Canadians who earn tips and gratuities that they represent taxable income and must be reported on annual income tax and benefit returns. Restaurant servers, hairdressers, valets, taxi drivers, and others who earn tips may not have all of their income recorded by their employers, which means that their T4 slips may not include all of their income.
The Income Tax Act is clear about income from tips: tips are taxable and it is your responsibility to report any that you receive. When you earn tips and do not report them, you are participating in the underground economy—you are increasing the tax burden on your friends, family, and neighbours, who have all of their income reported by their employers on their T4 slips.
The CRA’s policy on tips and gratuities can be found here.
Deliberately deciding not to report your tips is also illegal. If CRA auditors and investigators find that you are not reporting all your sources of income, you may be audited, face fines, penalties, or potential jail time.
If you have ever made a tax mistake or omission on a previous tax return, the CRA is offering you a second chance to make things right through its Voluntary Disclosures Program (VDP). If you make a valid disclosure before you become aware that the CRA is taking action against you, you may only have to pay the taxes owing plus interest. More information on the VDP can be found on the CRA website at www.cra.gc.ca/voluntarydisclosures.
To find out more info, please contact us at TaxServices@AccXperet.com or call 613-366-5988 to book a consultation with our Certified Tax Accountant in Ottawa Tax Services Office.