Draft Interpretation Note : Treatment of Tips

Over the years tax implications on tips received by waiters had always been a grey area, SARS published a draft note that discusses and clarifies the potential income tax, SDL and UIF implications in respect of the receipt of tips encountered in (but not limited to) the service industry. The Note will focus on a “tripartite” tipping relationship between the following three parties: The patron, The recipient and The owner.

For example, a customer (the patron) pays a waitron (the recipient) a tip for excellent service in a restaurant owned and operated by the owner. In some circumstances, the owner may also pay the recipient a tip in his own capacity.

The Note considers an employee’s potential obligation to include the receipt of tips in gross income and his related provisional tax and UIF responsibilities. It also considers the owner and a patron’s possible obligations to withhold employees’ tax on such tips and to account for SDL and UIF.

NB: Readers should take note that the Draft Interpretation Notes documents are not final and therefore do not present the official view or policy of SARS until they are published as Interpretation Notes. These draft documents are made available to the public in order to invite comments by all interested parties (internal and external stakeholders) on aspects such as the correctness of the law, clarity on the specific area of legislation explained in the draft note and areas on which further clarity is required.

Click here to download the full draft (212kb)

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