[Sonic dB]

I was wondering what the background behind it is?

Supposedly TIPS = To Insure Proper Service.
But who knows if that acronym is really at the root.
If it were, then one would TIP prior to the Service,
in order to insure it...
but that is not normally the case.

Is it expected?

Pretty Much, except in certain areas of the South, such as Tennessee or Alabama where people save money for beer and cigarettes.

Is there a set percentage?

10% for haircuts and cabs. 15% for meals, bellmen or anyone else. I typically tip 20-25% on everything.

Are you considered rude if you don't? Is it done everywhere and for all services?

Yeah its pretty rude to not TIP, if the service was proper.
One would only "stiff" someone if they are cheap, or if the
service was really, really, exceptionally poor.

What is the reasoning behind it? i.e. if a waitress doesn't get tips can she not live on her pay comfortably?

Yes, very true... the wage for food servers is typically about 1/3rd the National Minimum wage...Restaurants legally get away with this because Servers are considered "Tipped Employees".... by the IRS...therefore, its not only polite, its unfortunately pretty much standard and necessary for people to earn a living in the food service industry.

I understand its a part of American culture, is it the same in Canada too ( or parts of)?

I think so, except for the tendency to say "Thanks Eh" when handing out the tip.

I was a bartender for about 7 years in my late teens and early 20s. Without TIPS, I would have never have been able to pay for school and support myself. Coming from a relatively poor family, it was needed to survive and to educate myself... so Im grateful for all of the TIPS that I received back then, and in turn...I typically TIP very well...especially if she is hot. jk.

Money stagnates when you don't circulate it... and what you give out usually comes back to you in return in some form or another.