Golfers And Taxes
10 April 2008
Posted by: Author: Gerhardus Burger
Golfers And Taxes
In stark contrast to my own talents, the legendary Gary Player turned professional in 1953 at the tender age of 17 (I think that is roughly when I started shaving).He has 163 career championships under his belt and his worldwide career earnings grossed over US$14 million.On top of that he excels in many other types of deadly sports and knows what to feed horses.
Tiger Woods started playing professional golf in 1996 at the age of 20.That is after he played his first major championships in 1995, making the 36-hole cuts in the Masters and the British Open, but had to withdraw from the US Open because of an injured wrist.While still playing as an amateur, Woods was Golf Digest Player of the Year in 1991 and 1992, Golf World Player of the Year in 1992 and 1993, Golf week National Amateur of the Year in 1992, Golf World Man of the Year in 1994, and he was chosen for the Fred Haskins and Jack Nicklaus College Player of the Year awards in 1996.The week after winning his third US Amateur title Woods played his first tournament as a professional in the Greater Milwaukee Open.Today he is the proud winner of 81 tournaments and has earned US$92,688,162 worldwide.
The million dollar question is: At which point are those sports figures taxed on earnings and gifts?In history, there have been a few weird battles with the tax man in that regard.In the English case of Seymour v Reed, Seymour was a professional cricketer employed by Kent County Cricket Club.In 1920 the club granted him a benefit season, which meant that members of the club donated money to a fund to enable him to buy a farm when his cricketing career came to an end.The club also agreed that the gate receipts at one of the club’s home games would be allotted to him.The gate money was almost £1 000–an enormous amount of money in those days and Internal Revenue taxed it.Internal Revenue lost the appeal, the court holding that it was a personal gift and not employment income. According to the court the gift was intended to be an endowment on his retirement.
A similar decision was reached in Moore v Griffiths.Bobby Moore was captain of the England football team that won the World Cup in 1966. Moore and the other players were paid a bonus of £1 000 to mark the Football Association’s pride in their achievement. Inland Revenue taxed the players and, on appeal, Bobby Moore was the representative taxpayer.He was successful in his appeal-the judge holding that the payment was a testimonial or mark of esteem.The judge also added that such a payment had no foreseeable chance of recurrence - and those words turned out to be prophetic.And in South Africa?
The question that remains to be answered is: What rules Mr Trevor Manuel uses to decide whether a South African sportsman’s prize money will be taxed or not?.The answer lies in the SA Income Tax Act’s definition of gross income.The Act states that the total of such amount - in cash or otherwise must be included in your annual tax return. Subsection (c) of that definition also includes any voluntary award. For example, last year, after their World Cup victory, the Springboks each received as a mark of esteem, a platinum coin worth thousands from Tokyo Sexwale this being included in the definition of gross income.The next question is whether that award was of a capital nature or income nature.
With a few wayward exceptions, capital receipts are not taxed.Gifts are of a capital nature and the receiver of the gift is not taxed.Unfortunately, the onus will be on the (poor) Springboks to prove that those platinum medals are of a capital nature.Furthermore, the question whether those platinum medals are of a capital nature is a legal question and each case should be judged on its merits.
A tax court judge will probably ask the first rugby player who bites the silver tax-dust the following:"Did you receive the medal in the normal course of producing income?” If you are a professional sportsman by trade then anything you receive out of your sport can be seen as income."What was your intent relating to the award?”.This is an important factor the courts would take into consideration and there are both subjective and objective factors that can give the court an indication whether the prize money was actually of income nature.In that case, the following aspects are very important to consider:
-The rugby player’s actions pertaining to the award.
-The nature of the rugby player’s business or career (all of the Boks are professional).
-The frequency of similar awards and income (I guess the English team has nothing to worry about).
If the courts decide that those platinum medals are gifts of a capital nature then, for example, Mvelaphanda Group in casu may be taxed on 20% of the value of those goods exceeding R10 000 in total for the tax year.Mvelaphanda probably had the platinum included as inventory, and will further not be able to deduct the costs of those medals for income tax purposes.
On To Golf
For golfers the difference between receipts of a capital and income nature is clear cut between the amateur and professional distinction.The South African Golf Association will not allow an amateur to take any cash as winnings.He or she may currently take a gratuity prize other than cash and petrol vouchers of up to R4 500 in retail value.An amateur may play with professionals if it is permissible, as it is sometimes the case with a Pro-Am player or in an open tournament.Should an amateur win an open tournament he or she may not take the prize money or they will lose their amateur status.Such a person may be reinstated by the Golf Association, but it will depend on the merits of the case and there will be a slim chance of reinstatement if they are to take a couple of million in US dollars "by accident”! So if you are a golfer you have crossed the Rubicon the day you turn professional on paper.
Finally, just to add to Mr Manuel’s austerity, if any foreign sportspeople win prize money in South Africa the resident who pays for the prize money must withhold 15% of the amount for SARS.In the light of that application on sportspeople it is expected that SARS will earn R7bn from the Soccer World Cup in 2010.In addition, the sports industry is deemed a "suspect trade” - which means it is ring-fenced, like farming activities.The bottom line is that you cannot deduct losses in the sports arena from income you received in your day job.Sucks, doesn’t it?
Source: By Gerhardus Burger (TaxTALK)