OTTAWA - A blitz by Canada Revenue Agency auditors on an unfortunate group of waiters and waitresses in one Ontario community has exposed "very surprising" amounts of unreported tips and gratuities.

The pilot project targeted 145 servers working in just four restaurants in St. Catharines, Ont., a blue-collar city on the Niagara Peninsula, south of Toronto.

Auditors reviewed two years' worth of income and found that every individual had hidden some portion of their tips from the taxman, with about half reporting no tips whatsoever.

In the end, the blitz flushed out $1.7 million in unreported tips and gratuities — almost $12,000 for each person.

"Industry insiders often tell servers that they only need to report 10 per cent of their ... wages as tip income," says an internal report on the project.

"Our results indicate that tips are more likely to be 100 per cent to 200 per cent of ... wages. In essence, they are only reporting five per cent to 10 per cent of earned tips/gratuities."

The auditors conclude: "The amount of unreported income was very surprising."

The Canadian Press obtained a heavily censored copy of the 2010 report under the Access to Information Act, after an 18-month delay by the Canada Revenue Agency that violated legislated deadlines.

The study does not identify the restaurants or waiting staff that were subject to the special audits.

The St. Catharines' blitz was among dozens of pilot projects across the country that targeted the underground economy, estimated to be worth as much as $36 billion in 2008, according to a Statistics Canada study prepared for the revenue agency.

The other projects, which also reported in 2010, focused on the trucking industry, house-flipping, electronic sales suppression or cash-register zapping — even Quebec's maple-syrup industry.

The tax agency has long known that the hospitality industry is rife with tax-reporting abuse, partly because tipping is often done using untraceable cash.

The Statistics Canada study, using macro-economics rather than direct measurements, estimated undeclared tips were worth some $1.3 billion in 2008 — a small fraction of the underground economy.

The pilot project in St. Catharines drilled down to actual restaurants and hospitality workers as a reality check.

Revenue agency staff began the blitz with an information campaign at 311 dining and drinking establishments in the city, warning serving staff and bartenders of the consequences of failing to declare tip income.

The direct audits of the 145 servers six months later resulted in each person paying an average of $1,553 in extra income tax, an amount auditors called "respectable" given that many were students with access to special credits that kept their overall taxes low.

"We also believe that auditing this type of restaurant has a significant 'word of mouth' effect with the servers in the local industry," says the report, which urged a national version of the project.

A spokeswoman for the Canada Revenue Agency said officials are still reviewing the pilot project before deciding next steps.

"Once the project has been thoroughly evaluated, the results and findings will enable the CRA to determine whether to expand it at a national level," said Mylene Croteau.

A 2006 survey of 96 hospitality workers, commissioned by the Canada Revenue Agency, found that many were advised by their tax accountants to declare a mere fraction of their real tip income.

The same survey also reported the workers "do not perceive a real risk of getting caught for improperly reporting tips, as very few of them know or have heard of someone getting audited."

Statistics Canada says there were about 190,000 food and beverage servers in Canada last year, about 80 per cent of them female. Many are young and in their first job, often students who later leave the industry. Most report making less than $20,000 a year.

The head of a restaurant group says many serving staff likely would not have to pay any taxes, even were they forced to declare more tip income, because they fall under tax-free thresholds and can access tax credits.

"A lot of them aren't making a heck of a lot of money," said Garth Whyte, president of the Canadian Restaurant and Foodservices Association.

Whyte said the industry is bracing for a growing labour shortage by 2020, when the pool of 15-to-20-year-olds is expected to decline by 300,000. The shortage is likely to buoy wages over that time, he said.

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  • United States

    A tip of 15-20% is customary for good to great service, 10-15% is common for poor service and 20% and up for excellent service. What about your barista? Well <a href="http://newyork.grubstreet.com/2010/07/waiter_rant_follow-up_will_tel.html" target="_hplink">that's complicated</a>. (Photo from <a href="http://www.flickr.com/photos/dinesarasota" target="_hplink">Flickr: larryjh1234</a>)

  • Mexico

    While a few restaurants will add a tip to the bill, tipping in Mexico is basically the same as in the US. For good service, a tip of 15-20% is customary. (Photo from AP)

  • Canada

    As in the US, a tip of 15% is expected. Customers can tip up to 20% for exceptional service. (Photo from AP)

  • Italy

    Italians tip very little, usually under 10%, or up to 5 euros unless it's a very expensive meal. (Photo from <a href="http://www.flickr.com/photos/sooey/" target="_hplink">Flickr: junojp</a>)

  • France

    A 15% tip is included in the bill by law, but a small extra tip can be left as a sort of "thank you." The extra tip can range from a few coins on a small cafe meal to about 5 euros on a more extensive meal. (Photo from AP)

