LAPD Gen G08 Guide On The Taxation of Professional Sports Clubs and Players
LAPD Gen G08 Guide On The Taxation of Professional Sports Clubs and Players
LAPD Gen G08 Guide On The Taxation of Professional Sports Clubs and Players
It does not delve into the precise technical and legal detail that is often associated with tax, and
should, therefore, not be used as a legal reference.
This guide is not an “official publication” as defined in section 1 of the Tax Administration Act 28 of
2011 and accordingly does not create a practice generally prevailing under section 5 of that Act. It
is also not a binding general ruling under section 89 of Chapter 7 of the Tax Administration Act.
Should an advance tax ruling be required, visit the SARS website for details of the application
procedure.
This guide is based on the legislation as at date of issue. A discussion of any tax implications
caused by the Draft Disaster Management Tax Relief Bill, does not form part of the scope of this
guide.
The main focus of this guide is the taxation of professional sports players and clubs and not
amateur players and clubs. Additionally, the guide focuses on South African resident players and
clubs, and not on foreign athletes, but the position of visiting foreign professional players is touched
upon.
All guides, interpretation notes and binding general rulings referred to in this guide are available
on the SARS website. Unless indicated otherwise, the latest issue of these documents should be
consulted.
Prepared by
Leveraged Legal Products
SOUTH AFRICAN REVENUE SERVICE
Date of 1st issue : 8 March 2018
Date of 2nd issue : 21 October 2020
Guide on the Taxation of Professional Sports Clubs and Players (Issue 2) iii
(a) Introduction ............................................................................................................................... 52
(b) Income tax implications ............................................................................................................. 53
(c) Value-added tax implications .................................................................................................... 53
5.10.8 Uniforms .................................................................................................................................... 54
(a) Introduction ............................................................................................................................... 54
(b) Income tax implications ............................................................................................................. 54
(c) Value-added tax implications .................................................................................................... 54
5.10.9 Medical expenses ..................................................................................................................... 55
(a) Introduction ............................................................................................................................... 55
(b) Income tax implications ............................................................................................................. 55
(c) Value-added tax implications .................................................................................................... 55
5.10.10 Payment or release of a debt .................................................................................................... 56
(a) Introduction ............................................................................................................................... 56
(b) Income tax implications ............................................................................................................. 56
(c) Value-added tax implications .................................................................................................... 56
5.11 Retirement fund contributions ................................................................................................... 56
5.12 Other deductions for players ..................................................................................................... 57
5.12.1 Introduction ............................................................................................................................... 57
5.12.2 Repayment of employment income .......................................................................................... 57
5.12.3 Agent’s commission or fees ...................................................................................................... 58
6. Skills development levy ......................................................................................... 58
7. Unemployment Insurance Fund contributions..................................................... 59
8. Donations received by clubs and players............................................................. 59
8.1 Introduction ............................................................................................................................... 59
8.2 Income tax implications ............................................................................................................. 59
8.3 Value-added tax implications .................................................................................................... 60
9. Taxation of foreign income .................................................................................... 61
10. Taxation of foreign sportspersons........................................................................ 62
10.1 Introduction ............................................................................................................................... 62
10.2 Income tax implications ............................................................................................................. 62
10.3 Value-added tax implications .................................................................................................... 63
11. Conclusion .............................................................................................................. 63
1. Introduction
The professional sports industry is a fast growing industry internationally. The main aim of this
guide is to explain the South African tax consequences for professional sports clubs and sports
players in South Africa.
2. General principles
A growing number of sports players earn their livelihood from a diverse range of income
sources, sometimes from a number of different countries. Consequently, depending on the
nature of the income derived, different tax rules will apply. The tax treatment will also depend
on whether players are employed by clubs or are considered to be independent contractors.
Clubs may also earn income from various sources, for example, ticket sales and the sale of
advertising rights. As these clubs employ players and other staff, they must comply with the
general employees’ tax obligations for employers as provided for in the Act. Should the clubs
be required to account for employees’ tax in relation to their staff and players, they will in all
likelihood also be liable to account for the skills development levy and unemployment
insurance fund contributions. Clubs will, in most instances, be liable to register as VAT vendors
and will therefore incur a range of tax obligations that will be considered in this guide.
