With effect from April 2012, all winnings above R25 000, including pay-outs from the National Lottery, will be subject to a final 15 per cent withholding tax. This is in line with practice in a number of other countries, such as the United States. I hope it will assist in discouraging excessive gambling.”
It’s always wonderful to win a prize or a competition – however, many people don’t realise there may be tax consequences attached.
This week we thought it would be helpful to remind you what to look out for, should you be the lucky recipient of one of the below:
‘Long service’, ‘appreciation’, ‘recognition for hard work’ awards from work
As these awards are related to your employment, SARS deems them as part of taxable income and therefore these amounts are added to your salary and taxed per the normal tax tables, just like your other income.
However, do note that the value of ‘long-service’ awards (other than cash) may be reduced for tax purposes by R5,000 provided the employee has been with the employer for an unbroken period of at least 15 years, or any subsequent unbroken period of at least 10 years.
Raffle winnings or prize from a local competition
Should you be lucky enough to win a raffle, the prize money is not taxable, but you still should report it to SARS by including it in the non-taxable income section on your tax return.
International competition winnings
These amounts would generally be considered capital in nature and therefore not taxable in South Africa. Again, remember to include in the non-taxable income section of your tax return. However, be sure to check out the rules of the country you won it from as it may be taxed over there.
Gambling winnings such as lottery, casino winnings or sports betting etc.
If you are like most of the gambling population (i.e. you have a day job and only gamble every now and again for fun) then your winnings won’t be taxable, but you should still declare to SARS as non-taxable income. However, if you are a full time ‘professional’ gambler who has no other job and your sole source of income is to make money off bookies or casinos, then SARS will deem this activity to be a profit making scheme and you would need to declare your winnings (and losses) and they will be subject to normal tax.
Loyalty points such as Pick n Pay smart shopper, Clicks Club Cards etc.
Loyalty rewards are not taxable in the hands of the shopper, and any perks that you receive, will be declared on the store’s tax returns so you are not liable to declare this on your return.
Read on to see some questions from our users:
1. In 2012 the Minister of Finance announced that Lotto winnings in excess of R25 000 are taxable. On enquiry I was told that this was not promulgated yet, so as of today Lotto winnings are not taxable. Is this correct?
A: Yes, there is currently no tax on Lotto winnings as it is considered a capital event. You would however, need to declare these winnings in your tax return as a non-taxable event.
2. I am unemployed and my only income is derived from regular gambling. Since gambling income is non-taxable should I declare it in the non-taxable income section on my return?
A: Gambling income is considered to be non-taxable if it is an occasional hobby. However, in your case it sounds like you are in the business of gambling i.e. this is what you do for a living. In this case, you would need to declare your income and expenses (e.g. travel to casino, etc) in the local business section of your return and you would be taxed on it.
3. My employer wants to include my performance bonus with my 15 year long service award. They say that this will allow them to pay both amounts without taxing them – is this correct?
A: This process is unfortunately not as simple as you were told. Since the long service award is a cash award, it is fully taxable. The performance award is also fully taxable and therefore your employer won’t avoid any tax by paying these two amounts together or separately i.e. the income will still be due to you in the same tax year and the normal tax brackets will apply to both.
4. I won R500 000 after playing the SA Lottery, I would like to donate R200 000 to my sister – will this donation be a non-taxable event too?
A: The winnings will be a non-taxable event, but you will need to pay donations tax on the amount that you are donating as it is more than the R100 000 exemption that you are allowed to give each year. Pleas read more about donations here.
5. Does SARS tax international lottery prize winning money when it comes to South Africa? If yes, what is the percentage that SARS tax and what category is this tax?
A: Generally, lottery winnings would be considered capital in nature and would not be subject to normal tax in South Africa. However, you would need to declare it in your tax return within “amounts considered not taxable”.
6. I won a house in a competition, however I did not declare this on my tax return during that tax year. I have since sold the property – do I now have to pay tax on the profit I made from the sale or is it still regarded as tax exempt?
A: You will have to resubmit the tax return for the tax year when you won the property and add the market value of the property in the non-taxable income section of your return. You are unfortunately now liable for capital gains tax on the profit that you made on the sale on the property. You must declare this capital gains event in the tax return for the tax year that the sale falls in.