Shared tips are controlled tips where the owner of a service business, including a small business restaurant or coffee shop, determines how the tips are distributed among employees. These tips are added to the employees’ paycheques.
The Canada Revenue Agency considers controlled tips taxable income. They are subjected to tax and deductions, including CPP payroll deduction and EI payroll deduction, for both the business owner and the employees. Therefore, when issuing T4 slips to employees, business owners need to include all controlled tips in box 14 on the slip. Employees don’t have to track these shared tips and report them separately on their tax return.