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GST and tips

Some discussion lately on tips and GST.

It’s become more common for eftpos devices to offer customers a tipping option when paying their bills. The GST implications of this are more complex than the old-fashioned method of slipping a bit of extra cash to the staff person directly.

Businesses use different methods for sharing out tips that have been paid with eftpos.

In my view some methods could result in GST being payable on the tip because it could be seen as an extra payment for the service received from the business or an agreed adjustment to the price, particularly where it is not paid directly by the customer to a staff member to reward them personally for extra effort.

Inland Revenue has made clear statements about the income tax treatment of tips. It might be timely to extend that guidance to cover other tax implications, such as GST given the technological developments in this area.

Iain

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