2017-02-15 00:00:00PayrollEnglishDiscover the difference between controlled and direct tip income, as well as their treatment under Canadian tax law.https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2017/06/Customer-and-bartender-near-bar-counter-with-tablet-displaying-tip-income.jpghttps://quickbooks.intuit.com/ca/resources/payroll/review-guidelines-tip-income-accounting/Review Canadian Guidelines for Tip Income Accounting

Review Canadian Guidelines for Tip Income Accounting

1 min read

In certain professions, tipping can make up the bulk of an employee’s income, especially in the service industry. There are two types of tipping: controlled tipping and direct tipping. Controlled tipping is when the employer collects and distributes tips to its employees. An example is a banquet hall or caterer that charges a service charge per guest as a tip. The tip is then evenly divided among its employees. Controlled tipping is basically treated the same as normal wages under tax law, since tips are collected by the employer and then distributed according to a preset formula. Therefore, these tips are subject to Canadian Pension Plan (CPP) contributions and Employment Insurance (EI) premiums that are deducted at the source. Direct tipping is when employees earn a gratuity based on their performance, which is common in most restaurants. Since the employer is not an intermediary, there is no CPP contribution or EI premium. Instead, it is up to the employee to declare his or her tip earnings and make contributions toward the CPP. Canadian tax law distinguishes between these two types of tips because controlled tipping goes through the employer, which has no involvement with direct tipping. Controlled tipping is treated essentially the same as wages as it is subject to CPP contributions and EI premiums. In contrast, direct tipping is only subject to CPP if tips are declared.

References & Resources

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

Related Articles

How to Create Social Media Guidelines for Your Employees

For your small business to see success in 2017 and beyond, use…

Read more

How Should You Manage Your Small Business' Online Reputation?

Your small business’ online reputation is your digital calling card. In many…

Read more

Use Review Sites for Lead Generation

Online review sites have catapulted small businesses to new heights and caused…

Read more