Not Reporting Your Tips Can Lead to Tax Trouble
If you work in an industry where part of your income is comprised of tips, then you have no choice but to declare them on your annual tax return.
Chances are you have taken on a job where part of what you make is going to be based on what you glean from tips. You really don’t mind accepting minimum wage because you know that your tips on an average are going to bring you in a decent pay. Perhaps up until now you have considered this to be tax free money, and that it is unlikely that the CRA would ever center you out pertaining to this, and it is unlikely they will detect your extra income.
What you need to be aware of is that the tax department keeps themselves very familiar as to which industries are likely to be in this scenario. They know that most likely anyone working as a waitress for example, will glean at least some extra income from tips.
Another important thing to keep in mind now is the newly formed “snitch” program that the Canada Revenue Agency has in place. Now this is supposed to be geared towards the reporting of off shore tax evaders, but you can bet if someone were to report you as receiving tips and that you weren’t claiming them, you would indeed be scrutinized by the tax department. They are not likely to turn their back on any tip they get concerning potential tax evasion no matter how small it may be.
How you report your tips will depend on how your employer handles these. In some employment situations the employer takes charge of the tips and records the payment of them in their T4’s that are issued to their employees. In other cases the employer has nothing to do with the tips and leaves this totally up to the employees themselves.
If you are responsible for your own tip reporting then you can do so on line 104 of your return.
If you really want to cut your taxes down then the best approach is the honest approach. You can do this by thoroughly knowing what tax incentives and tax breaks are available to you personally. It is true that it is hard to decipher the large collection of information available to the average taxpayer. However, you may want to consider utilizing the services of a quality Toronto accountant who is well trained and experienced in getting the best tax breaks for their clients according to the tax rules.