19 August 2011
Posted by: SAIT Technical
by Michael Stein
SARS has published the text of Binding Class Ruling 027, which was issued on 14 February 2011. The ruling deals with the situation when tips are paid to an employer for its employees or handed over to the employer when received by the employees. They are then added to the amounts paid to the employees by the employer at the end of the month.
The ruling made is as follows: The transfer of tips from the applicants’ (employers’) bank accounts into the employees’ bank accounts will not constitute a payment of ‘remuneration’, as contemplated in para 2(1) of the Fourth Schedule to the Income Tax Act. This means that the employers must not deduct PAYE from the tips paid over to their employees.
The ruling is valid for a period of five years from August 2010. A statement has been added to the ruling to the effect that the ruling does not mean that tips received by employees under the circumstances described in the ruling, or for that matter tips received in general, are not taxable.
Amounts received by way of tips constitute ‘gross income’, as defined in s 1 of the Act, and will, therefore, be subject to income tax in the hands of the recipients. The fact of the matter, it says, is that tips as described above will not constitute ‘remuneration’, as defined in the Fourth Schedule, which merely releases an employer from the obligation to withhold employees’ tax from these amounts. But it does not release the recipients from the obligation to declare their tips for income tax purposes.
I wonder how many employees actually declare tips in their tax returns, assuming, of course, that they do render tax returns in the first place!