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Yes, tips are taxable in South Africa

Teryl Schroenn

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

This is the case if tips are considered part of your gross income and have to be declared to SARS.

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.

The following is an example, sourced directly from the SARS Interpretation Note: 76, of where gratuity forms part of gross income and is therefore taxable:

  • 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 when they depart 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.
    The result is that A must declare all the income he received or accrued for services rendered in the annual tax return. That is, A must include the salary income and the tips he received from hotel guests.
  • It's important to note that A is not relieved of the requirement to declare both sources of income in circumstances where he may ultimately not pay tax, for example, where the taxable income is below the annual threshold.

Based on my review of interpretations, and interpretations of interpretations, everything should be declared. However, this is difficult to monitor as it appears that if it goes through the hands of the employer, there should be always a recording of the amount, even when it doesn't add to the income of the employer. This is because the employer, in that case, is merely a conduit for the disbursement of the cash.

Teryl Schroenn is the CEO of Accsys (Pty) Ltd. Her entire career has been in the IT industry, starting as a programmer, moving into business analysis and then into sales and marketing management. General management positions followed, including board positions. She is actively involved in industry bodies, including the ITA where she was elected president, a position she held for two years.