Controlled Tips

Tax Topics
1

HI
I have client that under review by CRA. They did controlled tips during 2020 & 2021 because of the pandemic.
The tips were collected via debit/credit as part of purchase and e-transferred weekly to employee
Employees were always told to self report tips. One employees did and was audited by CRA and that opened up the issue for company.
They are adjusting the t4 for employees but issue is with employee portion of remittances.
Does anyone have experience, resource that could help.
Very stressful dealing with this and finalizing slips and tax season.
thank you.

2

Employer is usually on the hook for both portions.

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3

ok thanks … i assumed this was the answer but looking for some solution because of pandemic

4
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5

@Arliss is correct - if the employer distributes them, then CPP and EI are exigible. 'er is on the hook for both portions (but can collect back 'ee portion if 'ee is still employed there).

No exclusion for pandemic.

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6

The auditor will look at tips on credit card payments to establish an average % of sales; appling that to all sales as tips for each waitress. In Quebec a mandatory 8% of sales is added to the waitress’s income which settles the problem.

7

In a similar situation the employer had to increase his portion of CPP and EI, however, the extra taxes had to be paid by the employee. I had several similar cases where I was able to tell the employee to ask for a new, or amended T4 prior to filing which was done, including taxes withheld, however the employee ended up reimbursing the employer for the extra taxes. At least it avoided re-assessments and employer audits.

8

very helpful - thank you

9

LOL. Quebec…of course. Applies only to RQ though, likely not CRA slips.

CRA, when possible, audits on exact amounts. Goes all the way back to the first of these audits in Toronto at the 54th floor restaurant of the TD Centre sometime in the mid-1970s. Matire d’hotel appealed an “estimated assessment” of some amount around $35K IIRC and CRA sent in an Appeals Audit team to do a full reassessment …and they more than doubled the original amount. I worked in CRA there at the time. It became a standing joke.

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10

Years ago,I had a server who tracked her tips daily. the tips were 50% of her T4!

11

Only 50%? Usually, they make more in tips than in wages

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12

I would very much like to see CRA mandate the reporting/taxing of tips across the country. It seems like such low hanging fruit, and lots of it…

13

The law is that you have to report 100% of tips cash or controlled. And every now and then they do a project to try and catch people. Like in St. Catherine, ON a few years ago.

They did one in PEI more recently with similar results.

14

If the tips were controlled, the employer was not supposed to tell the employees to self-report tips.

As others have mentioned, the withholdings on EI and CPP are to be paid by the employer, though the employer may deduct the same from wages if they are still working there. The taxes owing on the increased income are the employees’ problem.

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15

Sorry, I am well aware it’s supposed to be self-reported, but even those who DO generally use a figure much lower than actual.
What I meant was: tracked and reported by the employer on a T4 as opposed to self-reported like in Quebec. Wouldn’t be that much of a stretch when most customers pay & tip with plastic which already has to be reconciled…

16

thanks for all the comments.
as a result of the pandemic and cashless transactions - they pivoted to e transferring tips. not realizing they were considered controlled tips. in hindsight, everything is clear but in the midst of ‘the craziness of the pandemic’ and trying to stay afloat - they were not controlled through payroll system.
It is unfortunate because the client is so transparent with everything and will now struggle to make it

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