Understanding Taxation of Receipts and Accruals of Sportspersons

In the world of sports, financial transactions are not just about the game; they extend into a complex web of taxation regulations that both clubs and athletes must navigate. From player salaries to match earnings, the taxation of receipts and accruals for sportspersons involves various considerations, especially concerning their employment status and income sources. In this article, we delve into the intricacies of how taxes impact sportspersons' earnings.

The financial arrangements between sportspersons and their respective clubs or associations dictate the tax treatment of their earnings. For team sport athletes under contract, they typically fall under the employment tax provisions as they are considered employees of the club. On the other hand, individual sport athletes like golfers or tennis players operate as self-employed individuals, commonly referred to as independent contractors.

Income Tax Implications

For contracted players, their salaries and other remuneration are classified as gross income and are subject to income tax. Clubs have the responsibility to deduct employees’ tax from these payments and remit it to the relevant tax authority within the prescribed period.

Independent sportspersons also earn income from participating in matches or competitions, which is taxable as gross income. However, since they are not in an employer-employee relationship with the entities paying them, they are not subject to employees’ tax. Instead, they must register as provisional taxpayers and declare their earnings in their annual tax returns.

Deductions

The deductions available to independent sportspersons differ from those available to contracted players. Independent athletes can claim deductions under the general deduction formula if they can prove that the expenditure is incurred in the production of income, for trade purposes, and is not of a capital nature. Specific provisions of the tax laws may also allow deductions for certain expenses like wear and tear on sporting equipment.

Contracted players, however, have limited deductions against their remuneration. They can typically only claim deductions for qualifying contributions to retirement funds, certain allowances or expenses, and specific deductions related to their employment.

Value-Added Tax (VAT) Implications

The payment of salaries and wages to contracted players does not incur VAT implications as it constitutes remuneration for employees’ tax purposes. Therefore, clubs cannot deduct input tax on these payments.

However, payments made to independent contractors may be subject to VAT if the athlete is registered or required to be registered as a VAT vendor. In such cases, the athlete must charge VAT on their services and account for output tax accordingly. Notably, payments for services rendered outside South Africa may be zero-rated for VAT purposes.

Whether they are contracted players subject to employees’ tax or independent contractors responsible for their tax obligations, understanding these tax implications is crucial for both athletes and the entities they engage with. Proper tax planning and compliance ensure that sportspersons can effectively manage their finances within the bounds of the law.

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This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

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