|
Go
|
|
|
|
This article is intended to assist CRFA members, but you should always contact the Canada Revenue Agency (CRA) for advice on your specific situation. Also, please note there are different tax rules on tips in Quebec including the concept of “declared tips.” Please contact Revenu Québec for advice on tax and tips in Québec.
For tax purposes, CRA distinguishes direct tips from controlled tips. Generally speaking, controlled tips are controlled by the employer and are usually distributed to the employees by the employer. Direct tips are the amounts that servers collect from customers and are not controlled by the employer.
In some restaurants, the employer organizes a tip distribution system whereby servers collect tips directly from patrons then contribute a portion of these tips to an employer- run pool. The employer re-distributes this amount to the kitchen staff and other employees who do not receive tips directly from patrons.
|
|
|
|
In this situation, CRA considers the tips collected by the servers as being “direct tips” and the tips paid out of the employer-run tip pool as being “controlled tips.”
Direct tips do not form part of earnings from employment and are not subject to source deductions or payroll taxes (including EI and CPP). However, employees are still required to report these tips as income when they file their personal income taxes. In the situation described above, servers would declare the tips they collect from customers minus the amount that they pay into the pool.
Controlled tips paid out of the employer-run tip pool form part of earnings from employment and the employer is required to make source deductions for Income Tax, Employment Insurance and Canada Pension Plan purposes, which are all included on the T4 prepared by the employer.
|
|
|
|
|
|
|
|
Important to note: All amounts paid out of the employer-run tip pool are considered controlled tips. If servers are required to put all tips into the pool and then the employer re-distributes the tips, all amounts distributed from the tip pool are considered to be “controlled tips.”
For more information, please contact the Canada Revenue Agency or Justin Taylor, CRFA’s Vice President, Labour and Taxation.
CRA has created a document explaining how tips and gratuities are to be treated for purposes of the Canada Pension Plan (CPP) and Employment Insurance (EI) -- click here to view the article online.
|
|
 |
| |
|
|
| |
| < Back |
|
|
|
| Copyright © Restaurant Central. All rights reserved. |
|
|
|
|
|
|