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Tips and Gratuities - GST/HST, CPP & EI
GST and HST on Tips and Gratuities
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.
CPP and EI on Tips and Gratuities
CRA policy: When tips are controlled by the employer, 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. See CRA link below.
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:
 | S 12(1) contributory salary and wages will be that person's income for the year from pensionable employment, computed in accordance with the Income Tax Act. |
| Contributions will be deducted from the remuneration for pensionable employment "paid" to the employee by the employer. |
EI Legislation: Insurable earnings include:
| amounts "paid" by the employer to the employee in respect of their employment, and |
| the amount of any gratuities that the insured person is required to declare to the person's employer under provincial legislation. |
Other Resources
Andrew Peller Limited v. M.N.R. 2015 TCC 329
| Tax Court case as to whether tips and gratuities received by employees were pensionable earnings for CPP and insurable earnings for EI |
| The conclusion was that "the tips and gratuities distributed to the workers at the Appellant’s restaurants were paid by the Appellant to those workers and, consequently, form part of their pensionable and insurable earnings. For these reasons, the appeals are dismissed, without costs." |
Ontario: Employees' Tips and Other Gratuities
Restaurants Canada: Rules for Tips & Grats: What employees and employers must know
TaxTips.ca Resources
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?
Canada Revenue Agency (CRA) Resources
CPP and EI Regarding Tips and Gratuities - controlled tips vs direct tips
GST/HST in Special Cases - includes information on Tips and Gratuities
Revenu Quebec Resources
Tax Measures Respecting Tips - Special rules for Quebec
Revised: September 20, 2024