The Olympics are over and South Africa’s ten medallists have returned home. Minister of Sport and Recreation Fikile Mbalula announced upon the athlete’s return that they will receive extra monetary compensation for their performance at the games.
But are they required to pay tax on this money?
In the United States, athletes who win money and medals in their sports are required to pay tax on the money, as well as the monetary value of the medal. Justmoney contacted the South African Revenue Service (SARS) for clarification on whether sportsmen and women have to pay tax on their winnings in South Africa.
Paying tax on prize money
According to SARS, the prize money is taxable. “As the Appellate Division succinctly put it in Commissioner for Inland Revenue v Pick ’n Pay Employee Share Purchase Trust 1992 (4) SA 39 (A): “Receipts or accruals bear the imprint of revenue if they are not fortuitous, but designedly sought for and worked for,” explained SARS.
Athletes who compete at the Olympics are professional or semi-professional sportspersons. Just as business people use their skills and talents to earn an income, so too do competitive sportspersons and as such they are required to pay tax.
“The prizes and other income [sportspersons] receive, whether paid in cash or in kind, will form part of the sportspersons’ “gross income” and fall to be taxed as such. Should a prize be in the form of goods or services, for example, a motor car or free services, the open market value of the relevant goods or services will be included in gross income,” said SARS.
A medal would fall into the category of a prize, and therefore tax would be payable on the open market value of the medal.
How is the above tax calculated?
SARS revealed: “Gross income from sporting activities is taxed in a similar manner to gross income from other sources. All gross income earned during a year of assessment (1 March of each year to the last day of the following February) is added together, appropriate deductions are taken into account and the net amount is taxed according to the personal tax rates in force for that year. The rates are progressive, meaning that the more a person earns, the higher the tax rate becomes. Each individual’s tax rate will depend on other income earned during the year, so it cannot be said which tax rate will apply to each competitor’s prizes.”
Furthermore, SARS stated: “A sportsperson would need to register for and pay provisional tax on the prizes, medals, and any other amounts that they received outside an employment relationship. If a sportsperson is required to pay any taxes on prizes and medals in Brazil under Brazilian domestic law, the sportsperson would be entitled to claim a foreign tax credit of those taxes paid against his or her South African tax liability, subject to the ordinary rules for foreign tax credits being complied with.”
Around the world
According to reports there are many countries that exempt their athletes from tax but South Africa, along with the United States, do tax their athletes on their winnings and medals.
A report by the BBC highlighted that 19 year old Simone Biles, a gymnast for the United States would be slapped with a hefty tax bill along with her fellow Olympians. It looks like South Africa’s athletes are in for the same treatment.
