Accounting for Franchise Owners in BC
Owning a franchise means two sets of rules: the tax system’s and your franchisor’s. Royalties come off the top of every sale, ad fund contributions follow, and the head office wants its monthly reports in its own format.
EverStone CPA keeps the books, payroll, GST and PST, and year-end for BC franchisees, online, at fixed fees agreed in writing.
Quick answer: Most BC franchisees operate through a corporation, often one per location. The accounting work is reconciling point-of-sale sales to the royalty and ad fund invoices, keeping the franchisor’s chart of accounts, and treating the initial franchise fee and build-out as capital. We do that work for franchise owners anywhere in the province.
Which franchisees we work with
Franchising cuts across industries. A quick-service restaurant, a fitness studio, a home services territory and a tutoring centre share one thing: a franchise agreement that dictates much of how the money moves.
- Food and beverage franchisees running one or several outlets
- Retail and convenience franchise stores with inventory
- Service-territory franchises: cleaning, lawn care, restoration, moving
- Gyms, salons, learning centres and other membership franchises
- Buyers weighing a new unit or a resale from an existing franchisee
- Multi-unit operators adding their second, third or fourth location
Incorporating a franchise, and one company or several
Franchisors usually expect the franchisee to be a corporation, and your lender and landlord often do too. The real question is how many companies, and who owns them.
Personal guarantees still apply
Incorporating limits some risk, but franchisors, banks and landlords commonly ask owners to guarantee the lease and the loan personally. Know what you signed before you rely on the corporation.
One corporation per location
Separate companies keep each unit’s results, lease and loan apart, and make a future sale of one unit cleaner. They cost more to run, with more returns and more bank accounts.
The shared business limit
Associated corporations share one $500,000 small business limit. Opening three companies does not triple the 11% rate; the limit is allocated between them each year.
A holding company above
A holdco can own the operating companies, receive dividends and fund the next location. It is worth setting up before the second unit, not after.
Our incorporation advice covers the structure before you sign. The new corporation setup checklist lists the first steps once the company exists.
Taking money out of a franchise company
The first year of a franchise is often thin. Royalties, loan payments and the opening inventory leave little room for an owner draw. Plan pay around the cash, not the sales figure.
Owner-operators on payroll
If you work the floor, a salary through the store’s payroll builds CPP and RRSP room and is deductible to the company. Your franchisor’s reports may want owner wages shown separately.
Dividends from a stable unit
Once a location is steady, dividends can supplement salary. Through a holdco, dividends between related companies can usually move without immediate tax.
Shareholder loan traps
Owners often pay franchise costs personally, then pull money back out loosely. A shareholder loan not repaid within one year after year-end is generally taxed as income.
Use the salary vs dividends calculator and track balances with the free tracker for shareholder loans. The guide to shareholder loans explains the one-year rule.
GST and PST for BC franchisees
Most franchisees register for GST from day one, because sales pass $30,000 quickly. BC PST is separate, with its own registration and return.
GST on royalties and fees
Your franchisor normally charges GST on the royalty, ad fund and technology fees it bills you. Those amounts are usually claimable as input tax credits, so code them on every statement.
PST depends on what you sell
A retail franchise collects 7% PST on many goods. A food outlet or service franchise may collect little or none. Set up the point-of-sale tax codes per item, not per store.
Filing frequency
Annual filing is allowed up to $1.5 million in taxable sales, quarterly up to $6 million. Many franchisees file more often by choice, so refunds on build-out costs arrive sooner.
See our GST and PST filing services and the BC PST guide for small business.
Royalties, ad funds and the initial franchise fee
Franchise costs fall into two groups for tax. Ongoing fees are expenses in the year they are charged. Upfront fees that buy the right to operate are capital.
Royalties checked against sales
Royalties are usually a share of gross sales reported by your point-of-sale. Each month we recompute the royalty from your own sales report and compare it with the franchisor’s invoice.
Ad fund contributions
Contributions to a national or regional ad fund are deductible as incurred. Keep them in their own account, apart from local marketing you choose and pay for yourself.
The initial franchise fee
The upfront fee is not deducted in year one. Where the agreement has a fixed term, it is generally written off over that term. A renewal or transfer fee is treated in the same way.
Training and opening support
Some agreements bundle training, opening inventory and equipment into one price. Ask for a breakdown, because each piece is treated differently on the return.
