Canada’s restaurants are being asked to do the impossible: pay steadily rising wages, absorb escalating employer contributions (CPP, EI, WSIB), collect 13% HST on every bill, and shoulder higher rents—while guests themselves struggle with affordability and push back on higher prices.
This is not about being conservative or liberal. It’s about whether our tax and cost structure for a labour-intensive, community-based industry still makes sense.
As President of the Federation of Italian Chefs of Canada and a member of Restaurants Canada, I hear the same message from operators across the country: even strong, well-managed restaurants are finding that the math no longer works.
1. The Cost Stack No One Sees—But Every Operator Pays
For the average guest, a restaurant visit is a menu price, plus tax, plus tip.
Behind the scenes, the picture is very different:
- Minimum wage keeps rising. In Ontario, for example, the general minimum wage moved up again on October 1, 2025. On paper, the increase per hour looks small; across an entire roster, it’s a major shift.
- Payroll contributions magnify the impact. Every wage increase carries with it higher employer CPP, EI, vacation pay, statutory holiday pay and, in many cases, WSIB premiums.
- Restaurants collect 13% HST but can’t expand their margins. In provinces with HST, restaurants collect and remit the tax on every bill. They act as tax collectors while operating on single-digit net margins.
- Commercial rent and financing costs have climbed. Many leases were signed in a different interest-rate environment. Today’s reality is higher rent pressure at the same time as higher labour and tax costs.
Budget documents talk a lot about affordability and support for the middle class. Yet when you look at how policy actually lands in a restaurant P&L, the sector is largely left to carry these pressures alone.
2. Learning from Others: What’s Working Abroad
Canada does not have to start from scratch. Other jurisdictions have already tested practical tools to support restaurants while protecting public finances.
Ireland: Reduced Tax on Hospitality as a Competitiveness Tool
Ireland has repeatedly applied a reduced VAT rate for tourism and hospitality services, including restaurants and cafés. The logic is simple:
- Hospitality is a major employer and a pillar of regional economies.
- A lower tax rate on meals helps protect thin margins and keep prices within reach for local residents and visitors.
- By supporting volumes and employment, the state still benefits from strong overall tax revenues.
Importantly, Ireland has treated this not just as a temporary crisis tool, but as part of a long-term competitiveness strategy for tourism and foodservice.
Key lesson: A lower, stable consumption-tax rate on restaurant meals can be a strategic lever to protect jobs and regional economies.
United Kingdom: Evidence That Reduced VAT Can Pay for Itself
The UK temporarily cut VAT on hospitality and tourism during the COVID crisis, then gradually brought it back up. Economic modelling done around that period suggested that keeping a permanently reduced VAT rate for hospitality could:
- Generate significantly higher sales over time
- Deliver modest price reductions to support demand
- Still produce a net gain for the government once higher activity, employment and related taxes are included
Key lesson: Properly designed, a reduced tax rate on hospitality doesn’t have to mean less revenue for government. It can support a bigger, healthier tax base.
Europe More Broadly: Lower Rates on Meals Are Normal
Across many EU countries, restaurant meals are routinely placed in a reduced VAT band, below the standard rate applied to other goods and services. This reflects three realities:
- Restaurants are labour-intensive, not capital-intensive
- They are central to tourism, culture and city branding
- They play a social role as community hubs
Key lesson: Treating restaurant meals as a lower consumption-tax category is mainstream policy in advanced economies, not a radical experiment.
United States: Targeted Payroll Relief via the FICA Tip Credit
In the United States, the federal FICA Tip Credit allows restaurant and bar owners to offset part of their employer Social Security and Medicare taxes on employees’ reported tips. It is:
- Sector-specific (focused on food and beverage)
- Linked to a distinctive element of compensation (tipping)
- Designed to support employment while maintaining the integrity of the social-security system
Key lesson: It is entirely possible to design targeted payroll relief for restaurants without undermining the broader social-insurance framework.
3. A Canadian Playbook: Practical, Non-Partisan Reforms
Canada can adapt these ideas to our own context. The goal is not to “pick winners,” but to recognize that a labour-intensive, low-margin sector cannot absorb endless cost increases without structural adjustments.
A. Put Restaurant Meals in a Lower GST/HST Band
Canada could move prepared restaurant food into a reduced GST/HST category, similar to lower hospitality VAT rates in Europe. To be effective, this should be:
- Clear and stable – a permanent rate, not a short-term program
- Properly modeled – taking into account dynamic effects on employment, business survival, income tax, and other revenues
This approach would:
- Provide breathing room on price for guests
- Support volumes and table turns for operators
- Maintain or even grow the long-term tax base as more businesses survive and more people stay employed
B. Create a Hospitality Payroll Credit
Canada can also learn from the U.S. FICA Tip Credit and international payroll-tax reforms by:
- Introducing a hospitality-specific payroll credit that offsets a portion of employer CPP/EI obligations linked to certain types of compensation (such as tip income), or
- Establishing lower small-employer CPP/EI bands for labour-intensive businesses below a defined payroll threshold
This would acknowledge that:
- Restaurants hire large numbers of people, including youth and newcomers
- A small reduction in payroll taxes can make the difference between hiring, cutting hours, or closing doors
C. Link Wage Indexation to Automatic Offsets
If minimum wage continues to be indexed to inflation, there should be automatic offset mechanisms for qualifying sectors. For example:
- When the minimum wage increases by a certain percentage, a corresponding adjustment could apply to a hospitality small-employer credit or payroll-tax threshold.
- This would create predictability and prevent sudden shocks where wage and payroll costs jump together with no relief.
D. Reward Training and Human-Capital Development
Restaurants are not just selling plates of food; they are training grounds for cooks, chefs, managers, servers and entrepreneurs.
Canada could:
- Offer tax credits or grants for structured culinary and hospitality apprenticeships
- Encourage formal training programs that develop skills and create long-term careers
- Recognize that investment in people deserves targeted support, not just investment in equipment or buildings
This would align with broader goals around workforce development, immigration integration and youth employment.
4. Why This Matters to Canadians—Not Just Operators
Restaurants:
- Anchor main streets and neighbourhoods
- Create first jobs and second chances
- Integrate newcomers into the workforce
- Support local charities, cultural events and community causes
When viable restaurants close under cost pressure, communities lose far more than another business listing on a spreadsheet. They lose gathering places, jobs, and part of their identity.
A modern, sector-aware tax framework can:
- Protect employment and skills
- Keep dining out accessible
- Support tourism and local economic development
- Remain fiscally responsible over the long term
5. Time for a New Formula
Canada faces a straightforward choice:
- Maintain the status quo, where a one-size-fits-all tax and payroll structure continues to squeeze a labour-intensive, low-margin sector; or
- Modernize the framework, learning from successful international examples and designing a balanced, evidence-based formula for restaurants and hospitality.
This is not about ideology. It is about aligning policy with reality.
As someone who represents chefs and operators and who is deeply involved in this industry, I believe the path forward is clear: we need a new, smarter tax formula that allows restaurants to pay people fairly, collect reasonable taxes and remain financially viable.
The international playbook exists. Now it’s time for Canada to adapt it—and keep our restaurants open, vibrant and at the heart of our communities.