1410109 Ontario – Tax Court of Canada finds that a “gratuity” that was required to be paid was subject to HST
The contract of an incorporated banquet hall with its event customers stipulated: “All Pricing is Subject to 13% HST and 15% Gratuities.” Before agreeing with the position of the Minister that the “gratuity” was part of the consideration for the supply under the contract, Bocock J referred inter alia to U.K jurisprudence that
[V]oluntary gratuities are not subject to VAT because voluntary gratuities are: ‘[N]o part of the contract that the customer should pay a charge for service … .’
He dismissed the taxpayer’s appeal, on the basis that the gratuities were not voluntary, stating:
Subsection 133(b) combined with subsection 138(a) … suggests that tips included in an agreement are part of the overall supply of prepared meals, which is subject to HST. …
The ETA defines “consideration” as “any amount that is payable for a supply by operation of law.” The almost mandatory tip is enforceable by operation of contract law whereas a voluntary tip is not “consideration” because it is not payable by operation of law… .
Neal Armstrong. Summaries of 1410109 Ontario Ltd. v. The King, 2022 TCC 141 under ETA – 123(1) – consideration.