South Africa: Tax Man Stalks Cash Gifts From Record Powerball Winner

26 February 2019

The winner of the record PowerBall jackpot will have to carefully weigh up how much - if any - money to give to friends and family because the tax man will likely want a cut.

The winner came forward on Tuesday to claim the PowerBall prize from the Tuesday, February 19, draw.

While the massive win of R232m will likely be free from income tax if the winner is a casual gambler, any gifts to friends and family will likely attract tax, says the Cape Town tax department of ENSafrica.

"In terms of paragraph 60 to the eighth schedule of the Income Tax Act, a taxpayer who is a natural person (i.e. excluding inter alia juristic persons such as companies) must disregard any gain or loss in respect of a disposal relating to any form of gambling, gaming or competition, where such gambling, game or competition is authorised by, and conducted in terms of, the laws of South Africa.

"In effect therefore, any gain derived from an authorised gambling activity, realised by a taxpayer who is a natural person, will be disregarded for income tax purposes," the ENSafrica department said in a statement.

Gifts of cash

The law firm was careful to note the 2019 budget review from February 20 "which may in future lead to additional tax considerations on gambling winnings".

However, the picture changes significantly should the winner decide to show some love and shower friends and family with cash.

ENS said: "Where amounts are donated between individuals, dividends tax is payable by the donor (i.e. the lottery winner) at a rate of 20% on the value of the property donated as does not exceed R30m, and 25% on any value exceeding R30m.

"In a year of assessment, so much of the sum of the value of all the property disposed under donations by a donor who is a natural person is exempt to the extent that same does not exceed R100 000.

"Although the liability for donations tax rests on the donor, where the donor fails to make payment of the amount due within the prescribed period, the recipient will be held jointly and severally liable for the tax."

On the other hand, should the winner decide to leave the cash in a saving account and live off the interest, there may also be a significant tax bill.

"Interest income earned on capital amounts invested in a savings account will be included in the annually determined income of the taxpayer, and thus subject to income tax (net allowable deductions) at marginal rates of up to 45%," said ENSafrica.

ENSafrica added this disclaimer: "Our responses below should accordingly not be construed as formal advice. Our views below reflect our interpretation and application of the relevant provisions contained in the Income Tax Act, No. 58 of 1962 ('Income Tax Act')."

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