GST and HST on Tips and Gratuities
CPP and EI on Tips and Gratuities
Tax Court Case re CPP and EI on Tips and Gratuities
Canada Revenue Agency (CRA) Resources
Is GST or HST charged on tips and gratuities? Not usually. This is because a tip or gratuity is usually something added after the fact, an optional payment by the customer, and not recorded on the original bill. Tips and gratuities are often given to servers in restaurants, hairdressers and barbers, and cab drivers. Although the tip may be added to the bill by the customer, it is not part of the original bill, and is not subject to GST or HST.
Some establishments, such as restaurants, may add a mandatory or suggested gratuity as a service charge to the bill given to the customer. This is often done when a large group is being served. In this case, GST or HST must be charged on the total including the gratuity. However, there would be no GST/HST on any provincial liquor tax that is included on the bill.
CRA policy: When tips are considered controlled tips (controlled by the employer) and not direct tips, such that the employer controls the tips and then pays them to the employees, the employer must deduct and remit CPP contributions and employment insurance premiums. These tip amounts would also be subject to income tax withholdings. See the Canada Revenue Agency tips and gratuities, which provides detailed information and examples on controlled tips and direct tips. Some of the examples may surprise you.
Some tips distributed by the employer to the employee can be considered direct tips, and not subject to CPP contributions, EI premiums or income tax withholdings. However, these tips are still taxable income, to be reported by the employee on their tax return. One example of a direct tip distributed by the employer is when "the restaurant owner informs you that if a customer pays by credit or debit card and includes a voluntary tip, the restaurant will return the full tip amount back to you in cash at the end of each shift."
An employee can choose to make CPP contributions where the tip income is not subject to CPP contributions at source. This is done as part of their tax return, by completing form CPT20, which is included in tax return software.
CPP Legislation:
EI Legislation: Insurable earnings include:
Andrew Peller Limited v. M.N.R. 2015 TCC 329
Ontario: Employees' Tips and Other Gratuities
Restaurants Canada: Rules for Tips & Grats: What employees and employers must know
Life in the Tax Lane Video November 2023: Mandatory Tips - GST/HST/QST
Life in the Tax Lane Video December 2016: Tax Measures Respecting Tips - Quebec
Employment Insurance Premiums are not Payable on Some Wages
Who Has to Pay CPP or QPP Contributions?
Tips and Gratuities - controlled tips vs direct tips
GST/HST in Special Cases - includes information on Tips and Gratuities
Tax Measures Respecting Tips - Special rules for Quebec