Those who have won a prize in the SA LOTTO may be wondering whether they will be taxed on their winnings. There may, however, also be people who have never thought of the notion of having to pay taxes on LOTTO prizes.
Information regarding laws and taxes on lottery winnings can be found in this article. In addition, the different circumstances in which players and their winnings will be subjected to taxes, domestic or foreign, will also be covered.
Taxation of LOTTO Winnings
In South Africa, lotto prizes are not taxed. Despite the amount won in the SA LOTTO, it is considered capital in nature which is exempted from Income Tax. Prizes won through South African lotteries also have the benefit of special exemption from Capital Gains Tax.
This means that tax is not payable on any amounts won through a lottery. This is quite an advantage for South Africans as there are several international lotteries that tax winnings in their lotteries. However, there is a notable exception to South African tax laws.
Should you play the lottery, or undertake any form of gambling as a profession, any prizes which are regularly won will be considered a source of income and subsequently taxed accordingly. For those who play the LOTTO, who are not professional gamblers, they are required to inform the South African Revenue Service (SARS) should they win a substantial prize. This will prevent the chance of the player being taxed on their winnings in future.
Donations Tax
Should you distribute any of your lottery winnings to friends, family, or any persons, the amount that you donate will be subjected to Donations Tax. Donations which are up to R100,000 per year are tax-free but any amount above this is taxed at 20%.
When donating amounts above R100,000, it is the responsibility of the donor to complete a IT144 form and subsequently submit it to SARS before the end of the following month after their donation. Should players be the leader of a lottery syndicate in South Africa, the Donation Tax may affect the winnings which are distributed to other members. Lottery tickets may only be owned by a single individual instead of being collectively owned by a group.
A syndicate has an agreement, which is outside of the National Lottery, which pools entry costs and splits prizes. This means that the responsibility for sharing prize money with other members of the syndicate falls with the individual who is the named ticket holder. Should each syndicate member be entitled to more than R100,000, the amounts will be subjected to Donations Tax, respectively.
Taxation Abroad
If you are not a South African resident, and you donate money to a resident of South Africa, the money is exempted from Donations Tax which means neither party is liable for paying such tax. South Africans who play international lotteries must ensure that they understand the tax laws in those countries which come into effect before winnings are received. Non-South African residents who play South African lotteries, will be subjected to taxation in their country of residence.
