CRA: (Canada Revenue Agency)
Tips or service charges are not usually added to a bill. In general, consumers tip a percentage of the amount of a bill to service providers such as to waiters, waitresses, barbers, hairdressers, and taxi drivers. The percentage and whether the tip is calculated on the amount of the bill before or after taxes depends on the practice of the particular consumer.
A tip or gratuity that is freely given by a customer, for example, cash not recorded on a bill, is not subject to the GST/HST. However, if you add a mandatory or a suggested amount to the customer's bill as a service charge, you have to charge GST/HST on that amount.
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Don Quixote Note:
Check your final bill when you add a tip when you pay by credit card or debit card. If this is your choice as a tip then there should be no HST added to the tip amount.
However if you are in a restaurant or bar that has a mandatory or suggested service charge automatically added to your bill it appears that they must charge and you will pay the HST on this 'charge'.
This is similar to the HST on your Fortis Gas Bill which is charged on the Franchise Fee of 3.09% that is remitted to your Local Municipality. You are charged 12% of the 3.09% Franchise fee amount. (Tax on a tax). Similarity the HST (reduced to 5% by the Residential Energy Credit in B.C.) is charged on the Carbon Tax on your Gas Bill. (Another Tax on a tax)
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