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Are your employees’ tips subject to CPP and EI withholdings?

A recent Tax Court of Canada case revisited the topic of employee tips and whether the employer is responsible to withhold CPP and EI on the tip amount earned by employees.

If the employer controls the tip amount or controls the distribution of the tip, then CPP and EI should be withheld.  An employer is considered to have control in these situations:

  • The employer adds a mandatory service charge to a client’s bill to cover tips;
  • The employer adds a percentage to a client’s bill to cover tips;
  • Tips allocated to employees using a tip sharing formula determined by the employer;
  • Tips that an employer includes in his or her business income, later expenses and redistributes to employees in the form of pay;
  • Tips that the employees are required to turn over to their employer and are later distributed to the employees;
  • Cash tips that are deposited in the employer’s bank account and become the property of (or even commingled with the property of) the employer and subsequently paid out to the employees.

If the employee receives a tip directly from customers, then the employer is not responsible to withhold CPP and EI.  An employee is considered to receive direct tips in these situations:

  • A client leaves money on the table at the end of the meal and the server keeps the whole amount;
  • A client gives a tip directly to a bellhop, door person, car attendant, porter; etc.
  • Tips pooled and/or shared among employees in a manner determined by the employees (as opposed to the employer);
  • When paying the bill by credit card, a client includes an amount for a tip on the credit card and the employer returns the tip amount in cash to the employee;
  • When paying the bill by debit card, a client includes an amount for a tip and the employer returns the tip amount in cash to the employee;

Please visit the Canada Revenue Agency’s webpage on Tips and Gratuities for more information.

 

Do you have the correct insurance for your vehicle?

Do you use your vehicle for work? Are you self-employed? An employee driving to work?

If you are self-employed, you can claim a portion of your vehicle expenses as a business expense. This portion must relate to the actual kms related to business purposes. For example, if you drove 10,000 km in all of 2012, and 6,000 km was related to business, you can claim 60% of your vehicle expenses.

Keep in mind that you must choose the correct type of vehicle insurance in order to comply with both CRA requirements and those of ICBC. Using Pleasure Coverage as an example, you may only use your vehicle for a maximum of six business trips per month. If you are using your vehicle for more than this (eg. 20 trips per month), not only can your insurance coverage be compromised, but CRA may question your claim for expenses. CRA may wonder why you are claiming such a high percentage of vehicle expenses, but have chosen the lowest insurance coverage. ICBC, too, may question a claim if there is any indication that your vehicle is being used for more than six trips.

You may find that the difference in rates is not worth the risk!

License plate

From ICBC’s website

“It is important to discuss how you will use your vehicle with your broker as they will help you determine which rate class you belong in. This is important because if you are in the wrong rate class this may result in a breach of coverage, making you personally responsible for any claims.

The most common rate classes are

  • Pleasure* — Driving for typical day to day functions
  • Commuting* — Driving to work or school
  • Business — Driving for business purposes
  • Delivery — Driving for delivery

  Pleasure

Generally speaking, these rate classes apply to vehicles used for typical day to day functions such as driving children to or from school or some kind of an event, driving to or from a shopping centre, driving while on vacation, or similar types of uses.

  • Limited commuting, business, delivery use  —  Rate class 001

    The vehicle is used for typical day to day uses as described above. In addition, the vehicle can be used for limited commuting/business/delivery use so long as the vehicle is not used more than six (6) days in a calendar month for these uses. If used as a delivery vehicle then the vehicle must weigh 5,000 kilograms gross vehicle weight (GVW) or less.

    Commuting

    Generally speaking, these rate classes apply to vehicles used to drive to or from, or part way to or from, work or school. In addition, these rate classes include the uses indicated under “Pleasure Use Rate Classes”.

 

Medical expenses

Medical expenses in respect to your personal tax return is a huge topic, but there is one basic question that arises during tax time.

What can I claim?

For the most part, most legitimate medical expenses can be claimed on your personal tax return. Keep in mind these are not refundable tax credits, but rather deductions to reduce your taxable income. Also important to note is that the total amount of eligible medical expenses must meet a threshold in order to have an affect on your return. If you don’t have enough receipts to make it worthwhile in a given tax year, you may be able to use these in the following year. CRA allows expenses captured in a twelve month period even if this crosses two taxation years.

You must have the receipts and these must be the actual receipt, not store receipt (eg actual prescription receipt, not the Shoppers Drug Mart receipt).

Each province and territory has its own list of authorized medical practitioners for which you can claim an expense. For example, in BC you can claim the expense incurred for seeing a massage therapist, but you would not be able to do this in the province of Alberta. The full list can be found here.

For detailed information regarding disability tax credits and attendant care expenses, please check CRA’s website.

CRA provides an extensive list of eligible medical expenses on their website.

Items commonly claimed:

Ambulance service to or from a public or licensed private hospital.

Attendant care expenses – see Attendant care or care in an establishment

Dental services paid to a medical practitioner or a dentist. Expenses for purely cosmetic procedures are not eligible. See Which medical expenses are not eligible? for more information.

Laser eye surgery paid to a medical practitioner or a public or licensed private hospital.

Nursing home – see Attendant care or care in an establishment.

Prescription drugs and medications that can lawfully be acquired for use by the patient only if prescribed by a medical practitioner. Also, the drugs or medications must be recorded by a pharmacist. You cannot claim over-the-counter medications, vitamins, or supplements, even if prescribed by a medical practitioner.

Vision devices – including eyeglasses and contact lenses to correct eyesight – prescription required.

Our advice: keep all your receipts throughout the year and bring them with you when filing your personal tax return. We will be happy to help you determine which expenses are eligible for your personal tax return.