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What can servers deduct at tax time in Canada?

I got a good questions from a server recently and thought I’d share the answer with everyone, since I’m sure there are lots of you out there wondering the same thing.

“Hi!  Came across your site randomly and really appreciate what you do!  I am a server and I’ve always wanted to know, but didn’t know how to find out about what servers can write off at the end of the year as expenses.  I’ve heard that we can write off clothing, toiletries, haircuts, etc, whatever we spend on our appearance as it is part of the job.”

Well, I’m afraid I have a whole lot of bad news and only $160 worth of good.

Servers are in most cases employees, and employees are usually not allowed to write off any of these things. If they could write off things that “enhance their appearance” than any office worker could also argue that, because they have to wear suits to work, they should be allowed to write off the cost of their clothing. This is not the case. Employees are expected to pay their own costs for clothing and uniforms. In other words, looking good is not tax deductible.

To offset these types of costs, all employees are allowed to claim the “Canada Employment Amount, which is a non-refundable tax credit. In 2011 this was 15% of $1,065 (which equals about $160 in your pocket). Strictly self-employed people cannot claim this amount.

Special exceptions for other types of employees:

If you are a commissioned salesperson, or your employer requires you to pay certain job-related expenses AND they have given you a form T-2200 specifying what these expenses are, you may be entitled to claim some deductions on your tax return under Form T777: Statement of Employment Expenses.

However, I can’t see this happening much with an employee who is a server. And did I say I only had $160 worth of good news? Sorry, I meant $159.75.

October 18, 2012 Posted by | Personal Tax, Random Questions | , , | Leave a comment

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.

Where do I enter tips on my tax return?



August 30, 2011 Posted by | Personal Tax, Random Questions | , , , , | 4 Comments