In Quebec, Revenu Quebec is the provincial equivalent of the Canada Revenue Agency (CRA). Quebec’s revenue agency plays a bigger role in the Canadian tax landscape than other provincial authorities. That’s because Quebec has a tax system that’s almost autonomous and has agreements with the federal government.
Revenu Quebec’s responsibilities include administrating and collecting the GST along with the provincial QST. So, when any GST-related issues, objections, and court cases arise, the CRA doesn’t represent the federal government. Revenu Quebec does, and the agency covers the province’s distinct individual and corporate income tax systems, including Quebec tipping laws.
Understanding Quebec Tipping Laws
It’s common to give tips in Quebec, and it’s customary to tip employees in the hospitality and service industries. Tips make up a large portion of income for bartenders, waitstaff, and hair stylists. Whether or not you treat your employees’ tips as insurable earnings depends on how you classify them. That includes whether your employees must declare tips and gratuities under any provincial legislation. As of 2018, the only province that requires employees to declare tips and gratuities to their employer is Quebec.
The CRA divides tips into three categories: controlled tips, direct tips, and declared tips. When handling tips in Quebec, you should categorize them according to these guidelines.
Controlled tips mean, as an employer, you have the discretion to control and pay tips and gratuities. This includes service charges you add to a bill that customers or clients pay to you directly. For example, say you own a banquet facility.
- You might add a gratuity to the total bill for large parties, such as wedding receptions or birthday celebrations.
- Your customers pay this amount to you, and you distribute it to your employees.
- Under CRA rules, these amounts are subject to Canada Pension Plan (CCP) and Employment Insurance Act (EIA) premiums you pay.
- You should treat the amounts as your employees’ insurable earnings.
Controlled tips include amounts you add to customer or client bills to cover tips, shared tips you distribute, or any other tips or gratuities you add to business revenue and then pay out later.
Direct tips and gratuities aren’t under your control or discretion as an employer. Clients pay these tips to your employees directly, including amounts on bills that clients and customers pay by credit card. You may act as a conduit, giving the gratuity to the employees. CPP and EIA rules don’t apply to direct tips, but your employees must report them on their personal returns. If so, they can choose to make CPP contributions by submitting form CPT20.
Declared tips are direct tips Quebec requires your employees in regulated establishments to report to you, so you treat the tips as insurable income subject to CPP and EIA premiums. Declared tips increase your and your employees’ CPP and EIA premiums. While your employees pay more of their earnings in taxes, they receive a larger pension when they retire. And, any amounts they collect when they’re unemployed are closer to their actual earnings.
Applying Quebec Tipping Laws to Restaurants and Hotels
You might have employees in the restaurant and hotel sector who work in a regulated establishment that’s subject to reporting tips and gratuities. Revenu Quebec requires these steps when reporting tips. At the end of each pay period,
- Your employees must report their tips to you.
- You must allocate an amount as tips and gratuities to employees, where applicable.
- You must include received and allocated tips in calculating source deductions and your employer contributions.
When you must pay additional payroll taxes on tips and gratuities, you can claim a refundable tax credit for the amounts.
Tips and Gratuities for Quebec Pension Plan Contributions
When you calculate an employee’s source deductions of income tax, Québec Pension Plan (QPP) contributions, your contribution to the health services fund, and the contribution related to labour standards, you must add the following tips and gratuities to the employee’s base wages or salary.
- Tips from tippable sales your employee reports during the pay period on the Register and Statement of Tips, TP-1019.4-V.
- Tips unrelated to tippable sales, such as tips to a porter, hotel valet, or cloakroom attendant, that your employee reports to you during the pay period on the Register and Statement of Tips
- Tips you distribute to your employee for the pay period that you don’t have to report on the Register and Statement of Tips because they’re service charges you add to a customer’s bill.
- Tips you allocate to your employee for the pay period because the reported amount of tips was less than 8% of tippable sales or was less than the percentage Revenue Quebec set due to a request for a reduced tip allocation rate.
When you’re running a business in Quebec and your employees receive tips and gratuities, you should know how to comply with the province’s unique tax requirements. During the year and at tax time, QuickBooks Online can help you maximize your tax deductions. Keep more of what you earn today.