Do You Have to Report Cash Income in Kitchener-Waterloo?
While many Kitchener-Waterloo residents receive the money they earn via direct deposit into their bank account, that’s not the case for everyone. Physical cash is still a commonly used form of payment, but it often complicates the way your income and capital gains is calculated during tax season.
People who receive large cash inheritances, bi-weekly cash wages, or cash tips may be wondering whether and how this income should be reported. As tax professionals in Kitchener-Waterloo, we can help clear up the confusion surrounding reportable cash income. Keep reading to learn what cash income should be reported!
Do I need to report the money I make from cash tips on my taxes?
Yes, cash tips are taxable income in Canada, and must be reported on your annual tax filing.
This is a common question asked by hospitality workers like servers, valets, and bartenders. For people working in these roles, cash tips are likely an important part of your regular income.
When asking fellow hospitality workers, you’ll likely find that many don’t report their cash tips. While this may sound like an attractive idea, it’s an unwise choice in the long-run. The total income you declare each year impacts:
Your federal and provincial retirement benefits
Reporting a higher income will allow you to take advantage of higher federal and provincial benefits once you retire.
Employment insurance benefits
Reporting a higher income enables you to get a higher monthly EI payment if you ever lose your job, which will more accurately reflect your typical spending habits.
Your ability to qualify for a loan or mortgage
Declaring a higher income by filing your cash tips makes you more likely to qualify for a mortgage or loan.
Any income-dependent government benefit.
Additionally, if the CRA ever discovers that you failed to report cash tips on any of your tax returns, you could face a penalty or fine. The CRA will expect you to pay back the amount you would have owed had the tips been accurately reported, with accrued interest included.
How to Report Cash Tips on Your Taxes in Kitchener-Waterloo
Before tax season, you should already be tracking your tips through your financial planner. Best practice is to put aside an amount of the cash tips you earn to account for the taxes owed on it. A financial planner can help you do this properly and tax-efficiently.
Report the total amount of cash tips you received as other employment income on line 10400 of your income tax return. The amount you enter should not include tips which were already reported on your T4.
If your employer takes the tips you receive and distributes them between employees, these are known as controlled tips which should already be reported on your T4.
What cash do I need to report on my Canadian tax return?
The major indicator that tells you if a cash amount is taxable is whether it is considered income generation and was received from your employment. If you’re paid via cash for the work you do as an employee, the entirety of it is taxable and should be reported on your tax return.
If your employer gives you a cash gift, for example, it can still be considered income by the CRA. That being said, only cash gifts of $500 or more are considered taxable. Taxes will apply only to the amount exceeding $500.
To avoid owing a high amount of taxes you can’t pay, you should set aside a portion of your cash earnings to account for your taxable income. The money you put aside can then be used to pay off any taxes owed after filing your tax return. To make sure the amount you put aside is correct, you should get help from a tax strategy and planning professional.
What cash do I not need to report on my Canadian tax return?
Here are the cash amounts you typically don’t need to report on your tax return in Kitchener-Waterloo:
Cash you received from an inheritance
Cash you received as a gift
Cash you withdrew from a TFSA
To ensure you file your return correctly, try speaking to a financial advisor.