Taxes on Lottery Winnings in South Africa
If you live in South Africa and regularly play any of the lotteries available in the country, you may know the feeling of stressing about paying tax on your lottery winnings. After all, SARS (South African Revenue Service) has many strange ways of knowing when you owe them money. Therefore, in this article, we will look at taxes on lottery winnings in South Africa to see if you may eventually have to pay something over to the taxman.
Are Lottery Winnings in South Africa Taxed?
You may be happy to know that lottery winnings are entirely exempt from all forms of income tax in South Africa. This may surprise you considering the government is still trying to get you to pay your outstanding e-toll bill. However, the main reason for this is that lottery winnings are not seen as a primary source of income by SARS. Better still is that SARS also fails to see these winnings as any type of capital gains—meaning that you can escape that annoying tax that in other countries takes a big chunk of winners’ prize money.
Are There Exceptions to This Rule?
Unfortunately, it would not be South Africa if there was not a rule hiding behind the good news that is just waiting to cloud up those blue skies. It is true that if you play the lottery and only win now and then, you will not be liable to pay any tax—even on a huge windfall. However, if you regularly win money on the lottery, SARS might begin to see your winnings as profiteering and as a source of regular income. If this becomes the case, you will then be liable to pay income tax on any winnings you acquire.
The income tax that you will be subject to is wholly dependent on the number of winnings that you claim within the current tax year and your age. These factors will determine which tax bracket you fall into and what percentage of your total winnings you will need to pay over to Oom Cyril.
Do I Still Need to Declare My Winnings?
While it may not be strictly necessary to declare your winnings to SARS if you are not a regular winner that will be flagged as liable to pay income tax, it may be in your best interest to declare your winnings anyway. This is because, starting in 2019, SARS has begun issuing auto-assessments for all tax-paying citizens. To do this, SARS looks into your personal finances, including your bank accounts, investments, employment, and pensions. This observation of your finances means that SARS is highly likely to track you down if you are trying to avoid paying taxes.
Thankfully, if you do not often win—or if you do not rely on lottery winnings as your primary source of income—declaring these winnings to SARS is easy. The money from your lottery victories can be claimed as ‘non-taxable’ income when filing your tax. All you will need to do is keep track of how much you have won throughout the tax year and submit this amount when completing your tax return at SARS or via eFiling.
What If I Win an International Lottery?
The advent of online lottery websites has made it increasingly easy to play in massive international lotteries such as the US Powerball and Mega Millions. Luckily, winnings from even these large lotteries are exempt—from South African tax that is. Winnings from these types of lotteries will still be subject to tax rules in their original territory. For example, US Powerball winnings could be subject to both federal and state tax (depending on which state the ticket was purchased in).
This tax is usually withheld by the lottery operator or your chosen lottery provider. This means that, when you receive your winnings, you will not need to worry about paying any extra amount to SARS. And if you win prizes playing the best lotteries in other countries, such as Canada, the UK, and Australia, that don’t charge tax on lottery winnings, then you won’t have to pay any tax money to anyone at all!
Few things in Mzanzi are free from the clutches of SARS. In fact, the list of things that South Africans are not taxed on is quickly becoming shorter than the list of things that they are being taxed on. Thankfully, the government realises that lottery winnings are something that should be celebrated and enjoyed, not something that should cause unnecessary stress by making new winners worry about what needs to be paid back in tax.
So, if you are lucky enough to win big playing the South Africa Lotto or South Africa Powerball, then you can rest easy knowing that SARS will not be able to grab any of your winnings (so long as you don’t win too often). But it is essential to remember to still let SARS know about any winnings you may be receiving. This will make sure that you don’t have to worry about getting an auto-assessment from SARS that has a surprise waiting.