Tax tips for workers who earn gratuities

In Canada, the amount that workers earn in tips and gratuities is considered income that they must declare when they file their tax and benefit returns. How it is reported depends on whether it is received directly or through a controlled arrangement: workers are responsible for tracking and reporting any income earned as direct tips, while employers are responsible for tracking and reporting controlled tips.

How to report tips and gratuities

Workers who receive direct tips or gratuities (amounts paid directly by the customer) as part of the work they do are required to follow these three steps:

1. Track all tips and gratuities received throughout the year and keep a copy of the tracking document.
2. Calculate the total amount earned between Jan. 1 and Dec. 31.
3. Report the total amount received on line 104 when filing their income tax and benefit returns.

When tips and gratuities are controlled by an employer, the tip income amount should be included on the worker’s T4 slip.

For information on reporting tips earned within the province of Québec, visit the Revenu Québec website.

Why workers benefit from reporting tips and gratuities

Above and beyond complying with the law, reporting tips and gratuities also has financial benefits. Reporting boosts a worker’s total income, which offers long-term advantages when:

• applying for a loan or mortgage — higher income earners can qualify for larger amounts
• saving for retirement — since the contribution limit
  for income that can be invested into a registered retirement savings plan (RRSP) will be higher
• collecting Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) — if workers choose to pay CPP or QPP contributions on tips and gratuities earned they can increase the pension amount they collect when they retire

For more information on reporting tips and gratuities, please visit Canada.ca/tips-and-gratuities.