  • Germany

    Trip Advisor recommends that <a href="http://www.tripadvisor.com/Travel-g187275-s606/Germany:Tipping.And.Etiquette.html" target="_hplink">diners leave a small tip on top of what is included by the restaurant</a>. This amount should be small, between 5-10%, and should be paid by handing the waiter physical cash for the exchange. It's customary to round up to the nearest round amount (leaving 20 euros on an 18 euro check). <a href="http://www.huffingtonpost.com/social/bookmanjb?action=comments" target="_hplink">Commenter/American expatriate living in Germany bookmanjb concurs, writing</a>: <blockquote>12% is included in the check for service. For so-so or bad service, you leave nothing. For good service, you simply round up a little. For example, if your check comes to 28 euros, leaving 30 euros indicates that you are VERY satisfied with your server; if you add those 2 euros to the 12%, it's about 20%. </blockquote> (Photo from Flickr: sanfamedia.com)

  • United Kingdom

    Many British restaurants will include a mysterious "service charge" that usually goes to the restaurant owner. Diners can ask for this to be removed or lowered and add their own tip to go directly to the waiter. A customary tip is between 10-15%. Most Brits don't tip in pubs. (Photo from <a href="http://www.flickr.com/photos/adam_t4/" target="_hplink">Flickr: Adam_T4</a>)

  • Switzerland

    A 10% service charge is included in the check, but it's customary to round up to the nearest 10 (50 for a meal costing 47) for particularly good service. (Photo from <a href="http://www.flickr.com/photos/stone-soup/" target="_hplink">Flickr: jules:stonesoup</a>)

  • Singapore

    Most restaurants will include a service charge in the check, and it's fine but not customary to surpass that amount. (Photo from Flickr: balyho0o)

  • Israel

    A tip of 10% is considered standard. If service is excellent, a tip of 15% is generous. (Photo from <a href="http://www.flickr.com/photos/mr_t_in_dc/" target="_hplink">Flickr: Mr. T in DC</a>)

  • Turkey

    At inexpensive restaurants, a few coins can be left as tip. At higher end places, the restaurant might add a 10% service charge to the check. (<a href="http://www.flickr.com/people/rubber_slippers_in_italy/photosof/" target="_hplink">Flickr: Rubber Slippers In Italy</a>)

  • Egypt

    Most restaurants will include a tip of 10%-12%, and it's customary to add an extra 5% on top of that. (Photo from <a href="http://www.flickr.com/groups/snowpea/" target="_hplink">Flickr: snowpea</a>)

  • India

    More and more Indian restaurants, across price points, <a href="http://timesofindia.indiatimes.com/life-style/food/food-reviews/The-tipping-point/articleshow/5988533.cms" target="_hplink">are adding service charges</a>. Before, in most restaurants a tip of 10-15% was considered standard and should still be added to bills where the service isn't included. (Photo from <a href="http://www.flickr.com/photos/brood_wich/" target="_hplink">Flickr: Brood_wich</a>)

  • South Korea

    Tipping is not customary, though some hotels and restaurants will add a 10% fee to checks. (Photo from <a href="http://www.flickr.com/photos/hulagway/" target="_hplink">Flickr: whologwhy</a>)

  • China

    Tipping is very uncommon, and sometimes even considered rude, at restaurants. (Photo from Flickr: InterContinental Hong Kong)

  • Hong Kong

    Unlike in the rest of China, a tip of around 10% is average at most middle of the road spots and upscale restaurants will usually include a 10% tip. (Photo from <a href="http://www.flickr.com/photos/dongkwan/" target="_hplink">Flickr: VirtualErn</a>)

  • Japan

    Tipping is not expected and rarely ever happens. It can even be considered rude, depending on the place. The waiter will get their cut in the form of a 10% service charge added by the restaurant. (Photo from <a href="http://www.flickr.com/photos/scelera/" target="_hplink">Flickr: samantha celera</a>)

  • Iceland

    Given the high prices of almost everything in Iceland, tourists and locals alike are not expected add a tip to the check. Waiters will accept small tips but it's not customary to leave anything. (Photo from <a href="http://www.flickr.com/photos/acme/" target="_hplink">Flickr: acme</a>)

  • Australia

    Tipping has only recently become the norm at Australian restaurants, where it's now customary to leave a 10% tip for good service. (Photo from <a href="http://www.flickr.com/photos/sackerman519/" target="_hplink">Flickr: Sarah_Ackerman</a>)

  • Chile

    Some Chilean restaurants include a 12% service charge, but diners can ask for it to be removed. If no tip is included, a tip of 10% is considered generous. (Photo from Flickr: www.theedinburghblog.co.uk)

  • Brazil

    Typically a 10% tip is included in the bill, and it's not expected that a diner will leave an extra tip. (Photo from <a href="http://www.flickr.com/groups/snowpea/" target="_hplink">Flickr: snowpea</a>)

  • Argentina

    While tipping isn't mandatory, many people tip for good service. Locals usually tip around 10% while tourists typically shell out a bit more. (Photo from AP)

  • Costa Rica

    No tipping is customary, but a 10% service charge is usually included. (Photo from <a href="http://www.flickr.com/photos/vkreay/" target="_hplink">Flickr: Victoria Reay</a>)

  • Panama

    A 10% tip is customary, but 15% is generous to reward great service.

  • Guatemala

    A tip of 10% is customary, although some places will add 10% to the tip. (Photo from <a href="http://www.flickr.com/photos/lablasco/" target="_hplink">Flickr: La.blasco</a>)