Certain key tax concepts are clarified below in order to contribute to a better understanding of
the discussion that follows relating to the obligations and entitlements of both players and
clubs:
• Allowances and taxable benefits – The term "allowance" is usually used in the
context of an employment relationship and means the granting of an amount additional
to an ordinary salary. Allowances are generally paid to employees to meet expenditure
incurred on behalf of their employers. Most allowances are fully taxable, whilst the
portion of certain allowances not expended for business purposes must be included in
an employee’s taxable income. The most common types of allowances are travel,
subsistence and cellular phone allowances. Taxable benefits (also referred to as fringe
benefits) are benefits granted to employees in a form other than money. An example
of a fringe benefit is the use of a company car.
2 The term “imported services” is defined (section 1(1) of the VAT Act) as services supplied by a
person who is not a resident of South Africa to a resident of South Africa to the extent that such
services are used or consumed in South Africa other than for the purpose of making taxable
supplies.
3 Compulsory registration is dealt with in section 23(1) of the VAT Act.
4 Voluntary registration may also be allowed at the discretion of SARS when the person has not
exceeded the minimum threshold of R50 000, or in certain cases when taxable supplies will only be
made after a period of 12 months. The registration in these special cases is subject to certain
conditions and is governed by Regulation (see section 23(3)(b) and (d) of the VAT Act). In addition,
the minimum taxable supply threshold is R120 000 in the case of persons who supply “commercial
accommodation” and not R50 000.
Professional sports clubs and sportspersons deal with many varied receipts and expenses on
a daily basis. These receipts and expenses are generally taken into account in determining
their taxable income during a year of assessment and it is therefore important to know how to
deal with each item. Thus, consideration will be given below to specific issues relevant to
professional sports clubs and sportspersons.
Although clubs and players are as far as possible dealt with separately in this guide, there are
instances in which, for the sake of completeness and clarity of a particular point, both players
and clubs are dealt with together.
Essentially, a transfer fee is an amount paid by one club to another club which is contractually
entitled to a player’s performance to acquire the services of that player. Usually the player is
also given a percentage of the transfer fee, but this is negotiated between the player and the
club surrendering the services of such player. It thus follows that what is being sold is not the
player per se, but the services of that player, or more precisely, the right of the “selling” club
to the player’s services is abandoned in favour of the “acquiring” club, paving the way for the
“acquiring” club to enter into a new contract with that player.
An “asset” is defined in paragraph 1 of the Eighth Schedule to mean property of any kind,
including assets that are intangible. As the definition of “asset” includes property of an
intangible or incorporeal nature, the contractual right that the club holds to demand
performance from a player would qualify as an “asset” of the club for CGT purposes.
In the case of something being classified as a capital asset for tax purposes, gains or losses
on its sale or disposal are regarded as capital gains or capital losses which in most instances
would be subject to CGT.
While certain specified expenditure items may be included in the base cost of an asset,
remuneration costs may, however, not be brought into account in determining the base cost
of the asset consisting of the club’s contractual right to the player’s performance because the
expense cannot be said to have been incurred in acquiring or creating the asset. In addition,
any expenditure incurred in relation to an asset that would normally constitute part of the base
cost of that asset is specifically excluded from the asset’s base cost if it is, or was, allowed as
a deduction for income tax purposes. If the asset consisting of the selling club’s contractual
right to the player’s performance has not been acquired from another club, the base cost of
that asset will be zero and any transfer fee received by or accrued to the selling club will be
subject to CGT in full.
By contrast, if the club paid a transfer fee to the player’s previous club (the transferring club)
to obtain the services of the player who is now being transferred, the transfer fee paid to the
transferring club would be regarded as expenditure incurred in relation to the contractual rights
held by the present club and would accordingly constitute a deductible base cost in the existing
contractual rights.
Result:
R
Proceeds 500 000
Less: Base cost (300 000)
Capital gain 200 000
CGT will be payable on the capital gain of R200 000made by Club Striker on the “sale” of
Player Y.
In the unlikely event that a club is found to be actively trading in the acquisition and disposal
of transfer rights for speculative purposes, the proceeds received by that club upon the
disposal of its rights will be of a revenue nature and subject to income tax and not CGT.
