Tips paid out on payroll cheques are considered income and therefore subject to source deductions (IncTx, EI, CPP). The website below explains 'controlled tips'.

www.go2hr.ca/.../understanding-tips-and-gratuities

If the tips deposited into the bank electronically were the result of tips paid on credit/debit cards then those tip amounts should come out of the bank account into something like a 'Tip Box' (similar to Petty Cash Box) so that you can pay the employees from the Tip Box for them to record as income on their personal income tax return. This way it does not need to be recorded on the employees' paycheques.

Sales = Cash + Charged Account + Interac - Interac Tips

I am interested to see what others have to say about your situation.

Hi Heather: If I researched it correctly the article you attached would apply to controlled tips in British Columbia. Teresa would have to check the Employment Standards Act for the province in which her business is located. It would not surprise me if the applicable ESA is the same but there is a chance of 12 different standards in Canada as tips are controlled provincially/territorially.

You are correct Alywn - my error as I had assumed that Teresa was in BC.

Hi, Yes I am in BC and will be deducting the necessary taxes. I was just wanting the method for recording it in sage. My thought was to establish a Liability account to record the amount going into the bank. Then to clear the liability amount? 

In the payroll settings < linked accounts< have a new payroll income account set up. 

Step 1 Debit bank Credit Liability account ( to record the amount going into the bank)

Step 2  processing the payroll will Debit the new payroll tip amount

Step 3 Debit the liability account and credit the payroll income to 0

thank you