Roseman: How some restaurants layer tips on HST

It’s common to leave a 15 per cent tip when eating out. But should you add your tip to the meal only – or to the total amount, including the tax?

It’s an important question now that many restaurants use wireless terminals to process your credit card payment at the table.

If you punch in a 15 per cent tip, the terminal will likely add the tip to the total amount – not just the food and drinks.

Tipping a restaurant for good service is one thing. But why tip the federal and provincial governments for applying a 13-per-cent harmonized sales tax to your bill?

For many people, tipping on tax is a practice they find distasteful.

In a recent column (Aug. 27), I noted that restaurant tips become taxable when they’re added to your bill by the owner.

Mandatory service charges are part of the amount to which HST is applied. But tips given freely by customers escape the tax hit.

However, you have to be careful if you make a credit card payment using a wireless terminal, since many are programmed to add your tip to the HST.

Several readers told me about the perils of paying with plastic at your table.

“I was recently handed the credit card machine at a restaurant and punched in 15 per cent for the tip,” says Linda Browne.

“This seemed easy enough until I looked at the bill and saw that I had tipped 15 per cent on the total amount, which included 13 per cent HST. I had no intention of tipping on the HST. Are all the machines set up like this?”

Teri Broughton, a spokeswoman for Visa Canada, said the programming is done by firms that supply point-of-sale terminals, such as Moneris Solutions, Chase Paymentech, TD Merchant Services and Global Payments.

I don’t know which terminals are set up for taxable tips. But I do know that computer systems can be changed if enough people complain.

Unhappy customers can tell restaurants they prefer not to tip on tax. And restaurants can tell terminal suppliers to strip out the tax before calculating the percentage tip.

You can quote Garth Whyte, president of the Canadian Restaurant and Foodservices Association, who thinks that tips should reward restaurants – and not the taxman.

“You should tip on the meal, not on the tax,” he says, adding that you have to do some mental gymnastics to get the right amount.

It used to be easy. The GST and PST added up to 15 per cent (before the federal Conservatives cut the GST by two percentage points to 5 per cent).

So, you just added up the two taxes and left a tip that was the same amount.

Now you have to use a pen and paper (or a calculator) to deduct the HST from the total and multiply that amount by 15 per cent.

Gerry Pyper has a tip, so to speak, for this new restaurant dilemma.

Most terminals give you the choice of using percentage or dollar amounts for your tips.

Don’t choose to leave a percentage tip, he says. Instead, choose to leave a tip in dollars and cents.

Opting for a percentage is easier. But you do have to ask sharp questions about whether the tax is included or not.

Opting for a dollar amount requires doing your own calculations to come up with the right amount. But you get the satisfaction of knowing that your tips aren’t going to boost government coffers.

There’s another solution, says Nancy Jacques. Carry cash and use it to pay for the tip separately.

Use your credit card to pay for the meal and tax only.

“Then I know that the person who served us gets the money,” she says.

Ellen Roseman writes about personal finance and consumer issues. You can reach her at eroseman@thestar.ca, 416-945-8687 or ellenroseman.com