For the acquiring club, the transfer fee incurred in acquiring the right to contract with the player
will also be an expense of a capital nature, since what it is really doing is paying for the
opportunity to enter into a contract with the relevant player to expand its income-producing
capacity. No deduction of the transfer fees will be allowed to the club. However, as mentioned
above, this expenditure can be said to be expenditure incurred in acquiring the new contractual
rights relating to the performance of the player and would therefore constitute the base cost
of that new asset.
Club B in turn will have incurred the cash transfer fee of R600 000 plus the “in kind” transfer
fee, being the market value of Player Y’s services, in acquiring the services of Player X.
That expenditure will constitute the base cost of the Player X’s contractual rights acquired from
Club A. However, Club B will also have disposed of Player Y to Club A for a transfer fee equal
to the market value of Player Y’s services and would need to account for CGT on the value
received by Club B for the disposal of Player Y.
See 5.2 for the tax consequences of transfer fees received by the players.
Signing-on fees paid by the club to the player will generally be deductible, but may be spread
over the period of the contract under section 23H since the services rendered to the club by
the player will be performed in future years of assessment.
Since a signing-on fee is paid to a player to entice the player to become a contracted player,
that is, an employee, signing-on fees will constitute remuneration and will be subject to
employees’ tax.
If a player’s contract with a club has ended or has been transferred before the expiry of the
contract period, the balance of the signing-on fees will be deductible in the period when such
contract ends or the transfer takes place. The income tax implications relating to the signing-
on fees received by sportspersons are discussed in 5.3.
A player that carries on an enterprise independently of the club (which would be the case, for
example, if the player was entitled to exploit the player’s image rights independently of the
club) may be required to register as a vendor for VAT purposes if the aggregate consideration
received by the player from conducting taxable activities exceeds the registration threshold.
While the player as vendor may be carrying on a separate “enterprise” in relation to certain
non-employment activities, if the signing-on fee is to secure the player’s services in terms of
an employment contract, that signing-on fee will nevertheless constitute remuneration and will
not be subject to VAT. In that case, the club would not be entitled to claim an input tax
deduction as no VAT will have been payable on the signing-on fee.
In the case of signing-on fees paid to a player who is a vendor and that person’s services are
acquired as an independent contractor to the club, such fees will include VAT. In such a case,
the normal VAT rules will apply insofar as input tax and output tax is concerned, and subject
to the usual documentary requirements.
As regards agents, any VAT incurred on fees or commission paid to the club’s agent 9 for
securing the services of the player may be deducted as input tax, provided the agent is a
vendor acting for the club and not the player. This will also be subject to the usual documentary
requirements.
9 The club will not be able to deduct input tax if the agent acts for the player and not the club. Refer
to German Federal Fiscal Court’s judgment (XI R 4/11) on 28 August 2013 and the United Kingdom
High Court case of Newcastle United Plc. v. HMRC [2007] EWHC 612 (Ch). In both of these cases
the courts could not confirm that input tax was deductible by the clubs concerned, not only because
of the lack of evidence of a contract between the clubs and agents concerned, but also considering
the fact that the FIFA regulations do not allow for the players’ agents to represent both the soccer
player and the club.
Commercially it is rare that funds are donated, or the use of assets such as motor vehicles
are made available, to sporting organisations or sportspersons without expecting something
of value in return which is in pursuance of the sponsor’s business objectives.
(a) Has anything been received by or accrued to the sponsor which must be
included in gross income or, from a capital gains tax perspective, proceeds?
As mentioned in 2, a resident’s “gross income” includes –
“the total amount, in cash or otherwise, received by or accrued to or in favour of such
resident … excluding receipts or accruals of a capital nature …”.
The monetary value of a receipt or accrual in a form other than money constitutes an “amount”
that must be included in gross income in the year of assessment in which the amount is
received by or accrues to the taxpayer, provided the other requirements of the definition are
met. The monetary value of a receipt or accrual in a form other than money must be
determined objectively. The ability to turn a receipt or accrual (that is, what the other party is
giving the sponsor, for example, advertising and promotional services) into money is not a
critical factor, but merely one of the factors that would be taken into account in determining
the value of the receipt or accrual “in kind”. 10
Paragraph 35(1) of the Eighth Schedule describes “proceeds from the disposal of an asset”
as –
“the amount received by or accrued to, or which is treated as having been received by, or
accrued to or in favour of, that person in respect of that disposal, and includes …”.
