Page 650 - SAIT Compendium 2016 Volume2

IN 76 Income Tax acT: InTeRPReTaTIon noTes IN 76
Example 2 – Gross income
Facts:
Z works as a waitron for Casino Groups Inc. Z is tasked with serving customers seated at the poker and blackjack gambling tables in the VIP Room. Z often receives generous tips from customers. Casino Group Inc’s policy is that employees may not report for duty with cash on their person without authorisation from senior management and having declared it to the Security Department. Tips received by employees must be declared and paid over to the Casino Cash Desk upon receipt of the tip. Tips declared and paid over will be held in safe custody by the casino in the casino’s bank account until transferred into the employees’ bank accounts at month-end together with the employees’ salaries. Employees whose services are terminated for any reason will receive their tips together with their last salary payment. Casino Groups Inc. paid R28 252, consisting of a net salary of R9 840 and tips of R18 412, into Z’s bank account on 25 August 2012. Z’s gross salary was R15 100.
Result:
Z’s gross salary of R15 100 and tips of R18 412 were received for services rendered and accordingly must be included in ‘gross income’ under the paragraph (c) of the de nition of the term ‘gross income’.* Gross income is a critical component of Z’s taxable income calculation and the calculation of Z’s normal tax liability.
Example 3 – Gross income
Facts:
M, aged 20, is a student who earns money by working as a barman in one of the private suites at ABC Stadium operated by the XYZ Rugby Union. During June 2012, M received cash tips of R5 800 for services rendered. In addition, the suite lessee gave M two season tickets to the value of R2 000 as a tip in recognition of the excellent manner in which M took care of the lessee’s guests.
Result:
M has received gross income in accordance with paragraph (c) of the de nition of the term ‘gross income’. M’s income tax return must include the cash tips (R5 800) and the monetary value of the two season tickets (R2 000).
4.1.2 Provisional tax
Provisional taxpayers are required to make advance payments in respect of their liability for income tax in every year of assessment. Subject to certain exemptions, a provisional taxpayer includes any person (other than a company) who derives income which does not constitute ‘remuneration’ (as de ned).†
In most situations it is anticipated that tips will constitute remuneration, however, there are limited circumstances under which tips may not constitute remuneration. It is therefore critically important that the particular facts and circumstances are reviewed in determining whether or not the tips received constitute remuneration. See 4.2.2(a) for a discussion on what constitutes remuneration and the criteria the recipient will need to consider in assessing whether a tip received is ‘remuneration’ as de ned.
The recipient will not have to register for provisional tax when the tip constitutes remuneration.‡ This does not mean that the recipient will not have to pay income tax on the tips received. Income tax will be payable if the recipient’s taxable income calculation exceeds the tax threshold in a particular year and, if no provisional tax or employees’ tax payments have been made, the full amount of income tax will be payable by the recipient at the end of the year. The recipient will have to register for provisional tax if the tip does not constitute remuneration and the recipient does not qualify for an exemption.§ The exemptions are discussed in Annexure B. Refer to the Reference Guide – Provisional Tax on the SARS website www.sars.gov.za for additional information on provisional tax.
4.2 The owner
4.2.1 Introduction
As noted in 2.2, an owner may receive the tip as a conduit and on-pay it to the recipient. Alternatively, an owner may receive the tip for the owner’s own bene t and subsequently pay a recipient a tip in his or her own capacity from his or her own resources. The owner’s involvement in paying the tip may have employees’ tax consequences for the owner – see 4.2.2. The owner may also have SDL and UIF obligations – see 4.2.3 and 4.2.4.
4.2.2 Obligation to withhold employees’ tax
Paragraph 2(1) requires that every resident ‘employer’ as de ned or representative employer who pays or becomes liable to pay any amount by way of remuneration to any employee shall, unless the Commissioner has granted authority to the contrary, deduct or withhold employees’ tax¶ from that amount and pay it over to the Commissioner. There are three main elements that must be met before an owner is obliged to deduct or withhold employees’ tax, namely –
• remuneration;
• employee; and
• ‘employer’ as de ned.
* Section 1(1).
† De nition of a ‘provisional taxpayer’ and the term ‘remuneration’ in paragraph 1.
‡ Assuming the recipient is not (and is not required) to be registered for reasons other than the receipt or accrual of tips. § Assuming for the moment that the recipient is not already registered for provisional tax for other reasons.
¶ Assuming for the moment that the recipient is not already registered for provisional tax for other reasons.
642 saIT comPendIum oF Tax LegIsLaTIon VoLume 2