips) are taxable income to the employee. The restaurant must include controlled tips on the employee's T4. Direct tips are self-reported by the employee. | Unreported tips trigger CRA employee audits that can result in retroactive source deduction assessments against the employer |
| 50% meal restriction (owner meals) | Meals and entertainment expenses claimed by the corporation are deductible at 50% only. This applies to owner meals, staff meals during meetings and client entertainment. Staff meals provided as a regular benefit are 100% deductible. | $10,000 in owner meal expenses = $5,000 deduction (50%), not $10,000 |
| CCA on kitchen equipment | Commercial kitchen equipment (ovens, fryers, refrigerators, dishwashers, exhaust systems) qualifies for CCA Class 8 (20%) or Class 12 (100% for items under $500). Leasehold improvements qualify for Class 13. | A $60,000 kitchen build-out deducted over 5 years vs. expensed incorrectly in year 1 |
| Inventory valuation | Food and beverage inventory at year-end must be valued at the lower of cost or market value. Spoilage and waste must be documented and written off. | Incorrect inventory valuation overstates or understates COGS, directly affecting taxable income |
| Delivery platform income (UberEats, DoorDash, SkipTheDishes) | Revenue from delivery platforms is reported on a T4A or T2125 equivalent. The platform fees are deductible business expenses. HST collected by the platform must reconcile with your HST return. | Platform revenue not reconciled to your books triggers CRA matching program reviews |
CRA's Restaurant Cash Audit Technique: CRA's most aggressive audit approach for restaurants is the bank deposit analysis. The auditor totals every deposit in every business bank account and compares it to reported revenue. Every deposit that exceeds reported revenue by more than a nominal threshold is treated as unreported cash income unless you can document the source (shareholder loan, intercompany transfer, catering deposit, insurance payout). Daily POS-to-bank reconciliation is the only reliable defence against this technique. Restaurants that do not reconcile daily are the most reassessed business type in Canada.
Explore our dedicated support for restaurant owners, including setup, tax planning, and compliance guidance: Restaurant Accounting & Setup Services
Step 9: Budget Your Restaurant Startup Costs
| Expense Category | Small Restaurant (30 seats) | Mid-Size (60 seats) | Full-Service (100+ seats) |
|---|---|---|---|
| Incorporation and CRA registration | $35 | $35 | $35 |
| Lease deposit (first and last month + security) | $10,000 | $25,000 | $50,000 |
| Build-out and renovation | $40,000 | $100,000 | $250,000 |
| Kitchen equipment | $25,000 | $60,000 | $120,000 |
| Furniture, fixtures and decor | $10,000 | $25,000 | $60,000 |
| POS system | $2,000 | $4,000 | $8,000 |
| Licensing and permits | $2,000 | $3,000 | $5,000 |
| Insurance (first year) | $3,500 | $6,000 | $10,000 |
| Initial food and beverage inventory | $5,000 | $10,000 | $20,000 |
| Working capital (3 months operating) | $30,000 | $60,000 | $120,000 |
| Marketing and signage | $3,000 | $7,000 | $15,000 |
| Total estimated startup cost | $130,535 | $300,035 | $658,035 |
10 Mistakes New Ontario Restaurant Owners Make
| # | Mistake | Consequence |
|---|---|---|
| 1 | Operating as a sole proprietor instead of incorporating | Personal liability for all restaurant debts, lawsuits and lease obligations. No SBD tax deferral. No LCGE on sale. |
| 2 | Not registering for HST before opening | Cannot collect HST, cannot claim ITCs on build-out and equipment. Retroactive HST registration means owing HST on all revenue from day one. |
| 3 | Mixing personal and business bank accounts | CRA treats every unexplained deposit as unreported income. The number one audit trigger for restaurants. |
| 4 | Not reconciling POS Z-reports to bank deposits daily | Cash shortages, skimming and unreported revenue go undetected. CRA bank deposit analysis finds every gap. |
| 5 | Underfunding working capital (less than 3 months) | Most restaurants take 6 to 12 months to reach profitability. Running out of cash before break-even is the number one reason new restaurants close. |
| 6 | Not obtaining a food handler certificate before opening | Health unit can refuse to approve your opening or issue a closure order during the first inspection. |
| 7 | Late payroll remittances | CRA penalty of 3% to 20% on unremitted source deductions. Directors are personally liable under Section 227.1. |
| 8 | Not tracking tip income properly | CRA employee audits that result in retroactive source deduction assessments against the employer. |
| 9 | Applying for liquor licence after signing the lease | Liquor licence takes 6 to 12 weeks. If the application is delayed or denied, you are paying rent on a location you cannot fully operate. |
| 10 | No bookkeeping system in the first year | $5,000+ year-end cleanup cost, missing receipts, denied deductions, incorrect HST filing and a T2 filed late with penalties. |
Avoid Every Mistake on This List. Start With a CPA.
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Opening Day Checklist for Ontario Restaurants
- Corporation incorporated and Certificate of Incorporation received
- CRA Business Number registered (HST, Payroll, Corporate Tax)
- Municipal business licence obtained
- Public health unit inspection passed and food premises approval received
- Food handler certification for at least one staff member on every shift
- Liquor licence issued by AGCO (if serving alcohol)
- Building permit closed out (if renovations were done)
- Commercial general liability insurance in place ($2M minimum)
- WSIB registration completed
- Business bank account opened, separate from personal
- POS system configured with correct HST codes, menu categories and tip tracking
- QBO or Xero configured with restaurant chart of accounts and bank feeds connected
- Payroll system configured for all employees with CPP, EI and income tax deductions
- Delivery platform accounts (UberEats, DoorDash, SkipTheDishes) reconciled to POS
Frequently Asked Questions: Starting a Restaurant in Ontario
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