10 See C: SARS v Brummeria Renaissance (Pty) Ltd and others 2007 (6) SA 601 (SCA), 69 SATC
205.
In the case of commercial sponsorships, the goods or services that the sponsor provides to
the other party often results in the receipt or accrual for those goods or services being of a
revenue nature and meeting the requirements of the definition of “gross income”. For example,
a sponsor that receives advertising and promotional services from a club in exchange for the
sponsorship of sports kit, that constitutes trading stock for the sponsor, has received an
amount in kind which is of a revenue nature and accordingly constitutes gross income. It does
not matter that the receipt is not in the form of money.
Stated differently, the advertising and promotional services provided by the club to the sponsor
under the sponsorship agreement in return for trading stock constitutes the receipt or accrual
of an amount otherwise than in cash which is not of a capital nature and meets the
requirements of the definition of gross income. The sponsor must therefore include the value
of the advertising and promotional services provided to it by the club in gross income.
In the case of South Atlantic Jazz Festival (Pty) Ltd v C: SARS, Binns-Ward J noted in relation
to sponsorships in kind provided to the Jazz Festival by various sponsors that –11
“accepting, as one may [in these specific circumstances], that the transactions were at
arm’s length, the value of the goods and services provided by the [Jazz Festival] to the
sponsors in each case falls to be taken as the same as that of the counter performance by
the relevant sponsor…In an ordinary arm’s length barter transaction the value that the
parties to it have attributed to the goods and services that are exchanged seems to me, in
the absence of any contrary indication, to be a reliable indicator of their market value”.
A principle apparent from this case that can usefully be applied in a sponsorship context is
that when goods or services are provided by a sponsor to a club in exchange for, for example,
advertising and promotional services to be rendered by the club, the value of the sponsored
goods or services and the advertising and promotional services will be the same and the value
that the sponsor and the other party agreed on will be a reliable indicator of value, “in the
absence of any contrary indication”.
If, under the sponsorship agreement, the sponsor provides assets which are of a capital nature
to the other party, the amount of the receipt or accrual established using the same principles
discussed above will not constitute gross income but will constitute proceeds on the disposal
of an asset. The sponsor will therefore need to determine whether a capital gain or loss arises
under the Eighth Schedule. In addition, the facts of the particular case may result in a
recoupment under section 8(4)(a) which must be included in gross income or a deduction
under section 11(o).
A sponsor may, for example, provide a club with computers which it no longer needs for its
business operations in return for promotional services to be rendered by the club.
The sponsoring of the computers will constitute a disposal of a capital asset since the sponsor
is not in the business of trading with computers. In such a case, the value of the promotional
services received from the club will be of a capital nature and will not be included in gross
income. The value of the promotional services received from the club will, however, constitute
An amount that must be included in gross income must be included on the earlier of receipt or
accrual of that amount and, if applicable, the capital gain or loss must be determined on
disposal of the relevant asset. The terms of the sponsorship agreement will determine if there
is an upfront receipt or accrual or whether the receipt or accrual happens over time as well as
the time of any disposal. This is particularly relevant when the sponsorship agreement extends
over more than one year of assessment.
(b) Has the sponsor incurred any expenditure and, if so, is the sponsor entitled to
a deduction for that expenditure?
The specific sponsorship agreement and the facts of the case must be considered in
determining if the sponsor has incurred any expenditure in fulfilling the sponsor’s obligations
under that agreement and, if so, whether that expenditure qualifies for a deduction or
allowance under one of the sections of the Act. The appropriate section which may apply will
depend on the facts of the particular case. All of the possible sections will not be discussed in
this guide.
If a sponsor receives advertising and promotional services from a club in exchange for the
sponsorship of sports kit and assuming the sponsor purchased the raw materials,
manufactured the sports kit and provided it to the club during the current year of assessment,
the sponsor will have incurred –
• expenditure to purchase the raw materials and manufacture the sports kit which was
provided under the sponsorship agreement to the club; and
• expenditure relating to advertising and promotional services that the club will provide
to the sponsor under the sponsorship agreement. The amount of this expenditure will
generally be equal to the value 12 of the sports kit provided to the club.