Franchisor reporting and the required chart of accounts
Many franchise agreements require monthly profit and loss reports, a fixed chart of accounts and annual financial statements. Late or messy reports can put you in breach.
Books built to their format
We set up your bookkeeping on the franchisor’s account structure, so the monthly report comes straight from the ledger with no re-keying.
Statements at the right level
Some franchisors accept a compilation; others require a review engagement. Check your agreement before year-end. A review takes longer and costs more.
Benchmarking your unit
Head office often shares system averages. Compare your labour, food or product cost to them each month, and you will catch a problem before the annual review does.
Read compilation vs review engagement and see our financial statement preparation. Management reporting covers the monthly pack.
Payroll, tips and WorkSafeBC for franchise staff
Franchise outlets often run on part-time and young staff, with high turnover. That means frequent onboarding, frequent final pays and close attention to Employment Standards.
Every hour on payroll
Staff are employees, with source deductions remitted to the CRA. Vacation pay is 4%, rising to 6% after five years. Final pay is due within 48 hours of termination.
Tips and gratuities
Where customers tip, how tips are pooled and paid affects payroll. Tips distributed through payroll are treated differently from cash tips handed straight to staff.
WorkSafeBC and EHT
Register with WorkSafeBC before the first shift. A multi-unit group should watch the $1,000,000 BC remuneration line for Employer Health Tax.
Our payroll services handle pay runs, remittances and T4s. See also tip reporting on payroll and final pay rules.
Point-of-sale, inventory and delivery-app reconciliation
The franchisor’s system usually supplies the point-of-sale. Your job is to make its numbers agree with the bank, the royalty invoice and the stock on the shelf.
Daily sales to deposits
Card batches, cash, gift cards and loyalty redemptions all land differently. We tie each day’s sales summary to the deposits and record processing fees on their own line.
Delivery and third-party apps
App payouts arrive net of commissions and promotions. Record the gross sale, because your royalty is usually calculated on it, and the commission as a cost.
Inventory and required suppliers
Many systems require you to buy from approved suppliers. Count stock at month-end so cost of sales is real, and keep supplier rebates visible.
See our monthly bookkeeping and the month-end close page.
Leaseholds, equipment and buying a resale unit
Leasehold improvements
The fit-out of a leased space is capital, deducted over time under its own CCA rules. Tenant allowances from the landlord change the cost and need to be recorded.
Equipment packages
Ovens, signage, fixtures and point-of-sale hardware fall into different CCA classes. Split the franchisor’s equipment invoice so each asset goes to the right one.
Buying assets or shares
A resale can be structured as an asset or share purchase, with different tax results for buyer and seller. Agree the price allocation in writing before closing.
Refresh and remodel cycles
Agreements often require a remodel every few years. Plan the cash ahead, because the cost is mostly capital and gives no quick deduction.
Read CCA classes in Canada. Our lender readiness service prepares the forecast a bank asks for.
Year-end checklist for a BC franchisee
- Reconcile royalties for the year. Recompute them from your sales reports and settle any difference with head office.
- Count inventory. Take a full count on the last day and record any write-offs.
- List new assets. Collect invoices for equipment and leasehold work, and any tenant allowance received.
- Clear the shareholder loan. Record what you paid personally and what you drew.
- Confirm the statement level. Check whether the agreement needs a compilation or a review.
- Allocate the business limit. For several companies, agree how the $500,000 limit is shared.
- Diarize deadlines. The T2 is due six months after year-end, and the balance two or three months after.
Our year-end document checklist and corporate tax return service cover the rest.
Services and fees for franchise owners
- Monthly bookkeeping on your franchisor’s chart of accounts, GST and PST filing included: from $300 a month per location
- Store payroll and T4s: quoted on staff count and pay frequency
- Corporate T2 and year-end statements: quoted after a free consultation
- Fractional controller for a multi-unit group: from $1,500 a month; fractional CFO from $2,500 a month
Fees are fixed in writing before work starts; see our pricing page. We work with franchisees in Burnaby, Kelowna, Victoria, Richmond and every other BC community.
Questions from franchise owners
Can I deduct the initial franchise fee in year one?+
Does my franchisor need audited or reviewed statements?+
Should each location be its own company?+
Why doesn’t my royalty invoice match my sales?+
Written and reviewed by a Chartered Professional Accountant at EverStone CPA, an Abbotsford CPA firm working remotely with businesses across British Columbia. Updated . You can read client reviews before you get in touch.
Related reading
For franchisees in food, fitness and services.