Quote:
Originally Posted by Simanium
Because if Earls increases wages that means that Earls has to pay an increased amount for matching CPP and EI contributions. This adds up to a lot for an entire restaurant. Earls doesn't have to contribute to payroll deductions for tips. Also, my understanding is that since it is a Service Charge, the 16% tip will not go into the revenue of the business and accordingly not taxed to the corporation, whereas an increase in menu prices would increase general revenue and would be taxed. Menu prices would have to increase by a percentage a fair bit more than 16%, to account for taxes and payroll deductions, to still have the same net effect for the employees.
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The 16% service charge would certainly hit the restaurant books. Controlled tips form part of the employee's total remuneration and are subject to CPP contributions and EI premiums being deducted at source, provided that this person is employed in pensionable and/or insurable employment.
This should result in a net no impact to income tax burden, provided Earls pays out the entire 16% as wages, as both the payroll and deductions are tax deductable to the corporation.
They add the service charge because as a previous poster mentioned $17 looks better on a menu than $19.72, and you are more likely to not do the math in your head.
http://www.cra-arc.gc.ca/tx/hm/xplnd/tps-eng.html
*edit - Bean and I have similar google-fu apparently.