The facts in the example show that the sponsor’s business was the sale of sports kit and
equipment for profit and the purpose of incurring the advertising and promotional expenditure
was to maintain, increase and maximise sales revenue from the sale of sports kit and
equipment to customers. In this scenario, section 11(a) applies for both items of expenditure.
For expenses or losses to be deductible from a sponsor’s income under section 11(a), they
must meet the requirements of the general deduction formula as discussed in 2.
If a sponsor has actually incurred expenditure, as in the case of the current example, factors
to consider in assessing whether the trade and in production of income requirements have
been met include whether –
• the sponsor is conducting a trade;
• that trade produces income (or to what extent it produces income); and
• the expenditure was incurred in connection with the sponsor’s trade and is linked to
the sponsor’s income-producing activities.
The extent to which the “in the production of income” requirement is met will depend on
whether the activities conducted by the sponsor produces “income” as defined in section 1(1)
and whether the expenditure incurred is sufficiently closely linked to an activity that produces
income so as to be regarded as having been incurred in the production of income. Expenditure
12 See 4.3.2(a) for a discussion on the determination of value in the context of sponsorships.
The courts have developed a number of tests for distinguishing whether expenditure is of a
capital or revenue nature.
In New State Areas Ltd v CIR, Watermeyer CJ, after reviewing a number of decisions of the
courts in the United Kingdom, said: 13
“The conclusion to be drawn from all of these cases seems to be that the true nature of
each transaction must be enquired into in order to determine whether the expenditure
attached to it is capital or revenue expenditure. Its true nature is a matter of fact and the
purpose of the expenditure is an important factor; if it is incurred for the purpose of acquiring
a capital asset for the business it is capital expenditure even if it is paid in annual
instalments; if, on the other hand it is in truth no more than part of the cost incidental to the
performance of the income producing operations, as distinguished from the equipment of
the income producing machine, then it is a revenue expenditure even if it is paid in a lump
sum.”
In the current example, the sponsor did not intend to and did not acquire a capital asset which
formed part of its income-earning structure. The one item of expenditure related to the
acquisition of the sports kit which constituted trading stock for the sponsor and the other item
of expenditure related to advertising and promoting the business which is part of the business
operations. The expenditure did not result in an enduring benefit and are accordingly of a
revenue nature.
This does not mean that all expenditure incurred in relation to a sponsorship agreement will
necessarily be of a revenue nature. Although it may not be common in commercial
sponsorships, it is not impossible that expenditure could be of a capital nature. Whether a
particular item of expenditure is of a capital or revenue nature must be determined on a case-
by-case basis. 14
A sponsor that provided capital assets it no longer used in its business instead of sporting
equipment, the expenditure previously incurred by the sponsor when purchasing the capital
asset would not become revenue in nature and qualify for a deduction under section 11(a) but
would generally form part of base cost in calculating the capital gain or loss on disposal of the
asset. Similarly, it is possible that the expenditure incurred in acquiring what the club provides
the sponsor under the sponsorship agreement could, depending on the facts, give the sponsor
an enduring benefit to be used over an extended period of time and accordingly be of a capital
nature.
The terms of the sponsorship agreement and the facts of the case will determine if there is an
upfront incurral of expenditure or whether the incurral of the expenditure happens over time.
This is particularly relevant when the sponsorship agreement extends over more than one
year of assessment.
In the case of an upfront incurral of expenditure section 23H, which effectively spreads the
deduction for goods and services over a period of time, must be considered. For example, if
under a sponsorship agreement the expenditure relating to advertising and promotional
services is incurred by the sponsor in the 2020 year of assessment but the other party (the
club) will provide the services to sponsor in the sponsor’s 2020 and 2021 years of assessment,
As part of implementing its strategy, X entered into a two-year sponsorship agreement with a
professional soccer club (Club Y). X and Club Y are not connected persons. Under the
sponsorship agreement, X would supply Club Y with branded sports uniform valued at
R2 million in year one and in exchange Club Y would provide specified advertising and
promotional services valued at R2 million to X over a two-year period. The advertising and
promotional services included the team wearing the branded sports uniform, team members
making public appearances on behalf of X from time to time, advertising X at match venues
etc. The branded sports uniform cost X R800 000 to manufacture.
