Being on the receiving end of an unexpected large sum of money is usually very pleasing indeed, but is SARS equally pleased?
From a tax law perspective, a lottery winning must be declared to SARS but is generally regarded as capital in nature and neither subject to normal income tax, nor capital gains tax.
Casino winnings, after gambling for entertainment purposes, are also excluded from normal tax. SARS does not see this as a deliberate scheme of profit-making. However, if an individual systematically undertakes gambling activities, it can become a business (profit-making scheme), rendering the winnings subject to normal tax.
Competition prize money related to services rendered will be included in an individual’s gross income and subject to tax, even if it is voluntary such as prize money received for the best employee. If an outsider awarded the prize and did not receive the benefit of the services, the situation could be different. Prize money unrelated to services rendered (for example a cash prize in a mountain bike race) would normally not be subject to normal tax.
For assistance, contact our Tax Law Department now.