Page 652 - SAIT Compendium 2016 Volume2

IN 76 Income Tax acT: InTeRPReTaTIon noTes IN 76
In context it is necessary to consider whether the owner in each of these situations is acting as a principal or as a duciary. The words ‘principal’ and ‘ duciary’ are not de ned in the Act and should be interpreted according to the ordinary meanings as applied to the subject matter with regard to which it is used. A ‘principal’ is de ned in the Merriam-Webster Online Dictionary,* as –
‘a person who has controlling authority or is in a leading position as a :
a) A chief or head man or woman
b) ...
c) one who engages another to act as an agent subject to general control and instruction; speci cally : the person from
whom an agent’s authority derives
d) ...
e) the person primarily or ultimately liable on a legal obligation
f) ...’.
The Free Dictionary Online† de nes ‘ duciary’ as:
‘a person to whom property or power is entrusted for the bene t of another.’
In the context of the Fourth Schedule, and applying the dictionary de nitions of a principal and a duciary, it is clear that when acting as a conduit (see examples in 2.2) the owner is not acting as a principal or a duciary. In the role of a conduit the owner has no controlling authority in relation to the payment of or the amount of the tip and there is no responsibility or obligation on the owner to manage the tip for the bene t of the recipient. The owner is merely temporarily holding the funds for the recipient (that is, has physical custody of the funds) and performing a distribution role for the patron. Accordingly, in these circumstances the employer would not constitute an ‘employer’ as de ned for purposes of employees’ tax.
The position is different if the owner receives the tip for the owner’s own bene t (see examples in 2.2) and subsequently decides to pay the recipient a tip in his or her own capacity as owner. The owner is still not acting as a duciary because the tip has been received for the owner’s own bene t and is not being, nor is there any requirement for it to be, managed or controlled by the owner for the bene t of the recipient. However, when subsequently paying the recipient the tip the owner is acting as a principal because the owner is acting in his or her own capacity and has exercised his or her own controlling authority in deciding rstly to pay the recipient a tip and secondly in deciding on the amount of the tip. Accordingly, in this circumstance the owner would constitute an ‘employer’ as de ned for employees’ tax purposes (assuming the remuneration element is met – see 4.2.2(a)). See Example 4.
(d) Owner’s, in a tripartite tipping relationship, obligation to withhold employees’ tax
As discussed above, there are three main elements (remuneration, employee and ‘employer’ as de ned) that must be met before an owner is obliged to deduct or withhold employees’ tax. An owner who is acting as a conduit will not be an ‘employer’ as de ned (see 4.2.2(c)) and, accordingly, the owner will not be required to withhold employees’ tax from tips paid over to the recipient on behalf of the patron.
In contrast, if the owner has received the tip for the owner’s own bene t and subsequently decides to pay a recipient a tip, the obligation to withhold employees’ tax will depend on whether or not the tip constitutes remuneration. This will depend on the facts and circumstances of each case (see 4.2.2(a)) but assuming the tip constitutes remuneration, which it often will, the owner will be required to withhold employees’ tax as under the circumstances the owner will be an ‘employer’ as de ned (see 4.2.2(c)) who is paying an employee (see 4.2.2(b)) an amount of remuneration. No employees’ tax must be withheld if the tip does not constitute remuneration. See Example 4.
4.2.3 SDL
The Skills Development Levies Act No. 9 of 1999 provides that every employer must pay SDL at a rate of 1% of the leviable amount. The leviable amount is based on the de nition of the term ‘remuneration’ in the Fourth Schedule. There are certain exclusions to the leviable amount which are not applicable to tips. An ‘employer’ is de ned in the Skills Development Levies Act as including ‘an employer as de ned in the Fourth Schedule to the Income Tax Act’.
An owner who pays a tip to a recipient in the role of a conduit is not an ‘employer’ as de ned in the Fourth Schedule (see 4.2.2(c)). The word ‘includes’ is not exhaustive, however, SARS accepts that in the context of tips and SDL, an owner acting in the role of a conduit will not be acting as an ‘employer’ as de ned and will not be required to include any tips paid as a conduit in the leviable amount.
An owner who pays a tip to a recipient in the owner’s own capacity will be an ‘employer’ as de ned in the Fourth Schedule (see 4.2.2(c)). Accordingly, if that tip also constitutes remuneration it must be included in the leviable amount for SDL purposes. Refer to the Guide for Employers in respect of the Skills Development Levy on the SARS website www.sars.gov.za for general information on the SDL.
4.2.4 UIF
The Unemployment Insurance Contributions Act No. 4 of 2002 provides that ‘every employer and every employee to whom this Act applies must, on a monthly basis, contribute to the Unemployment Insurance Fund’.‡ It applies to all employers and employees other than, amongst others speci cally detailed in this Act, an employee and his or her employer when the employee is employed by that employer for less than 24 hours a month. The amount of the contribution payable –§
• by an employee, must be 1% of the remuneration paid to that employee by his or her employer; and
• by an employer for any one of its employees, must be equal to 1% of the remuneration paid to that employee.
An ‘employer’ is de ned in the Unemployment Insurance Contributions Act as meaning an ‘employer’ as de ned in paragraph 1 of the Fourth Schedule.
* www.merriam-webster.com/dictionary/principal [Accessed 25 February 2014]. † www.thefreedictionary.com/ duciary [Accessed 25 February 2014].
‡ Section 5 of the Unemployment Insurance Contributions Act, 2002.
§ Section 6 of the Unemployment Insurance Contributions Act, 2002.
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