X also entered into a sponsorship agreement with a local soccer club (Goals Galore) under
which X would give Goals Galore R100 000 per year for two years in return for which Goals
Galore would promote X at press media briefings, match days, training camps etc. A schedule
to the sponsorship agreement specified in detail what Goals Galore would do in promoting X
at these events. X and Goals Galore agreed that the promotional services to be provided each
year by Goals Galore were valued at R100 000.
X also received general business income of R1 million in year 1 and R500 000 in year 2.
Result:
Year 1
R
General business income 1 000 000
Value of services (note 1) 2 000 000
Gross income 3 000 000
Less:
Costs incurred to manufacture the trading stock [section 11(a)] (800 000)
Advertising and promotional services [sections 11(a) and 23H] (note 2) (1 000 000)
Promotional services[section 11(a)] (100 000)
Taxable income/(loss) 1 100 000
Notes:
1) X provided trading stock in the form of the branded sports uniform to Club Y in return for
specific advertising and promotional services. The value of these services represents an
amount of a revenue nature which accrued to X during the year of assessment and must
therefore be included in gross income.
Year 2
R
General business income 500 000
Gross income 500 000
Less: Advertising and promotional services [sections 11(a) and 23H] 15 (1 000 000)
Promotional services [section 11(a)] (100 000)
Taxable income/(loss) (600 000)
Notes:
1) The net taxable loss from the sponsorship agreements, ignoring other income and
expenses, over the two years is R1 000 000 [R2 000 000 – (800 000 + 1 000 000 +
100 000 + 1 000 000 + 100 000)]. This equals X’s cash outflow for the sponsorships
(R800 000 to manufacture the branded sports kit given to Club Y and the R200 000 given
to Goals Galore over the two years).
(a) Has anything been received by or accrued to the club which must be included
in gross income or, from a capital gains tax perspective, proceeds?
Subject to the specific sponsorship agreement and the facts of the case commercial
sponsorships of cash, goods or services that the club receives will often constitute gross
income for the club. The principles discussed in 4.3.2(a) will apply when determining whether
the accrual or receipt must be included in gross income. The principles discussed in relation
to “proceeds” in 4.3.2(a) could potentially apply to a club. However, it is anticipated that in the
context of commercial sponsorships this is unlikely to occur.
If, for example, a club receives cash and goods and services in exchange for providing
advertising and promotional services to the sponsor, both the cash and the value of the goods
and services will be amounts of a revenue nature received by the club and will therefore
constitute gross income.
(b) Has the club incurred any expenditure and, if so, is the club entitled to a
deduction for that expenditure?
The sponsorship agreement and the facts of the case must be considered in determining if
the club has incurred any expenditure in fulfilling the club’s obligations under that agreement
and, if so, whether that expenditure qualifies for a deduction or allowance under any section
of the Act. The appropriate section which may apply will depend on the facts of the particular
case. All of the possible sections will not be discussed in this guide.
With reference to the example in 4.3.3(a) in which a club must provide advertising and
promotional services in exchange for the sponsorship of sports kit, the club may incur
expenditure in providing the advertising and promotional services. For instance, the club may
need to buy signage boards with the sponsor’s name or may have to spray paint the sponsor’s
name on the pitch during a particular weekend tournament and incurs costs in obtaining a
stencil and the paint to do so. No deduction will be available for “notional costs” if the club for
example has to provide the sponsor with 5 tickets for all matches played at the club’s grounds.
If those tickets are worth R100 each if sold to a fan, the club will not have incurred expenditure
of R500 and will not be entitled to a deduction of this amount.
The club may also incur expenditure in relation to, for example, acquiring the sports kit which
the sponsor will provide to the club under the sponsorship agreement. The amount of the
sports kit expenditure will generally be equal to the value of the advertising and promotional
services provided to the sponsor.
The club will need to consider which section, if any, is applicable in relation to a particular item
of expenditure when assessing if a deduction or allowance is available. The requirements of
a general deduction in section 11(a) are discussed in 2 and must be applied to the club’s facts
and circumstances. In the context of sponsorships, the “in production of income” and the “not
of a capital nature” requirements will often be met but this is not necessarily always the case
and the facts of each case must be considered.
