Report warns point-of-sale systems changing tax treatment of gratuities
HR professionals in hospitality, retail and other service sectors may want to reassess compensation models as many Canadians are unhappy about the tipping culture in the country.
Specifically, two-thirds (67 per cent) of Canadians say it is time to abolish tipping, according to a new survey commissioned by H&R Block Canada.
“Canadians say enough is enough when it comes to tipping in Canada,” says the report, with 93 per cent saying they feel annoyed when a card payment machine prompts for a tip or gratuity for services or purchases where tipping hasn’t previously been expected.
Another 93 per cent say that tipping is “out of hand” and is applied to goods and services they don’t think warrant tipping.
Resentment of tip requests
A vast majority of respondents (89 per cent) say they “resent businesses with tip prompts for payments they don’t think warrant a tip.” More than four in 10 (41 per cent) report that they have avoided going to places that they know have tip prompts at cash out, such as coffee shops, convenience stores, fast food, or self-serve counters, finds the survey of 1,469 Canadians conducted in February.
The shift from discomfort to resistance is stark. In 2025, 57 per cent of Canadians said they “felt awkward skipping the tip prompt so tended to leave a tip anyway.” In the 2026 survey, nearly two-thirds (65 per cent) say that over the last year they “feel less awkward in opting for the ‘no tip’ option when prompted,” and 67 per cent report they are “increasingly opting for the ‘no tip’ option.”
Overall, 89 per cent of respondents think “the tipping percentage amounts have become too high,” while 79 per cent say “they tend to enter their own choice of tip amount versus using the prompted percentage amounts where possible.”
Recently, an Ontario restaurant owner who took $40,000 from the employee tip pool while a worker in Europe received $23,037 was ordered to pay $16,259 to two servers who challenged the distribution scheme.
Tax rules shift as tips run through employers
The survey also indicates that digital payment systems are reshaping how tip income is recorded and taxed. H&R Block Canada points out that “tipping via digital payment systems often shifts how income is declared for tax purposes,” particularly when tips flow through employers rather than directly to employees, raising practical questions for payroll and compliance.
H&R Block Canada highlights “key shifts and tax implications with tips that are paid through business owners and employers versus direct to employees,” warning that point-of-sale systems are changing the tax treatment of gratuities.
A 2025 survey by the company found that while most Canadians (84 per cent) know that tips are considered taxable income, nearly half (47 per cent) assume people aren’t actually declaring all tips on their taxes. With electronic payments now dominant, the new report says the use of card machines has “evolved the tax dynamic around tipping culture.”
“When businesses or employers use card machines to add a tip, the tip amount is paid to the employer,” H&R Block Canada explains. “This means tips can be treated the same way as the rest of the income on a paycheque, with relevant deductions, including tax, Employment Insurance (EI), or Canada Pension Plan (CPP) amounts having already been deducted before it hits the employee’s pay stub and included in T4s.”
Yannick Lemay, Tax Expert at H&R Block Canada, notes: “The tax mechanics of gratuities have evolved over time, particularly through point-of-sale systems that prompt tips.” He notes that in the past, a server had to claim their tips voluntarily on their tax returns, whereas today there are “instances where tips are treated as income by the employer and taxed as such… This can cause all sorts of confusion come tax time."
All tips are considered taxable income, by law, regardless of whether your employer includes any tip amount on your T4 slip, "and there can be significant repercussions with the CRA for not declaring all income,” Lemay says.
Earlier this year, Saskatchewan’s updated employment standards came into force, introducing new protections for workers who earn tips, take sick leave or require time off after pregnancy loss or interpersonal violence.
