Tax on Tips & Gratuities – What you need to know
You’ve just finished your fine coffee and you go to pay. When you see that large tip jar at the front, have you ever wondered how the business calculates that income for tax purposes? Well, depending on the individual business, the amount of tips can add up to quite a nice chunk of change over the year. Not to worry, our fine tax man has thought of this tip jar and has specific rules in place to account for the tax liability on income derived from “Tips and Gratuities.”
If a business is registered for GST, and the tips are distributed to staff members, the business does not have to pay GST on the tips, nor do they have to report the tips as income. But, if the tip jar is not paid to staff and is included in the daily takings, it must be included in the BAS return and also reported as income.
When the tips are given to staff, it does not have to be reported as a pay-as-you-go deduction, nor on the employee annual payment summary. If the business uses contractors, they must supply an ABN (Australian Business Number) or the tips will be subject to a 47% withholding from the employer.
When an employee receives a tip from a customer, it is generally overlooked by most employment laws. The Tax Office, on the other hand, has very specific rules in place to account for any tips received, whether direct from a customer or employer. It states that ANY tips received must be reported as individual income and must be included when the employee lodges his yearly tax return.
It is worth mentioning that the Tax Office expects employers to keep a clear record of any tips and the amounts that were distributed to staff members. If you have any questions about how tips and gratuities may affect your business or individual income, please contact our accountants in our Caulfield office and we can help.
Hillyer Riches Management Pty Ltd is a Corporate Authorised Representative (No 466483) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. AFSL / ACL No. 223135.This document contains general advice only and is not personal financial or investment advice. Also, changes in legislation may occur frequently. We recommend that our formal advice be obtained before acting on the basis of this information.