If a club acquires goods from a sponsor which constitutes “trading stock” as defined 16such as
branded kit which is “consumable stores”, 17 sections 22 and 23F must also be considered.
For instance, the cost price (see above – this will generally be equal to the value of, for
example, the advertising and promotional services rendered by the club) of goods that
constitute trading stock held and not disposed of by the club at the end of its year of
assessment would need to be accounted for as closing stock. 18
Having regard to the facts of the case SARS may under section 22(1)(a) allow the cost price
of sponsored goods included in closing stock to be reduced by such amount as the
Commissioner may think just and reasonable as representing the decline in the value of the
trading stock below the cost price. 19 Under section 22(2) the value of closing stock must,
16 Section 1(1).
17 Paragraph (a)(iii) of the definition of “trading stock” in section 1(1).
18 Section 22(1)(a).
19 See section 22(1)(a) and Practice Note 36 dated 13 January 1995.
The terms of the sponsorship agreement and the facts of the case will determine if there is an
upfront incurral of expenditure or whether the incurral of the expenditure happens over time.
This is particularly relevant to sponsorship agreements extending over more than one year of
assessment. In the case of an upfront incurral of expenditure section 23H, which effectively
spreads the deduction for goods and services over a period of time, must be considered.
Often a contract provides for the payment of an amount upfront and the provision of services
over more than one year of assessment. In these circumstances, the club may be entitled to
an allowance under section 24C subject to all the requirements being met. 21
25% of the branded sports uniform was held and not disposed of by Club Y at the end of the
year of assessment in which it was received (year one). At the end of year two, Club Y no
longer held any of the branded sports uniform.
Club Y incurred expenditure of R325 000 in year one and R325 000 in year two in providing
the advertising and promotional services to X.
Club Y also entered into a sponsorship agreement with Extreme Equipment, a sports
equipment manufacturer, under which Extreme Equipment would give Club Y R100 000 per
year for two years in return for which Club Y would promote Extreme Equipment at press
media briefings, match days, training camps etc. A schedule to the sponsorship agreement
specified in detail what Club Y would do in promoting Extreme Equipment at these events.
Club Y and Extreme Equipment agreed that the promotional services to be provided each year
by Club Y were valued at R100 000. Club Y incurred expenditure of R75 000 in year one and
R50 000 in year two in providing the advertising and promotional services to Extreme
Equipment.
Club Y also received R800 000 in year one and R1 million in year two from the sale of match
tickets.
20 Section 22(2).
21 See Interpretation Note 78 “Allowance for Future Expenditure on Contracts” for more information
on section 24C.
Section 11(a):
Expenditure incurred to obtain branded sports uniform from X (note 3) (2 000 000)
Expenditure incurred in providing promotional services to X (325 000)
Expenditure incurred in providing promotional services to Extreme
Equipment (75 000)
Future expenditure to be incurred in providing promotional services
to X [section 24C(2)] (325 000)
Taxable income/(loss) 675 000
Notes:
1) X provided trading stock (the branded sports uniform) to Club Y in return for Club Y
rendering specific advertising and promotional services. X and Club Y are trading at arm’s
length and are not connected persons. The value of the trading stock represents an
amount of a revenue nature which accrued to Club Y during the year of assessment and
must therefore be included in gross income.
(2) Since the branded sports uniform acquired from X constitutes trading stock (being
“consumable stores” as contemplated in paragraph (a)(iii) of the definition of “trading
stock”) in Club Y’s hands, the cost price (agreed value) of any of the branded sports
uniform held and not disposed of at the end of the club’s year of assessment must be
taken into account in the determination of Club Y’s taxable income under section 22(1).
(3) Club Y incurred expenditure of R2 million in acquiring the branded sports uniform and is
entitled to claim a deduction. The amount of expenditure is equal to the value of the
promotional services provided by Club Y to X in exchange for the sponsored uniform.
