Tipping for Services

Do You Pay GST on the Tip Received?
What happens when a customer pays a tip?
Does the business owner have to pay GST to the ATO?
Does it get reported on the BAS?
What happens with tipping depends on how the customer is tipped and how the entity passes that tip on (If they do!)

Voluntary Tipping For a voluntary tip that is passed onto employees or contractor from the owner of the business there is no GST payable as this is NOT deemed a taxable supply to the business owner. Nor are you required to report the tips as Income on the Activity Statement or Income Tax Return. However, if a voluntary tip is NOT passed onto the employees then it becomes part of the taxable supply and GST must be paid. If a contractor does not provide an ABN then 49% must be withheld from the tip. Equally you do NOT have to deduct pay as you go withholding (PAYGW) from the tips of the employees. Non-Voluntary Tipping If a tip is not voluntary – for example a pre-set tip amount is set as part of the service charge; then this is considered part of the taxable supply and GST is paid and the income is reportable on the activity statement. If you pay these tips to employees or contractors, you can claim a deduction and deduct PAYGW and report on their payment summaries.

Employees
Employees receiving tips directly from a customer or from the employer must report the tips as income.

Record Keeping
It is important to keep records that show how much of the tips received have been passed onto the employees, and if any of the tips have been kept by the owner as part of the business income.

Bookkeeping Process
Processing tips from a Z-Read or POS Summary sheet, it’s important to separate the tips in the accounting process.
For further information:
ATO Reference to Tips and Gratuities
ATO Law Reference – GST and Restaurant Tips