Claiming Your Tips as Income

Reporting tips as income

If you work in an industry where part of your income is based on tips you may be really tempted to not claim these on your tax return.   Common industries where tipping is well known are restaurants, beauty salons and transportation services like taxi.   Now as a tax payer you are well aware of this so don’t think that the CRA isn’t paying attention.

Yes, you get a base pay most likely if you are working for any of these types of establishments and as such you most likely get a T4 showing your earned income.   What it doesn’t show is what you earn in tips in many cases.   So, you may be thinking that the CRA isn’t going to be none the wiser.

What you are forgetting is the name of the business providing the T4 is on the slip and can be easily recognized for the type of business it is.  If it’s one of these were tips are likely to be involved then guess what you may be on the CRA radar.

It can be so tempting not to declare this additional money, but let’s look at what might be a hypothetical case.

No matter where you look on the internet you will find conflicting figures as to how many bars and restaurants there are in Ontario and it’s unlikely any of them are really accurate.   It should be safe to say though there would be at least 30,000. for argument’s sake.

Let’s assume that you receive about $50. a week in tips which is probably being really conservative.  That would amount to $2,600. a year that you weren’t declaring as income. Thinking that it is such a small amount it’s really not making any different to the country’s tax collection.

Taking it a step further, let’s assume that 3 employee’s from each restaurant feel the same way.

We now multiply the 30,000 restaurants by 3 which equals 90,000 food employers not claiming their tips of $2,600 per year which comes to a grand total of $234,000,000.

You, as an individual paying taxes on your tips in this scenario would pay about $521.   So if we multiply this by the 90,000 who should be paying the same then the tax dollars collected would range around $46,890,000

Now we’re talking about a substantial amount of lost tax revenue.

The moral of the story here is we all have tax obligations, and when we are adverse to them, as one person it may not seem like a big deal.  If everyone thinks the same way then it could have a tremendous impact on what the tax dollars are used for to enhance our daily living lifestyle.

The real key to saving tax money the right way is to put your efforts into finding out what is available to you by the way of tax breaks and incentives then capitalizing on these.


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Sam Seidman, CPA, CA, LPA
629 Sheppard Avenue West
Toronto, Ontario
M3H 2S3

Telephone: (416) 398-1700
Fax: (416) 398-6226

Chartered Professional Accountant, Chartered Accountant, Licensed Public Accountant


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