We all dream about winning the lotto, and having millions transferred into our bank accounts. But have you considered how much of it you would have to surrender to the tax authority?
We have a look at whether lotto winnings are taxed in South Africa, and we then look at how other countries handle this issue.
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Are lotto winnings taxed?
Your chance of getting six of the lotto balls correct, and winning 73% of the spoils, is less than 1 in 20 million. Needless to say, hitting the jackpot is an incredible feat.
In South Africa, eleven winners have accomplished this, and so could you. However, the amount you receive will depend on the cut that the South African Revenue Service (SARS) might take.
According to Ruan van Jaarsveld, manager at Hobbs Sinclair Advisory, as an occasional or casual lotto player, your winnings will specifically be excluded from capital gains tax.
“But, if your lotto-playing or gambling is more regular, and it can be classified as such, the winnings will be included in your gross income and taxed as normal income,” says Van Jaarsveld.
This means that if you earn a small income from regular lotto draws, and you then hit the jackpot, it could be argued that it’s part of your “usual” income. As with any other kind of income, you need to declare your regular lotto income to SARS – as well as your jackpot win.
READ MORE: Should you be taxed on your end of year bonus?
What happens in other countries?
Other countries have a similar approach to South Africa. In France and Germany, the amount that the winner is owed is exactly what they will receive – without any deductions for tax.
However, not all countries are as lenient. In Italy, a lotto winning of more than €500 (approximately R8,504) will be taxed at 20%, and in Spain they do the same for more than €2,500 (around R42,528) in winnings.
The United States of America is known for taxing lotto winners the most. Since they classify prize money over $1 million as an income, they deduct 39.6% of it for taxes.
Playing the lotto locally may be your best chance to walk away with the majority of your soft-earned prize money.
If you haven’t won the lotto yet and you need money, consider taking out a personal loan.