The Chef Alliance

Posted:  September 30 2016

There are two types of tips: Controlled tips and Direct tips.  


CONTROLLED TIPS
Controlled Tips form part of earnings from employment, and the employer is required to make source deductions for Income Tax, Employment Insurance and Canada Pension Plan purposes.  These are included in a T4 prepared by an employer.


DIRECT TIPS
Direct Tips come directly from clients and do not form part of earnings from employment.  As such, they are not subject to source deductions. Most Personal Chefs and Caterers receive tips or gratuities directly.  Even if the monies are received by you in the form of cash, you should still declare it, as your client may have itemised it in their accounts, and if they are audited, it could be cross-checked against your tax returns.  You may also wish to include these earnings for Canada Pension Plan purposes, depending on how your (business) income is structured.


Below are some tips on tips, and how to stay out of trouble with the Canada Revenue Agency (CRA).


REPORT EVERYTHING
The Income Tax Act requires you, by law to report all income, including tips or gratuities, on your income tax return. This applies to both Controlled Tips and Direct Tips (although they appear in different sections of your tax return).

LOG EVERYTHING

Track the amount of tips or gratuities received, the date you received them and who you received them from.  This will be required should you be audited.

AVOID PENALTIES OR JAIL

Did you know that deliberately not reporting your tips is illegal?  This is counted as tax evasion and you may face fines, penalties, or even jail time after first being subjected to an audit and having your tax return re-assessed.  It is advisable to report ALL additional income sources.

VOLUNTARY DISCLOSURE
If you decide to make full disclosure on any past undeclared income, CRA will not assess penalties on any taxes owing.  You will, of course,  be required to pay the amount of taxes you owe plus interest.  This is the Voluntary Disclosures Program.


For more information, please contact your nearest Taxation Services Office, or contact the CRA. You can follow the CRA on Twitter: @CanRevAgency.





The Chef Alliance is the leading organisation of Private & Personal Chefs & Caterers in Canada offering Chefs a place to locate jobs, meet new clients, grow their business, benefit from peer support, discounts to lower their business costs, marketing services & much more.  This allows Chefs concentrate on what they do best - cook great food!

Tax Tips on Tips - A Guide for Chefs

TEL: 1 877 402 3221