Yes, Tips Are Taxable In South Africa

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Yes, Tips Are Taxable In South Africa

Contrary to what some people may think, the gesture of ‘tipping’ or freely given financial reward for services provided is taxable according to the South African Revenue Service (SARS).

Teryl Schroenn, CEO of Accsys, explains that this is the case if tips are considered part of your gross income and have to be declared to SARS.

Accsys is a member of the Business Connexion Group (BCX) and a national supplier of people management software and hardware solutions within the HR, payroll and time & attendance space.

Schroenn says that every time a diner adds a tip to the bill, this income is almost certainly taxable.

“While there are a number of definitions around the employer /employee / patron relationship, the interpretation given is that income earned in the course of your job should be declared as taxable earnings. Of course, monitoring hand-overs of cash is almost impossible,” she says.

Schroenn cites one example, sourced directly from the SARS Interpretation Note: 76, of where gratuity forms part of Gross Income and therefore taxable.

In the example, Person A is 19 and works as a porter for the Sparkling Waters Hotel Group in Port Elizabeth. The employee is required to assist hotel guests by collecting their luggage and carrying it to their designated hotel room, as well as assist in the collection of their luggage and transfer to their vehicles upon departure from the hotel.

According to the SARS notification, “For the 2013 year of assessment A received a gross salary of R42 000. In addition: A received tips amounting to R15 010 from guests for services rendered. Result: A must declare all income received or accrued for services rendered in the annual tax return, that is, A must include the salary income and the tips received from hotel guests. It is important to note that A is not relieved of the requirement to declare both sources of income in circumstances where A may ultimately not pay tax (for example, where the taxable income is below the annual threshold.”

As part of her assessment of the situation, Schroenn has said that based on her review of interpretations and interpretations of interpretations, everything should be declared. However this is difficult to monitor. “It does appear that if it goes through the hands of the employer, there should be always a recording of the amount, even when it does not add into the income of the employer. This is because the employer in that case is merely a conduit for the disbursement of the cash and the income is not included in the business revenue,” she adds.