Tata ma Chance? SARS to Tata ma Millions!
25 May 2010
Posted by: TaxFind™
Tata ma Chance? SARS to Tata ma Millions!
Implications of SARS’ proposal to tax gambling winnings
In his Budget Speech on 17 February 2010, Finance Minister Pravin Gordhan announced that it was government's intention to review the arrangements in terms of which gambling is taxed both at provincial and national levels.Gordhan proposed a review of the treatment of winnings in the hands of gamblers as exempt from personal income tax, further stating that measures will be considered to limit opportunities for money laundering, unlicensed online gambling, and other abuses.
The basis on which gambling winnings have been treated as non taxable by SARS was that such winnings were seen as being capital in nature, and have up until now been excluded from gross income.
In the English case of Graham v Green,  2 K.B. 37, Rowlatt, J held that the winnings of a punter, as opposed to those of a bookmaker,were not profits or gains within the English taxing provisions.The learned Judge held that betting, from the punter's point of view, did not admit of being or ganised or systematised as are the betting operations of a bookmaker.
In the case of Morrison v CIR16 SATC 377, the Appellate Division upheld the court a quo's finding that the taxpayer, though a punter and not a bookmaker, was carrying on betting activities as part of his business of racing.The court found that the taxpayer's winnings were not merely the chance by products of recreation, and therefore that the taxpayer wasliable to tax on his winnings.
Whether the proceeds of betting are subject to tax or not must be decided according to the circumstances of each particular case.This was also emphasised by the Appellate Court in the Morrison case.
In practice SARS does not tax ordinary punters on the proceeds of gambling when they engage in betting transactions for entertainment and distraction.However, punters whose betting activities are organised and conducted in such a manner that they become a business carried on for the purpose of earning income,the proceeds from such betting activities will be subject to tax.Similarly, bookmakers are subject to tax on their gambling activities—this includes winnings from sweepstakes or lottery tickets.
This is based on the principle that betting—when carried on systematically—constitutes a vocation, and the receipts there from constitute receipts of a revenue nature and not of a capital nature.As the profits of a bookmaker are taxable, the losses incurred are allowable.
With respect to per sons associated with horse-racing, such as owners, trainers and jockeys,who possess special knowledge and are in a position to acquire useful information, these people will usually be subject to tax on the proceeds of regular betting.This is on the basis that such betting generally forms part of their racing activities as a whole, carried on for the purpose of earning income.
Therefore, at present the ordinary punter's winnings from the casino, the lotto, or the races are not subject to tax, provided that the punter's gambling does not constitute a vocation systematically carried on by him.
For capital gains tax purposes,the general rule is that capital gains and losses arising from gambling, games, and competitions will not be subject to capital gains tax, except where the winnings arise in respect of foreign gambling or are derived from illegal gambling in South Africa.
What are the implications of the proposal made by the minister to tax gambling winnings?The intention is clearly to tax the winnings of the punter who is currently not subject tax.This may mean that future lotto winners will pay tax on such winnings.Similarly, winnings from the races or the casino will also be likely to be included in the tax net.
It is not possible at this time to say how taxes on gambling will be collected, especially when one considers the practical implications such as how the tax may be collected from a punter that wins the jackpot at the slot machines? Will it be a self-assessment system of tax? Will all winnings be taxed,or will there be a threshold?
When gambling on the slot machines, or even buying lotto tickets, punters put in their own funds, and in some instances large sums are lost before the jackpot is won or the winning lotto ticket is purchased. Will it be possible for SARS or the punter to state which portion of his winnings constitutes a recovery of the amounts expended by them in making the winning bet? Will the punter's expenses incurred in making the bet be allowable as a deduction against his winnings?
One would hope that at the very least when taxing the winnings of punters, the losses incurred by them can be set-off against such winnings.
Source: By Ntombikayise Baepi (Tax breaks)