OTTAWA -- A blitz by Canada Revenue Agency auditors on an unfortunate group of waiters and waitresses in one Ontario community has exposed "very surprising" amounts of unreported tips and gratuities.
The pilot project targeted 145 servers working in just four restaurants in St. Catharines, Ont., a blue-collar city on the Niagara Peninsula, south of Toronto.
Auditors reviewed two years worth of income and found every individual had hidden some portion of their tips from the taxman, with about half reporting no tips whatsoever.
In the end, the blitz flushed out $1.7 million in unreported tips and gratuities -- almost $12,000 for each person.
"Industry insiders often tell servers that they only need to report 10 per cent of their... wages as tip income," says an internal report on the project.
"Our results indicate that tips are more likely to be 100 per cent to 200 per cent of... wages. In essence, they are only reporting five per cent to 10 per cent of earned tips/gratuities."
The auditors conclude: "The amount of unreported income was very surprising."
The Canadian Press obtained a heavily censored copy of the 2010 report under the Access to Information Act, after an 18-month delay by the Canada Revenue Agency that violated legislated deadlines.
The study does not identify the restaurants or waiting staff that were subject to the special audits.
The St. Catharines blitz was among dozens of pilot projects across the country that targeted the underground economy, estimated to be worth as much as $36 billion in 2008, according to a Statistics Canada study prepared for the revenue agency.
The other projects, which also reported in 2010, focused on the trucking industry, house-flipping, electronic sales suppression or cash-register zapping -- even Quebec's maple syrup industry.
The tax agency has long known the hospitality industry is rife with tax-reporting abuse, partly because tipping is often done using untraceable cash.
The Statistics Canada study, using macroeconomics rather than direct measurements, estimated undeclared tips were worth some $1.3 billion in 2008 -- a small fraction of the underground economy.
The pilot project in St. Catharines drilled down to actual restaurants and hospitality workers as a reality check.
Canada Revenue Agency staff began the blitz with an information campaign at 311 dining and drinking establishments in the city, warning serving staff and bartenders of the consequences of failing to declare tip income.
The direct audits of the 145 servers six months later resulted in each person paying an average of $1,553 in extra income tax, an amount auditors called "respectable" given many were students with access to special credits that kept their overall taxes low.
"We also believe that auditing this type of restaurant has a significant 'word of mouth' effect with the servers in the local industry," says the report, which urged a national version of the project.
A spokeswoman for the Canada Revenue Agency said officials are still reviewing the pilot project before deciding next steps.
"Once the project has been thoroughly evaluated, the results and findings will enable the CRA to determine whether to expand it at a national level," said Mylene Croteau.
-- The Canadian Press