Franchise accounting for BC franchisees

A franchise has accounting a regular small business does not: royalties and ad fund contributions calculated on sales, a report pack the franchisor expects every period, a franchise fee that is written off under its own tax rules, and a break-even that moves with every royalty point. Murtagh & Co. does bookkeeping, GST/PST, payroll and year-end returns for franchisees across the Okanagan and BC, and Devon Murtagh runs a franchise location himself, so the numbers come from someone who reads a franchisor report pack every week.

Updated October 30, 2026. Tax figures from the CRA and BC Government pages linked below.

What we handle for franchisees

  • Royalty and ad fund reconciliation: tie the royalty and marketing fund charges to reported gross sales every period, so overbilling and missed credits get caught early.
  • Franchisor reporting: monthly or period financials in the format your franchise agreement asks for, on time.
  • GST/PST: franchise royalties and fees are taxable supplies for GST, so the GST on them is generally claimable as input tax credits. PST rules depend on what you sell.
  • Payroll: part-time and seasonal staff, tips, stat holiday pay and year-end slips.
  • Year-end: T2 corporate or T1 personal returns, with the franchise fee and equipment written off correctly.
  • Per-store break-even: what sales level covers rent, labour, product cost and royalties, and what one more royalty point or a rent increase does to it.

The tax rules that are specific to franchises

  • Initial franchise fee: a franchise for a limited period is Class 14, written off over the life of the franchise. A franchise for an unlimited period is Class 14.1 at 5% a year.
  • Royalties: ongoing royalties and ad fund contributions are generally current expenses when incurred.
  • Renovation and equipment: leasehold improvements and equipment the franchisor requires are capital and depreciate by class.
  • Buying a franchise in BC: BC's Franchises Act (in force since 2017) requires the franchisor to give a disclosure document before you sign, and gives you a right to cancel if it was not given.

Worked example (estimate for illustration)

  • Kelowna quick-service franchise: annual sales $900,000; royalty 6% = $54,000; ad fund 2% = $18,000; GST on the $72,000 of fees = $3,600, claimable as input tax credits.
  • Break-even: with product cost at 32% of sales, royalties and ad fund at 8%, the contribution margin is 100% minus 32% minus 8% = 60%. Fixed costs of rent $96,000 + labour $270,000 + other $66,000 = $432,000 a year need $432,000 / 60% = $720,000 in sales to break even.
  • One royalty point: at 7% royalty the margin drops to 59%, and break-even rises to $432,000 / 59% = about $732,200.

Who this is for

  • Franchisees of any brand in food service, retail, home services, fitness or automotive, with one location or several.
  • People buying a franchise or a resale unit who want the numbers checked before they sign.

FAQ

Do you work with my franchisor's required systems?
Yes. We work in whatever reporting format your agreement requires.

Can you look at a franchise before I buy it?
Yes. We can review the disclosure document's financial sections and build a break-even for your location.

Do you only work in Kelowna?
We are based in Kelowna and work with franchisees across BC remotely.

Every situation is different, so talk to your accountant about your specifics.

Related: Break-even calculator; Payroll services; BC stat holiday pay.

Want a second set of eyes? Email info@murtaghco.ca or book a 30-minute call. Devon Murtagh, CFA, FRM.

Sources: CRA: Type of supply (franchises are taxable); CRA: CCA classes 14 and 14.1; BC Government: Franchises Act.