The Canada Revenue Agency (CRA) is reminding 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.
How do I report my tips?
In preparing to file your tax return, you may have to contact your employer to find out if any or all of your tips will be included on your T4 slip. If you do not get a T4 slip to show your income from tips, you still have to report all tips received in your work on line 104 of your return. It is your responsibility to keep track of any earnings that are not reported on your T4 slip (such as tips and gratuities).
Why should I report my tips?
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.
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.
It’s not too late to report your income
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.
For more information
For information on how to declare your tips, go to Line 104—Employment income not reported on a T4 slip.
Go to www.cra.gc.ca/undergroundeconomy for more information on the significant risks of being involved in underground economy activities.