Page 654 - SAIT Compendium 2016 Volume2

IN 76 Income Tax acT: InTeRPReTaTIon noTes IN 76
4.3.3 SDL
As noted in 4.2.3, every ‘employer’ as de ned in the Fourth Schedule must pay SDL at a rate of 1% of the leviable amount. The leviable amount is the total amount of remuneration, paid or payable, by an employer to its employees during any month, as determined in accordance with the provisions of the Fourth Schedule, for the purposes of determining the employer’s liability for any employees’ tax under that Schedule, whether or not such employer is liable to deduct or withhold such employees’ tax.*
Although the patron is an ‘employer’ as de ned and the tip is remuneration as de ned, the patron is not required to deduct or withhold employees’ tax from the tip by virtue of the authority in paragraph 2(1) (see 4.3.2). The patron is therefore not required to determine the amount of remuneration ‘for purposes of determining the employer’s liability for employees’ tax’ because, by virtue of the authority under paragraph 2(1), the patron is not liable to withhold employees’ tax and hence the leviable amount on tips would be nil. 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 skills development levy.
4.3.4 UIF
As noted in 4.2.4, the Unemployment Insurance Contributions Act applies to all employers and employees other than, amongst others as 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.† By implication, it does not therefore apply when an employee is not actually employed by a party meeting the de nition of an ‘employer’.
In a tripartite tipping relationship, although the patron is an ‘employer’ as de ned (see 4.3.2), the recipient has not been employed by the patron.‡ The patron is in effect paying the tip to the recipient for services rendered by the recipient to the owner (see 4.1.1(b)). Accordingly, there are no UIF obligations for the recipient or the patron in relation to tips paid by the patron. 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.
5. The bipartite position
This Note has discussed the income tax, SDL and UIF consequences in a tripartite tipping relationship. A bipartite tipping relationship exists when a recipient is not employed by an owner and there are only two parties, namely, the recipient and the patron. For example, a car guard who is self-employed and operates on his or her own receives a tip from a patron for looking after the patron’s car. The consequences for the recipient and the patron in a bipartite tipping relationship are the same as those set out in 4.1 and 4.3 respectively.
6. Conclusion
Recipient
Tips received by or accrued to a recipient must be included in the recipient’s ‘gross income’ by virtue of paragraph (c) of the de nition of the term ‘gross income’. The recipient must declare the total amount of tips received to SARS in the recipient’s annual tax return. The facts and circumstances of a particular recipient’s case will determine whether or not the tips are regarded as ‘remuneration’ as de ned. It is anticipated that in most situations tips will constitute ‘remuneration’ as de ned and the recipient will therefore not be required to register for provisional tax. If the tip does not constitute remuneration, the recipient may be required to register for provisional tax if he or she does not qualify for one of the exemptions as set out in Annexure B.
Owner
An owner may be acting as conduit for a patron or in the owner’s own capacity when paying a recipient a tip. In both instances the owner must consider his or her employees’ tax, UIF and SDL obligations.
An owner who is acting as a conduit will not be required to withhold employees’ tax from the tips paid over to the recipient on behalf of the patron. The owner will also not be required to include the tips paid as a conduit in the leviable amount for SDL purposes or to make or withhold any contribution for UIF.
If the owner has received the tip for his or her own bene t and subsequently decides to pay a recipient a tip in his or her own capacity, the obligation to withhold employees’ tax will depend on whether or not the tip constitutes remuneration. Assuming the tip constitutes remuneration, the owner will be required to withhold employees’ tax. The owner will also be required to include the tip in the leviable amount for SDL purposes and to make a UIF contribution as well as withhold the recipient’s UIF contribution. In contrast, if the tip does not constitute remuneration, no employees’ tax must be withheld. The owner will also not be required to include the tip in the leviable amount for SDL purposes or to make or withhold any contribution for UIF.
Patron
A patron will not be required to withhold employees’ tax from tips paid to a recipient. The patron is furthermore not required to include the tips paid in the leviable amount for SDL purposes or to make or withhold any contribution for UIF.
Annexure A – Legislation
Annexure B – Exemptions
* This means that the remuneration paid to employees below the income tax threshold must be incorporated into remuneration for determining the leviable amount in the Skills Development Act, 1999.
† Section 4(1)(a) of the Unemployment Insurance Contributions Act, 2002.
‡ In any event, even if it could be said that the patron has employed the recipient, which is not the case, the period of employment for the particular recipient would be less than 24 hours per month.
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