Do servers pay tax on tips in Canada?

Example math

You wait tables. Here’s one year of tips, split the way the CRA splits them (amounts illustrative):

1. 1All $15,000 is taxable. The split only changes how each part reaches your return.
2. 2The $6,000 is already on your T4. Don’t add it a second time as other employment income.
3. 3The $9,000 is on you: add up your own record for January 1 to December 31 and report the total.

Not tax advice. Amounts are made up for the example. If you work in Quebec, the provincial rules below apply as well.

Plain English

What the CRA says

The CRA puts it plainly: “all tips and gratuities you receive are considered taxable income and must be reported on your income tax and benefit return.” That covers servers and bartenders, and it covers tips you get while self-employed.

Controlled or direct: who holds the money

The CRA sorts tips by whether your employer controls them. Controlled tips include a mandatory service charge or a percentage your employer adds to the bill, tips shared out by a formula your employer sets, and tips you hand over to your employer to distribute. Your employer withholds income tax, CPP and EI on these and puts them on your T4.

Direct tips are paid to you by the customer, and your employer has no control over the amount or who gets it. Cash left on the table counts. So does a pool that the staff, not the employer, decide how to share. So do card tips your employer pays out to you in cash at the end of the shift. Nothing is withheld on direct tips and they aren’t on your T4.

You can get both kinds at the same job. Only the controlled tips count as pensionable and insurable earnings for CPP and EI. On direct tips you can choose to pay CPP by filing Form CPT20 with your return, which the CRA notes can raise the pension you collect later.

Tracking your direct tips

For direct tips, the CRA lists your steps: keep track of your tips through the year, keep a copy of your tracking document, add up January 1 to December 31, and report the total as other employment income. If you’re self-employed, the total goes on Form T2125 instead.

The CRA also lists reasons reporting helps you: lenders see your full income when you apply for a loan or mortgage, your RRSP contribution room is higher, and you can pay into CPP or QPP. If the CRA reassesses you and finds tips you didn’t declare, you pay what you owe plus interest and possibly penalties. The Voluntary Disclosures Program lets you correct a past return.

In Quebec: declaring tips to your employer

Quebec adds its own rules through Revenu Québec. If you work in a regulated establishment, you must report your tips in writing to your employer at the end of every pay period. In a non-regulated establishment you don’t report them to your employer, but tips that aren’t on your RL-1 slip still go on your Quebec return.

If your reported tips are less than 8% of your tippable sales, your employer must allocate the difference to you. At year end your RL-1 slip includes your tips. Revenu Québec says declared tips raise your vacation, statutory holiday and family-event pay, and tips other than allocated ones count toward Employment Insurance and Québec parental insurance plan benefits. On the federal side, the CRA says employers withhold income tax and EI on declared tips, but not CPP.

Revenu Québec also says tips are the exclusive property of the employee who receives them, and your employer can’t require you to pay credit card fees.