Yes, tips are considered taxable income in Canada and must be reported on your tax return. Whether tips are received directly from customers, pooled and shared among employees, or included on your paycheck, they are all subject to taxation.
Why Do Tips Need to Be Claimed?
CRA Regulations: The Canada Revenue Agency (CRA) requires you to report all sources of income, including tips
Avoid Penalties: Failing to declare tips can result in penalties, interest, or audits by the CRA
How to Report Your Tips
Cash Tips: Keep track of all cash tips you receive, as these are not automatically reported by your employer
Tips on Paycheques: Tips included in your paycheck are already documented on your T4 slip and will be included in your total income
Pooled Tips: If tips are pooled and distributed, the amount you receive must also be reported
Best Practices for Tracking Tips
Use a notebook or app to log your daily tips
Request a record of pooled tips from your employer if applicable
Retain your records for at least six years, in case the CRA requests documentation
Why This Matters
Claiming your tips ensures compliance with CRA regulations, avoids potential penalties, and contributes to your RRSP contribution room and CPP/QPP benefits, which are calculated based on your declared income