Tax Man Cracking Down on Cheating Hospitality Workers (Are You Next?)

Tax Man Cracking Down on Cheating Hospitality Workers (Are You Next?)

The last few months here in Canada have seen several in the hospitality industry who earn most of their living on tips getting official letters from the Canada Revenue Agency. These letters state that the CRA believes these folks aren’t being honest about the tips they receive. The government agency believes many have omitted tens of thousands in earnings from their tax forms.

Many discussions I’ve read are slamming the government for picking on the poor. However, with mobile payments becoming the norm and the majority of transactions being done through a machine, the CRA seems to have come to the conclusion these workers are doing pretty well. After all, they do have access to detailed transaction summaries for the businesses these people work for.

In Canada, you can earn $11,474 without paying income tax. These people skirt around the rules by declaring the bare minimum they feel comfortable with and then pocket a lot of extra cash at the end of the year. It becomes a pretty easy thing to figure out when tax auditors also look at the person’s lifestyle such as home ownership and car leasing/ownership to see if that lifestyle matches their income.

Hiding tips is a really bad idea, and the IRS in the US is ramping up their efforts as well.

Many of us are guilty to some extent.

I’ve often talked about the act of tipping in my posts on BizEpic over the last several years. It’s a topic worth talking about in entrepreneurship circles because so many of us use gratuity-based jobs to get ahead. I spent a few years back in the day delivering pizzas. It paid very well at that time, though competition in the area I worked has ramped up with several franchises setting up shop throughout the years.

I didn’t do my taxes because everything coming in was CASH. There wasn’t even mobile debit and credit card payments available at the time, so no paper trail. I was also young and irresponsible.

More than servers at fault.

I’m not proud of the fact that I didn’t declare that money, but few people I knew did. It’s sleazy, yes. But the businesses who operate this way aren’t any better either, are they? It’s such a problem in North America, where the hospitality industry pads their pockets by not just expecting customers to pay for a service, but additionally to pay for the staff who wait on them.

We don’t see this in many other places. Some discussions I’ve seen from people in different countries indicate that truly exceptional service might warrant a tip, but other than that it’s generally accepted that business owners pay their staff what’s considered a “fair wage” for services rendered. Here, there’s an expectation that a patron will put an extra 15 or 20 percent down for a service on top of the bill.

Are you next?

Many of you might be using the gratuity model in your own business to maximize profits. The rest of you might be working your way through college or bootstrapping your own business by working a gratuity-based job. The simple reality is that the tax man, wherever in the world you may find yourself, has your number. You can’t assume your under-the-table extra wages won’t be uncovered by a schill in your government.

Taxes are a way of life for all of us. Pay up or get out — that’s the message many Canadian workers have basically been hearing over the last few months. If you’re a business owner, consider paying your employees what they’re worth and raise your prices to maintain stability. A “no tips allowed” sign will go a long way toward justifying higher prices, and make customers feel more at ease when the bill comes.

Nothing gets easier, am I right?

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