2017-03-29 00:00:00TaxesEnglishFamiliarize yourself with the three categories of tips and gratuities, their tax implications and Quebec's unique requirement for declaring...https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2017/06/bartender-settles-bill-with-tip.jpghttps://quickbooks.intuit.com/ca/resources/taxes/quebec-treatment-of-income-from-tips-gratuities/Quebec's Treatment of Income from Tips and Gratuities

Quebec’s Treatment of Income from Tips and Gratuities

1 min read

Tipping is a widely accepted practice in Canada, and it is customary to tip employees in the hospitality and service industries. Tips constitute a substantial portion of the income of bartenders, waitstaff, and hair stylists. Whether tips are treated as insurable earnings depends on how they are classified, including whether the employee is required to declare gratuities under any provincial legislation. Quebec is the only province with this requirement. The Canada Revenue Agency divides tips into three distinct categories:Controlled tips are under the control of and paid at the discretion of the employer. This includes service charges added to a bill that the client pays directly to the employer. For example, banquet facility owners typically add a gratuity to the total bill for large parties, such as wedding receptions. This amount is paid to the employer, who distributes it to the employees. CRA rules subject these amounts to Canada Pension Plan and Employment Insurance Act premiums that the employer pays and treat them as insurable earnings of the employee. Direct tips are paid by the client directly to the employee and are not under the control or discretion of the employer, including amounts included on bills paid by credit card for which the employer acts as a conduit for directing the gratuity to the employee. Direct tips are not subject to CPP or EIA rules, but the employee may elect to report them and must pay the applicable CPP and/or EIA premiums. Declared tips are direct tips that Quebec requires employees in regulated establishments to report to the employer for treatment as insurable income that is subject to CPP and EIA premiums. Quebec is the only province with this requirement. Declared tips increase employer and employee CPP/EIA premiums. Although employees pay a greater portion of their earnings in taxes, they benefit from a larger pension when they retire, and any amounts collected during periods of unemployment more accurately reflect actual earnings. The province initially benefits from the additional tax revenue collected but increases its future pension liability.

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

Independent Nurse Contractors and the Quebec Regular Skilled Worker Program

Quebec has been facing a serious shortage of trained nurses for many…

Read more

Quebec's Tax Fairness Action Plan: What You Should Know

Government officials in Québec want to crack down on tax avoidance. On…

Read more

Receiving Tax Credit for Production of Multimedia Titles in Quebec

A mixture of text, audio, animation, and images can engage and amuse…

Read more