@Copyright April 2018
April 4th, 2018
Peter Wiesner CPA, CA
Licensed Public Accountant
Please email or call me now for further information and or to book an appointment.
I am working on existing clients at this time and accepting limited referrals for friends and family
of current clients during the month of April.
Have a happy tax filing season.
Tip Income is Taxable
Just a friendly reminder that tip income is taxable in Canada.
Gratuities or tips received by employees are income earned in respect of employment for purposes of the Income Tax Act.
Direct tips are taxed differently than employer pooled tips.
Direct tips are gratuities that are paid directly by the client to the employee and that are not subject to any of the forms of control by the employer as mentioned above under the heading controlled tips. The following are some examples of direct tips:
We use the term 'direct tips' to denote the principle of when the employer has no control over the tip amount and no control over the tip distribution. Direct tips are considered to have been paid by the client and not the employer. In these situations, the employer is merely a conduit for the tip from the client to the worker.
Direct tips are not subject to CPP contributions and/or EI premiums.
The tax department has added a special spot to report this on the tax returns as well.
The work pooled tips or controlled tips
Controlled tips are gratuities that are controlled by the employer. Since they are controlled by the employer, the employer is considered to have paid these amounts to the employee. The following are some examples of controlled tips:
We use the term 'controlled tips' within this article to denote the principles of employer control/employer possession over the tips and the employer's obligation to pay the tip to the employee as expressed by the courts.
Controlled tips form part of the employee's total remuneration and are subject to CPP contributions and EI premiums being deducted at source, provided that this person is employed in pensionable and/or insurable employment.
Hope this helped.