I’ve been working as a server for many years now, and have never declared any of my tips in my tax returns. Most people I know in the industry claim something, but very little (usually a paltry amount representing 10-15% of their salary, which is NOWHERE near how much they actually get). That always seemed silly to me, so I decided years ago that I wouldn’t claim any, and hope not to have my name drawn from a hat for an audit.
I’ve heard that RC adheres to a general guideline that if you’re a server, 15% of your income comes from your tips – is this true? Also, if I start claiming now (within the above 15% amount, or more) will my profile get “flagged” and will they start looking into my past to get undeclared income from years past?
The reason I ask is I want to buy a house, and maximize my income (to raise my mortgage acceptance level) without getting into trouble.
Does anyone KNOW FOR SURE about these things? My house may depend on it.
Tags: Address, Canada, Dangers, Does, Involved, Revenue, Tips, Waiter's, What
If you are a waiter, waitress, hairdresser etc (any profession that makes tips) the government knows you make them. Make a claim at line 104 for tips. After a while, when seeing that you have worked as a serving person for a number of years and have not claimed tips, you will be audited. It could be a year, three years, five years down the road. They can audit anything up to 7 years back.
You will not be “flagged” now if you start claiming, but depending on how long you have not claimed, your name will come up soon for audit.
I can tell you, it will happen.
Start claiming those tips now.
If you are really concerned that they may go back and audit you on previous years and then you will have interest and penalty charges applied to any money owing, you can make a voluntary disclosure and state that you didn’t realize that you needed to claim the “paltry” tips you have been making and since this is the first year you have been making really good tips and are claiming it, you wanted to be upfront and claim the “piddly” amounts of tips from previous years.
The tips will be “low” amounts so it shouldn’t change much.
I worked at a bar for 7 years and my accountant always put 10% of my salary for tips… he said that the government accepts that % as a standard. I was never questioned about it. I worked with some people that claimed the 10% and some that didn’t. All depended on their job description ( doormen no, servers and bartenders yes etc). I don’t know how it effects you now that you just started to claim the tips but even if you are audited they don’t have proof of your tips and the worst thing that would happen is you will have to pay tax on it.
It is tough since the bank relies on what you tell the government but you don’t want to pay tax on all the tips you make… I went through the same process when I wanted to finance a new car…
good luck!