Tip to waiters: get it in cash if you can

A common question posed by parents: "My son/daughter, under 18, bussed tables at the local restaurant for tips. Should we be paying tax on their income although they are still minors?"

Here is some good news: parents can be blamed for the sins of their children, but that does not mean they can be held liable for their income tax.

Age has little to do with a taxpayer”s responsibility to register for tax. There have even been instances where registered taxpayers were still in nappies.

Any amount received for services rendered, including a voluntary award, constitutes “gross income” for tax purposes.

So, technically speaking, a child working at a restaurant must, within 21 days of commencing work, register with the South African Revenue Service and submit tax returns. Not that the whole performance is likely to result in a tax liability.

The tax threshold for the 2014 tax year is R67,111. A child earning in excess of the threshold is more likely to be a dealer than a waiter or waitress .

Even South African Revenue Service (SARS) has a heart. According to a recent draft interpretation note, it is prepared to allow a waiter to pocket the tip tax-free if it is paid directly in cash by the patron to the waiter or waitress.

This concession does not cover a basic hourly rate paid by the employer in addition to tips.

But there is a problem. Few patrons settle their restaurant bills casino online in cash for fear of being mugged before supper. Instead, patrons use debit or credit cards and add a tip. Apparently this results in higher tips.

But this disturbs the tax consequences. When the bill is paid into the restaurant owner”s account (the employer) and the tip is paid to the waiter or waitress (the employee), an employees” tax deduction obligation can arise.

In most instances, this is just an administrative inconvenience because no employees” tax would be due if the waiter”s earning were below the tax threshold. The waiter would just become one of 13-million taxpayers in South Africa, 9-million of whom do not pay personal income tax.

And just to rub it in, all payroll payments become subject to a sectoral determination levy, a further cost to the employer.

There are legends of waiters who have made millions. Few lived in South Africa.

Originally published in the Sunday Times: Money & Careers Tax Talk column.

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