Athletes’ winnings from the Olympics subject to tax
19 July 2012
Posted by: SAIT Technical
By Amanda Visser (Business Day)
SA's athletes winning medals and receiving special bonuses during the London Olympics will be drawn into the UK tax net.
Tax consultants said the winning of prize money and additional bonuses from sponsors are directly linked to their profession and would be considered taxable income and not capital.
Elriette Butler, associate director at BDO in Johannesburg, said athletes winning prize money or special bonuses at the London Olympics were not considered as "voluntary awards” but were directly linked to the carry on of their trade, which was being a professional athlete.
Sport officials in several countries including SA, Kenya and Ghana had promised their athletes monetary incentives if they brought medals home from London.
Athletes finishing with gold will receive R400000, R200000 for silver and a bronze medal win will receive R80000. Their coaches will also be rewarded, a first for team SA. The Paralympics team will receive cash incentives as well. Podium finishes which could see them taking home up to R100000.
Ms Butler said athletes who received income in the UK due to their participation in the Olympics would be taxed on their UK-sourced income. The same principle applied with previous Olympic Games in the USA and Canada.
"It does not matter who pays the bonus or where it is paid, it will be taxed in the UK since it is the place where the service or activity relating to the payment took place.”
The good news is that athletes are usually independent, self-employed professionals who will be able to deduct all the expenses incurred in their trade as an athlete.
These expenses could include their subscriptions to sports bodies, special insurance, medical expenses as well as equipment used in their profession, Ms Butler said.
SA introduced a withholding tax on professional performers performing in SA a few years ago. The South African Revenue Service would withhold tax at a rate of 15% on the income received by the entertainer or sportsman in SA.
In the UK, the tax authorities would tax a South African athlete who is a tax resident in the UK according to their tax rates, but with regard to nonresidents there would be a withholding tax of 15% levied on the income. If the athlete's country of origin had a double tax agreement with the UK, the withholding tax would seldom be more than 5%, Ms Butler said.
But a person who wins R80000 while gambling at a casino would, however, not be taxed on these winnings. The Treasury initially proposed a withholding tax on gambling winnings above R25000 in last year's budget.
In this year's budget, Finance Minister Pravin Gordhan announced, however, that after broader consultation, a national gambling tax based on gross gambling revenue would be introduced instead. Mr Gordhan said the tax, effective from next April, would take the form of an additional 1% national levy on a uniform provincial gambling tax base.
A similar tax would apply to lottery winnings.