If you earn cash tips or other gratuities, you are required to claim these amounts as income on your tax return. Many people think you can “Just claim 10% of your paycheck” as a standard for tips, but it’s actually a red flag for CRA to see a 10% estimate or a round number amount like $2,000 - CRA has the right to reassess your return and apply an average tip as reported by the employer’s other employees over the same period.
To accurately, and EASILY track your tips to make taxes easy and stress-free, I recommend buying 2-3 tiny coil-bound notebooks at the dollar store, and then using them as your Tips logbook.
1. Use 1 per year (the extras are so that you are READY with a new logbook when you run out of space), keeping the logbook on your dresser at home so that part of your “changing” ritual after each work shift, is to get changed from your work clothes, empty your pockets, and note your cash tips from the shift in your logbook (presuming you exchanged coins for bills).
2. Then after New Year’s Eve, add up the exact tips to get your total from January 1 - December 31.
3. Finally, ensure the exact amount is reported on your tax return.
Remember CRA can request to see your logbook/documentation of tips for up to 6 years after filing, and if you don’t comply with their request, they’re likely to recalculate your returns with their estimated amounts
Filing your returns accurately reflecting your logbook, and then keeping the logbook with your annual tax files & receipts, will save you money and time & energy frustration in your future.
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