In most states, employees who earn a regular income, have to give a fixed percentage of that money to the government in the form of tax.
Well, in the gambling industry, things are no different either. Casino employees are required to pay taxes just like any other employee.
However, in Canada, the authorities are planning to demand more than just the taxes casino workers pay. That is, in a report shared by calvinayre.com, employees in the entertainment industry earn more than their officially documented salary and this should reflect in their tax payment commitment.
According to a statement by the National Post, a Canadian Federal Court of Appeals (FCA) judge ruled this week that on top of the tax casino employees pay on their income, they will also be splitting their tips with the taxman.
The judge insisted that tips are not gifts, which would allow them to be exempted from tax; rather they have become an almost stable or additional source of income option for most people, and as such this needs to be taxed.
What is more confusing about the court’s decision is that winnings made from gambling are not subject to being taxed. This is despite the fact that tips and gambling winnings share a lot of similarities.
For one, tips are usually from gambling winnings when the winner decides to give part of his prize to the employee. However, according to the government, gambling winnings are not a consistent source of income and therefore should not be taxed.
The standoff on whether tips should be taxed or not, began when Cheng Xia, a shop attendant working at the Grand Villa Casino, was accused by the Canadian Revenue Agency of failing to properly record his income for the years 2011 and 2012.
The agency accused Xia of failing to record the tips he has earned in 2012, which accumulated to $39,219. Xia had only recorded his basic salary, which was $29,327 in the same year. This irked the taxman who took Xia to court for failing to pay his taxes. Xia defended himself saying tips were not a form of income. Unfortunately, he lost the case in 2018. He filed for an appeal which led to the ruling this week by FCA.
One thing was clear though during the battle between the taxman and Xia. Xia never really stood a chance, despite the absurd reasoning behind the tax code. This is because, according to Canada’s Income Tax Act, taxable income includes any remuneration or benefits whatsoever that are received in your line of work.
During the ruling this week, the FCA agreed with the ruling made by Diane Campbell in 2018. Diane had ruled that winnings made in the casino are not taxable. However, they become taxable the moment the winnings are shared with an employee for whatever reason.
With the ruling, Xia is going to have to pay a fine of $6,342 for gross negligence, as the court defines it.