Just when you thought your gambling winnings were safe from the taxman

2011-04-14 00:00

IT was just a matter of time before the South African Revenue Service (SARS) identified a potential revenue source in the gambling industry. We already have sin taxes for the consumption of tobacco and alcohol products. Why should gambling winnings be any different?

Generally, winnings from gambling activities are considered to be capital in nature and therefore do not fall into gross income.

However, where a person conducts gambling activities systematically and in a businesslike manner, the person may be regarded as being engaged in a scheme of profit making and the proceeds from the gambling activities may fall into gross income.

Gross income in relation to any year or period of assessment means that:

•In the case of any resident — is the total amount — in cash or otherwise, received by or accrued to or in favour of such resident, or

•In the case of a non-resident — is the total amount — in cash or otherwise, received by or accrued to or in favour of such person from a source within or deemed to be within the republic during such year of assessment, excluding receipts or accruals of a capital nature.

When a person wins the Lotto, or occasionally wins money from betting on a horse race or in a casino, the winnings are generally capital in nature and therefore not subject to income tax. However, when a person regularly and systematically engages in gambling, the person may be considered to be a professional gambler and the winnings from the betting transactions will fall into gross income and be subject to income tax.

Generally SARS does not tax punters on the proceeds of betting when they engage in betting as a means of entertainment and distraction, but persons closely connected with racing activities and possessing special knowledge — for example, owners, trainers and jockeys — they may usually be subject to tax on the results of regular betting.

Therefore not all winnings from gambling activities are included in a taxpayer’s income tax return because either they are of the view that it is capital in nature, or that the winnings are not declared, accordingly no income tax is accounted on the winnings.

Furthermore, it is difficult for SARS to prove that a person is a professional gambler as detailed records of all bets placed and all winnings are not always readily available. This results in SARS not receiving its fair share from the gambling activities.

In order to expand the tax base and to increase the revenue source, the Minister of Finance announced in the 2011 Budget speech that all winnings from gambling activities, including those from the National Lottery above R25 000 will be subject to a withholding tax at a rate of 15% from 1 April 2012.

For those involved in gambling activities, there is less than a year to go before SARS takes a share of your winnings.

Contact KPMG at 033 347 7600.

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