What percentage of tips do servers report as income?
“I work in a restaurant as a server. What percentage of tips do servers have to report on their tax return?”
100%. Tips are income. The rule is that a server must report ALL the tips they receive, cash and credit cards. However, since most servers don’t keep track of these so well, CRA will accept a reasonable estimation.
“Most of my tips are cash. CRA doesn’t know about it so I won’t claim it.”
I have actually heard this argument in person. Cash is never as invisible as most people think. Accountants are the bloodhounds of the finance world. Don’t underestimate them–Al Capone did.
This is how the spectacle-wearing bloodhounds come up with a reasonable estimation in an audit on a server, or a restaurant: They gather all the credit card receipts for a restaurant over a specified time period (shift, week, month, year, etc.) and calculate what the average tip amount is based on a percentage of gross sales. Fancy restaurants might be 20%, diners might be 5%. Once they have the percentage for your particular restaurant, they can calculate how much an average server at that restaurant should be claiming in tips for any given time period (based on the restaurant’s gross sales for that time period).
Interestingly enough, when one server in a restaurant gets audited, it seems that many of his/her fellow servers also get audited. If you are a server, my advice is to track your tips accurately for at least a week (a month is better) and divide that total by the total amount of your sales (deduct liquor tax and sales tax first if you can). You will then have a reasonable percentage of the tips you make and will have backup for why you use this number in case you are ever audited.
Whatever you do, do not claim 15% of your gross pay (your T4 amount) at the end of the year as tip income. I have never met a server who gets paid $10/hour and only makes $1.50/hour in tips. And I guarantee no auditor working for CRA has either.