Manitobans tip bar and restaurant servers millions of dollars a year.
And with no idea as to how much of this income is being declared as taxable, it’s possible the provincial and federal governments are missing out on revenue.
Burdened with a massive health-care cost crunch resulting in lost jobs and ER closures, is it time for the province to start looking at taxing tips in a uniform way to try to start closing the gap?
How Quebec handles the issue may provide some insight.
"The money you make as a server is incomparable," says Darcelle Paquette, 28, a former server in Montreal and Winnipeg.
"In Quebec, I was required to claim my tips biweekly and they were added to my cheque. In Manitoba, it was my responsibility to keep track."
In December 2015, the sector saw $68.8 million in pre-tax sales in Manitoba, Statistics Canada said.
While declaring tips for tax purposes in Manitoba is done by the honour system, it still made Paquette anxious as it rolled around.
"Tax season made me really nervous in Winnipeg," Paquette says. "I didn’t want to claim too much and make my co-workers look bad, but I also didn’t want to claim too little and get myself into trouble."
Paquette started serving in 2007 when she moved to Quebec to make money while she was in school. In 2011, she returned to Winnipeg and continued working in the restaurant industry.
"It was really different than in Quebec," Paquette says. "In Quebec, I would receive my tips every two weeks, after they had been taxed for me. Here (in Winnipeg), it was up to me to keep track, and that wasn’t always easy to do."
Her experience also suggests servers who get injured could achieve greater financial security by declaring their tips biweekly.
In 2013, Paquette burned her hand while working in a Winnipeg restaurant and was unable to work for a week. But because Manitoba servers declare their tips at the end of the year, she only received workers compensation for a percentage of her hours worked in the last six weeks.
That amounted to much less than she was making.
There's also additional red tape for small businesses.
Wendy May, owner and manager of the Oakwood Café, thinks putting the onus of declaring servers’ tips on owners could add a lot of work and frustration.
"If it was done on card payments, you can have the owners claim that part of it with no problem," May says. "But, I think it would be very difficult to get the cash aspect under control."
In most of Canada, tips are considered "other employment income" and are to be filed on line 104 of tax returns.
"There is no way to determine how much of it is tips," says Marie Tichborne, communications manager for the Canada Revenue Agency in Manitoba.
All other employment income refers to occasional earnings that are not included on your T4 slip. Legally, you’re supposed to declare all tips as a form of income on line 104 of the tax return at the end of the year.
Although it’s not trackable in Manitoba without an audit, Quebec has put a system in place to make it easier. In 1998, that province introduced an automatic tip-declaration system.
"At the end of each pay period, each employee who works in the food and beverage industry must report his tips to his employer," says Geneviève Laurier, director of public relations for Revenu Québec, in an email.
"If declared gratuities are less than eight per cent of sales (before taxes) resulting in the receipt of a gratuity from the employee, the award mechanism must be applied by the employee."
According to the Quebec’s committee on standards, equity of occupational health and safety, servers who get tips earn a minimum wage of $9.45 per hour.
"The employer then assigns the employee an amount of gratuity that ensures that the total of the tips declared by the employee and assigned by the employer corresponds to a minimum of eight per cent of the employee’s sales," Laurier says.
In 2016, $701.1 million was reported as tip income, Revenu Québec said.
"I would have preferred my employers (in Winnipeg) just take care of it," Paquette says. "It would have relieved me from a lot of stress."
May says she would welcome a trial period for this model, but would want a lot of information for her staff prior to it being implemented.
A Statistics Canada report said 43.1 per cent of restaurant revenue in Manitoba in 2015 was from full-service restaurants. The agency defines a full-service restaurant as a restaurant where the customers are served and order once they have been seated and don’t pay until after their meal. These establishments typically sell alcohol as well.
If Manitoba adopted Quebec’s system, automatically requiring servers to claim eight per cent of their sales as taxable income, there would have been a guaranteed $5.44 million in additional tax revenue from full-service restaurants for one month.
There is no way to track whether this amount is being claimed on tax returns.
If Manitoba restructures the way taxes are done and mimics the way it’s done in Quebec, it can introduce a harmonized sales tax.
HST is used in provinces where both the federal goods and services tax and the regional provincial sales tax have been combined into a single value-added sales tax. By combining their tax systems, they can tax tips separately from line 104.
Laurier says the eight per cent minimum is claimed on line 101 of a Quebec tax return. However, it’s still the responsibility of the server to claim any additional tips they did not declare through their employer on line 107.
"The Montreal style wasn’t perfect," Paquette says. "But it was definitely more organized."
— Melissa Hansen is a senior journalism student in the creative communications program at Red River College in Winnipeg and a server. This article was a product of a feature writing assignment.