A South African Resident Individual received a euro grant as a prize for a competition. In this regard, please advise if this constitutes Gross Income and subject to tax?
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
For purposes of the guidance that follows we accepted that the ‘euro grant’ was not derived from any foreign “form of gambling, game or competition”.
It must be remembered that the taxpayer bears the burden of proof should the matter be disputed by SARS - in this instance if the view is taken that it is not gross income (because it is capital in nature). We cannot provide an opinion and will provide some guidance only.
The tax consequences of a prize are not specifically dealt with in the Income tax Act. As there is a receipt one must apply the principles of the definition of gross income to determine if it will have tax consequences. Our courts have laid down the law in this regard. According to Judge Smalberger (in CIR v Pick ‘n Pay Employee Share Purchase Trust) “... any receipts accruing to the Trust were not intended or worked for, but purely fortuitous in the sense of being an incidental by product. They were therefore non-revenue. That makes them accruals of a capital nature falling outside the definition of "gross income" in the Income Tax Act, and therefore not subject to tax.” Judge Southwood in CSARS v Wyner agreed with this and stated the principle as follows: “This means that receipts or accruals will bear the imprint of revenue if they are not fortuitous, but were designedly sought for and worked for...”
Please note that we accepted that the amount is not in respect of services rendered and therefore not gross income in terms of paragraph (c) of the Income Tax Act.