Reporting your Tips

There is no such thing as income that is “under the table”, or in this case “on the table”.

CRA makes it clear that all income earned while you are a resident of Canada must be reported and is taxable (with a few exceptions). This includes the tips received by servers, bartenders, hairdressers, and all sorts of service workers.

If reporting your tips is discussed at work, the most common thought is that you should report your tips as a percentage of your wage. If people are paying 15% on their cheques, the logic goes that if you add an extra 15% on your income, that should cover your tips.

However, that isn’t the way things work.

If you think about it, you will see that is a very poor way to estimate your take-home tips. If you work a 6 hour shift for $15 per hour, your gross pay is $90. 15% of that is $13.50. If you are only making $13 in tips in a night, you would probably call that a bad day.

Realistically, many restaurant workers can collect more in tips than they make in wages in a night.

For the last several years, the CRA has been cracking down on the restaurant industry and arbitrarily assessing tips to employees who don’t report (or significantly under-report) their tip income.

The best way to avoid a major tax bill with penalties and interest is to track your tips. Often, tips on your POS machine are tracked and reported on your T4 by your employer. You can keep track of the cash you bring home each night on a calendar, or a note on your phone, or just on a piece of paper. If you can show that you have put even some effort into reporting an accurate number, you are much less likely to have the CRA make up a much higher number for you.