Allocation of Tips

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Where the amount of tips reported by an employee is less than 8% of the employee's tippable sales, you are required to allocate an amount as tips to the employee.

In certain cases, however, you may not be required to allocate an amount, even though the tips received directly or indirectly and reported by the employee are less than 8% of his or her tippable sales. This may occur, for example, where the employee is required by a tip-sharing arrangement to remit to other employees a portion of the tips received on tippable sales (see the second example on the page Calculation of the Amount to be Allocated).

For each pay period, you must calculate the amount to be allocated as tips to the employee based on the information on the Register and Statement of Tips (form TP-1019.4-V) or equivalent document that the employee gives you. The amount must be calculated on the employee's tippable sales. In certain cases, we may, at your request, reduce the 8% rate (provided for in the Taxation Act) that is used to calculate this amount (see Reduction in the Allocation Rate).

When to allocate the amounts

As a rule, you must allocate an amount as tips to an employee at the end of the pay period, when you pay the employee. However, if you are unable to do this because you do not have the necessary information when doing your payroll and have little time to calculate the amount to be allocated, you may allocate the amounts in the following pay period instead.

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