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Edited version of your private ruling
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Ruling
Subject: PAYG withholding
Question
Are you required to withhold an amount from tips paid directly to the employee?
Answer
No.
This ruling applies for the following periods
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
The scheme commenced on
1 July 2012
Relevant facts
The entity pays salary and wages to employees. These payments are subject to PAYG withholding.
Some other people make a voluntary gift of cash or give tips to the employees.
The employees do not solicit the tips.
The tips are of varying amounts.
The tips are paid directly to the employees and not through the entity.
The employees will keep a record of all the tips received and declare the total as assessable income.
Relevant legislative provisions
Taxation Administration Act 1953 Schedule 1, Division 12.
Reasons for decision
Pay as you go (PAYG) withholding requirements
Division 12 of Schedule 1 to the Taxation Administration Act 1953 (TAA) outlines the payments from which amounts must be withheld. Under the relevant section of Schedule 1 to the TAA, an entity must withhold an amount from a payment it makes to an employee provided the listed requirements are met.
As the entity is not paying the tips to the employees, it is not regarded as a payment under the relevant section of Schedule 1 to the TAA.
There are no other provisions in Division 12 of Schedule 1 to the TAA that applies to these tips. Therefore you are not required to withhold an amount from the tips paid by other people directly to the employees.
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