Page 649 - SAIT Compendium 2016 Volume2

IN 76 Income Tax acT: InTeRPReTaTIon noTes IN 76
often remunerated for the services rendered, rstly, by means of a basic salary or wage and, secondly, by means of tips paid by patrons. Recipients are very aware of the two sources of income and of the fact that the manner in which the recipient renders the service to the owner has a direct impact on patrons’ experiences and the amount of, if any, tips the recipients receive. The tips are worked for and are an expected source of income. The fact that the tip may be paid by a patron and not the owner does not alter the fact that there is a direct causal connection between the services rendered by the recipient and the tip received. The recipient’s services to the owner are the very reason or cause for the tips. There is no ‘independent, unconnected and extraneous causative factor or event’* which isolates the tips from the services rendered by the recipient.†
Accordingly, tips are received or accrue in respect of services rendered and fall within paragraph (c) of the de nition of the term ‘gross income’.
In the English case of Calvert (Inspector of Taxes) v Wainwright,‡ a taxi driver received a wage from his employer and tips from his passengers. Atkinson J held that:§
‘Tips received by a man as a reward for services rendered, although voluntary gifts made by people other than his employers, are assessable to tax as part of the pro ts arising out of his employment if they are given in the ordinary way as a reward for services, but on the other hand, personal gifts, which means gifts to a man on personal grounds irrespective of and without regard to the question whether services have been rendered or not, are not assessable.’
The tips given to the taxi driver were held to be a reward for the services rendered and accordingly assessable to income tax.
In Stander v CIR¶ the taxpayer was employed as a secretary and bookkeeper by Frank Vos Motors (a Delta franchise holder) and, in recognition of the meticulous manner in which he recorded data and prepared reports for Frank Vos Motors (which were submitted to Delta on a regular basis), Delta awarded him a prize. The court noted that:**
‘The fact that Stander was an employee of Frank Vos Motors, was a sine qua non to his receiving the award. ... That fact does not, however, provide the necessary causal link between the services which he rendered to his employer and his obtaining of the award. Those services did not constitute the causa causans of the award. He did not seek the prize by entering a competition (Cf ITC 976 24 SATC 812) nor did he expect to receive anything from Delta for the work he performed for Frank Vos Motors. He merely performed his normal duties for which he was remunerated by his employer. The fact that these duties were performed in a manner which Delta considered to be excellent was what quali ed him to receive the prize....
The fact that these services†† were bene cial to Delta does not mean that the award he received was ‘in respect of’ services rendered. The sine qua non referred to above does not provide the necessary causal link between what Stander did and the award he received.’
This case is, however, clearly distinguishable from the situation in which a recipient receives a tip from a patron for services rendered to the owner. Mr Stander was not aware of and did not work for the prize. It was a fortuitous receipt which the court held was causally linked to Delta’s marketing management programme and Delta’s decision to award prizes and not to Mr Stander’s services. In contrast, recipients work for and expect tips in return for the service rendered hence the receipt of a tip is not fortuitous. In addition, the decision by the patron to give or not give the recipient a tip is not an independent and unconnected event which breaks the chain of causation. The decision is directly and integrally linked to the services rendered to the owner. The recipient is required to declare all gross income received in the form of tips in the recipient’s annual income tax return. Income tax will be payable by the recipient if taxable income exceeds the annual tax threshold.
Example 1 – Gross income
Facts:
A, aged 19, works as a porter for the Sparkling Waters Hotel Group in Port Elizabeth. A is required to assist hotel guests by collecting the guest’s luggage on arrival and carrying it to the designated hotel room. A is also required to collect the guest’s luggage and transfer it to the guest’s vehicle upon departure from the hotel. For the 2013 year of assessment A received a gross salary of R42 000. In addition, A received tips amounting to R15 010 from guests for services rendered.
Result:
A must declare all income received or accrued for services rendered in the annual tax return, that is, A must include the salary income and the tips received from hotel guests. A is not relieved of the requirement to declare both sources of income if A may ultimately not pay tax (for example, if the taxable income is below the annual threshold).
* CIR v Shell Southern Africa Pension Fund 46 SATC 1 at 9; 1984 (1) SA 672 (A).
† For completeness it is noted that the facts in this paragraph are suf cient to meet the requirements of both the “basic” gross income de nition and paragraph (c) of the de nition of the term “gross income”.
‡ [1947] 1 All ER 282. § At 282.
¶ 59 SATC 212.
** At 220 and 221.
†† The services rendered to Frank Vos Motors.
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