Page 653 - SAIT Compendium 2016 Volume2

IN 76 Income Tax acT: InTeRPReTaTIon noTes IN 76
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)) and accordingly is not required to contribute to the Unemployment Insurance Fund. Furthermore, because the amount is being paid by the owner as a conduit and not as an ‘employer’ as de ned, the owner is not required to withhold UIF on behalf of the recipient.
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 (see 4.2.2(a)) it must be included in the calculation of the amount of the owner’s UIF contribution and the employee’s UIF contribution (which the owner must withhold and pay over on behalf of the recipient). No UIF contribution is required if the tip does not constitute remuneration. Refer to the Guide for Employers in respect of the Unemployment Insurance Fund on the SARS website www.sars.gov.za for general information on UIF.
4.3 The patron
4.3.1 Introduction
The payment of a tip by a patron may give rise to employees’ tax, SDL and UIF obligations for that patron. These potential consequences are dealt with in 4.3.2, 4.3.3 and 4.3.4 respectively.
4.3.2 Obligation to withhold employees’ tax
Consistent with the position of the owner as discussed in 4.2.2, a patron will prima facie be required to withhold employees’ tax from the tip paid to a recipient if the following three main elements are met:
• Remuneration – whether or not the tip that the patron gives the recipient constitutes remuneration will depend on the
facts and circumstances of the particular case (see 4.2.2(a) – equally applicable to the owner and the patron).
• Employee – the recipient will be an ‘employee’ as de ned if the tip constitutes remuneration (see 4.2.2(b) – equally
applicable to the owner and the patron).
• ’Employer’ as de ned – the patron is clearly exercising his or her own authority and acting as a principal when paying
the recipient a tip and will therefore be an ‘employer’ as de ned if the tip constitutes remuneration (see 4.2.2(c) for the de nition of an ‘employer’ as de ned and a discussion of the de nition and its component parts).
Accordingly, if the tip constitutes remuneration (this is dependant of the facts and circumstances of each case but in most situations a tip will constitute remuneration) the patron must prima facie withhold employees’ tax on tips paid to a recipient. However, due to various practical constraints, by virtue of the authority exercised by the Commissioner in paragraph
2(1), the patron will not be required to withhold employees’ tax on tips paid to the recipient.
Example 4 – Gross income and employees’ tax
Facts:
N, aged 22, is employed full-time as a waitron by Succulent Burger Ranch in Rustenburg. For the week ending 2 September 2012, N received wages of R1 000 from the Succulent Burger Ranch.The tipping agreement provides that all cash tips must be paid over to the Succulent Burger Ranch and included in the tipping pool and that all tips from patrons will be distributed among the waitrons based on the number of hours worked. The Succulent Burger Ranch automatically adds non-cash tips to the tipping pool. In addition to the R1 000 wages, N received R1 920 in tips from the tipping pool.
Result:
N
The wages of R1 000 and the tips of R1 920 are included in ‘gross income’ by virtue of paragraph (c) of the de nition of the term ‘gross income’. N’s income tax return must re ect both amounts.
Succulent Burger Ranch
Succulent Burger Ranch must withhold employees’ tax from the wages paid to N as the three elements are met:
a) Remuneration – the wages constitute ‘remuneration’ as de ned in the Fourth Schedule as the wages were received
by N in respect of services rendered and at least one of the statutory tests (see 4.2.2(a)) are met as the services are only performed at the premises that Succulent Burger Ranch leases and Succulent Burger Ranch controls the hours and the manner in which N works.
b) Employee – N has received remuneration of R1 000 (see 4.2.2(b)). N is accordingly an ‘employee’ as de ned.
c) ‘Employer’ as de ned – Succulent Burger Ranch is an ‘employer’ as de ned in relation to the R1 000 wages because the wages constitute remuneration and Succulent Burger Ranch is acting as a principal when it pays or is
liable to pay N’s wages (see 4.2.2(c)).
Succulent Burger Ranch must not withhold employees’ tax from the tips as only two of the three elements are met (see 4.2.2(d)):
d) Remuneration – the tips constitute ‘remuneration’ as de ned in the Fourth Schedule as the tips were received by N in respect of services rendered and at least one of the statutory tests (see 4.2.2(a)) are met as the services are only performed at the premises that Succulent Burger Ranch leases and Succulent Burger Ranch controls the hours and the manner in which N works.
e) Employee – N has received remuneration of R1 920 (see 4.2.2(a)). N is accordingly an ‘employee’ as de ned.
f) ‘Employer’ as de ned – Succulent Burger Ranch is not an ‘employer’ as de ned because, although the tips are remuneration, Succulent Burger Ranch is acting as a conduit and not as a principal when paying or being liable to
pay the tips to N (see 4.2.2(c)).
Patron
Although the three elements for withholding tax are met in relation to a patron who gives N a tip (remuneration – refer reasons above, employee – refer reasons above, ‘employer’ as de ned – refer reasons above except that the patron is acting in his or her own capacity when paying a tip), by virtue of the authority in paragraph 2(1) the patron is not required to withhold employees’ tax from tips given (see 4.3.2).
saIT comPendIum oF Tax LegIsLaTIon VoLume 2 645