Page 651 - SAIT Compendium 2016 Volume2

IN 76 Income Tax acT: InTeRPReTaTIon noTes IN 76
Each of these elements will be examined in the context of a tripartite tipping relationship (see 4.2.2(a) – 4.2.2(c)) before considering whether it means an owner in a tripartite tipping relationship is required to withhold employees’ tax (see 4.2.2(d)).
(a) Remuneration
The term ‘remuneration’ is de ned in paragraph 1 as –
‘any amount of income which is paid or is payable to any person by way of any salary, leave pay, wage, overtime pay,
bonus, gratuity, commission.... whether in cash or otherwise and whether or not in respect of services rendered, including— (a) any amount referred to in paragraph (c) of the de nition of ‘gross income’ in section 1(1)... but not including—
...
(ii) any amount paid or payable in respect of services rendered or to be rendered by any person .... in the course of any trade carried on by him independently of the person by whom such amount is paid or payable and of the person to whom such services have been or are to be rendered: Provided ...’.
(Emphasis added)
The proviso to subparagraph (ii) contains statutory tests which, if met, override the factual position and deem a person not to carry on a trade independently for employees’ tax purposes. As discussed in 4.1.1(b) tips fall within paragraph (c) of the de nition of the term ‘gross income’ and accordingly, initially at least, are included in ‘remuneration’ as de ned. It is then necessary to determine whether the subparagraph (ii) exclusion of the remuneration de nition applies. Amounts are excluded from remuneration if received from an independent trade. Technically, the common law tests should be applied rst to determine whether the amount was received in the course of carrying on an independent trade and, if the answer is in the af rmative, then the statutory tests in the proviso would be applied to determine whether, irrespective of having met the common law tests, the person is deemed not to be carrying on an independent trade. However, in practice the statutory tests are often considered rst and, only if the statutory tests are not applicable in a particular situation, are the common law tests applied to determine whether the person is indeed carrying on an independent trade. In this Note, the statutory tests are considered rst. The statutory tests* provide that –
• if the services are required to be performed mainly at the premises of the person – – by whom the amount is paid or payable; or
– to whom such services are rendered or will be rendered; and
• the person rendering the services is subject to the control or supervision of any other person as to the – – manner in which the person’s services are or will be performed, or
– the hours of that person’s work,
then the person is deemed not to carry on an independent trade and the amount so received or receivable is not, therefore, excluded from remuneration.
The facts and circumstances of each case will need to be considered in determining whether the statutory tests are met. For example, if a recipient only works at the owner’s restaurant premises then the statutory test is likely to be met because the services are mainly performed at the premises of the person to whom such services are rendered (see 4.1.1(b) for a discussion on whom the recipient renders services to) and it is likely that person will also control the recipient’s hours or supervise the manner in which the services are performed. In these circumstances, one of the statutory tests will be met and tips will constitute remuneration.
In contrast, if, for example, the recipient only delivers take-away orders for the restaurant then based on the detailed facts it may be that the recipient’s services are not mainly performed at the restaurant owner’s premises and, given that the services are almost certainly not performed at the customer’s premises (who would most likely be awarding the tip), it means that none of the statutory tests will be met.
In the event that none of the statutory tests is met, it is necessary to determine whether or not the recipient rendered the services as part of an independent trade. The appropriate common law tests† must be applied in making this determination. Tips will not constitute ‘remuneration’ as de ned if the services to which the tips relate are rendered by the recipient as part of an independent trade (remembering this is premised on the basis that none of the statutory tests applied). Tips will constitute ‘remuneration’ as de ned if an independent trade is not being conducted. See Example 4. (b) Employee
An ‘employee’ is de ned‡ as, amongst others, any person (other than a company) who receives any amount of remuneration or to whom any remuneration accrues. A recipient will constitute an ‘employee’ as de ned if the tip the recipient receives for services rendered constitutes remuneration. As seen in 4.2.2(a), whether or not the tip constitutes ‘remuneration’ as de ned will depend on the facts and circumstances of each case. (See Example 4.)
(c) ‘Employer’ as de ned
It is important to determine whether an owner meets the de nition of an ‘employer’ as de ned. An ‘employer’ is de ned in paragraph 1 as, amongst others, –
‘any person (excluding any person not acting as a principal, but including any person acting in a duciary capacity or ...) who pays or is liable to pay to any person (in context the recipient) any amount by way of remuneration, ...’. (Emphasis added)
As noted in 4.2.2(a), whether or not a tip constitutes remuneration will depend on the facts of the particular case. For the purposes of determining whether an owner is an ‘employer’ as de ned, this section (that is, 4.2.2(c)) assumes that the tip constitutes remuneration and considers two situations. The two situations considered are, rstly, the owner acting as conduit and secondly the owner receiving the tip for the owner’s own bene t and subsequently deciding to pay the recipient a tip in his or her own capacity. The detailed facts and circumstances of each case must be considered in determining which situation is applicable in a particular case.
* Proviso to subparagraph (ii) of the de nition of the term ‘remuneration’ in paragraph 1
† See Interpretation Note No. 17 (Issue 3) dated 31 March 2010 ‘Employees’ Tax: Independent Contractors’. ‡ Paragraph 1, paragraph (a) of the de nition of an ‘employee’.
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