The fourth schedule of the Income Tax Act 58 of 1962 (hereinafter referred to as ‘the Act’) deals specifically with tips and the tax implication in respect thereof.
As contained in the preamble of the Act ‘tip’ is defined as “[a]voluntary payment that a patron primarily awards to a recipient who renders a service. The amount of the tip may be related to the quality of the service, but it is also often awarded because of social custom or out of kindness.” Whereafter a waitron is defined by the Act as a “waiter alternatively waitress” (own emphasis).
How are tips different from remuneration?
It is essential to understand that a waitron receives a ‘tip’ from a patron, which the Act defines as “[a] person, other than an owner, who awards a recipient a tip for services received;”, meaning a ‘tip(s)’ is not considered remuneration in the eyes of SARS.
The answer to the question of who bears the onus to declare and pay over the tax portion of tip(s) received by SARS, is the employee. The waitrons are meant to submit an income tax return and declare and pay the necessary tax in their personal capacities. The company should thus not combine the amount(s) earned through tip(s) with employee salaries and make statutory deductions which are subsequently paid to SARS on the waitron’s behalf, as would be the case with typical remuneration.
Credit Card Tips and PAYE
Do credit card tip(s) then become subject to PAYE if there is a transfer from the company’s bank account to the waitron’s bank account? As contemplated in Paragraph 4.2.2(a) of the Act, the mere performance of transferring credit card tip(s) (or non-cash tip(s)) from the employer’s banking facility to the waitron’s banking facility does not meet the requirements of remuneration set out therein and thus is not subject to PAYE. That being said, each circumstance must be considered on its own merits, and we strongly advise that if you are unsure, contact us to clarify any uncertainty.