A December 2015 tax case ruling could have serious implications for Canada’s table service restaurants. The Canada Revenue Agency (CRA) took an Ontario restaurant company to court for not paying CPP and EI on tips they considered to be controlled by the company. The judge ruled against the restaurant and said, for CPP and EI purposes, earnings should include all tips paid out by the employer, including credit card tips. (hyperlink to court case)
This case challenges CRA’s policy on controlled and direct tips by saying any tip an employer touches should be subject to source deductions (CPP and EI).
The judge referenced the 1986 Supreme Court case,which referred to credit card tips as being controlled by employers and therefore subject to source deductions. Restaurants Canada (Canadian Restaurant and Foodservice Association, at that time) successfully convinced CRA that credit card tips should be treated the same as cash tips. (hyperlink to our submission) That’s the basis of CRA’s current policy to define credit card tips as direct, provided they are paid out immediately without records kept.
Restaurants Canada has hired legal counsel to interpret the recent case, and is waiting to see how CRA will react to the court case. We’ll provide an update when there’s any news.