Year 2
R
Sale of match tickets 1 000 000
Advertising and promotional services income 100 000
Reversal of future expenditure to be incurred in providing
promotional services to X [section 24C(3)] 325 000
Gross income 1 425 000
Opening stock [section 22(2)] (500 000)
Section 11(a):
Expenditure incurred in providing promotional services to X (325 000)
Expenditure incurred in providing promotional services to Extreme
Equipment (50 000)
Taxable income/(loss) 550 000
Sponsorships can also take the form of a barter transaction in which the club agrees to provide
the sponsor with advertising and promotional services in exchange for goods or services. A
sponsor could, for example, provide the club with the use of a motor vehicle for a specified
period of time in return for advertising or promotional services to be supplied by the club. Since
the consideration received by each party to the agreement is not in money, the open market
value of each supply must be determined. 22 The open market value is the consideration in
money (including VAT) that the supply of those goods or services would generally obtain if
supplied in similar circumstances on the relevant date in South Africa if the supply were freely
offered and made between persons who are not “connected persons” as defined. 23 On the
basis of the decision in the South Atlantic Jazz Festival (Pty) Ltd v C: SARS case, 24 it may be
accepted that the open market value of the goods and services provided in exchange under a
barter transaction, “in the absence of any contrary indication”, is that agreed by the parties
and the value of the goods or services supplied in exchange are of equal value.
In such a barter transaction, the sponsor (the motor dealer in the example above) must declare
output tax on the open market value of the advertising or promotional services received from
the club, since this constitutes the consideration received by the sponsor for the supply of the
right of use of the motor vehicle to the club. Similarly, if the club that is granted the right of use
of the sponsored motor vehicle is a vendor for VAT purposes, output tax must be declared on
the open market value of the right of use of the motor vehicle, being the consideration for the
taxable supply of the advertising or promotional services supplied by the club to the motor
dealer. Generally, the determination of the open market value for each of the supplies in this
kind of barter transaction should be of equal value, as long as the parties are trading at arm’s
length. The factors that determine the open market value of any goods or services received
as consideration for a taxable supply will depend on the nature of the supply and the facts in
each case. For example, a fair method of determining the open market value to be used by
each party in the example above may be to adopt the average rental (including VAT) which
Normally, if both parties are vendors, each party is liable to account for output tax on the
consideration received for the supply made, and to issue a tax invoice to the other. Each party
will also be entitled to deduct input tax on the consideration for the supply of the goods and
services acquired by the relevant party, provided that –
• the goods or services are acquired for the purpose of making taxable supplies;
• a tax invoice is held at the time the party seeks to claim the relevant input tax deduction;
and
• the deduction is not specifically denied.
A vendor is denied an input tax deduction in respect of VAT incurred on certain specified
goods and services, for example, goods and services acquired for the purposes of
“entertainment”, membership fees of social and recreational clubs and a “motor car”. 25
There are, however, some exceptions to this rule as set out in the provisos to section 17(2) of
the VAT Act – see further VAT 411 – Guide for Entertainment, Accommodation and Catering.
A “motor car” is in turn defined in section 1(1) and is essentially a passenger motor vehicle
normally used on public roads, which has three or more wheels. Certain motor vehicles are
excluded, such as vehicles suitable for carrying more than 16 persons and vehicles having an
unladen mass exceeding 3 500 kilograms.
Example 4 – Sponsorships in kind: the VAT implications for the sponsor and club
Facts:
A motor manufacturer (Manufacturer X) entered into an agreement with a professional soccer
team (Club Y) under which Club Y was supplied with the right to use 10 passenger motor cars
manufactured by Manufacturer X for 12 months. In return, Club Y was obliged to participate
in all of Manufacturer X’s advertising campaigns, and the vehicles had to bear the branding
and logos of Manufacturer X.
Manufacturer X and Club Y agreed that the market value of the monthly right of use of the
10 passenger motor cars provided by Manufacturer X and the monthly advertising and
promotional services to be provided by Club Y was R65 550 (R57 000 plus VAT of R8 550)
per month.
Manufacturer X
Manufacturer X had granted the right of use of the motor cars to Club Y in return for the
performance of specific advertising and promotional services that were supplied by Club Y.
Manufacturer X was therefore liable to account for output tax on the consideration received
for the supply of the right to use the motor cars. The consideration received was equal to the
open market value of the advertising and promotional service supplied to it by Club Y.
Manufacturer X had to therefore declare output tax of R8 550 a month (R65 550 × 15 / 115)
for the duration of the contract. Manufacturer X was also entitled to deduct input tax of R8 550
a month (R65 550 × 15 / 115) since this was the consideration paid by it for the supply of the
advertising and promotional services acquired from Club Y. The input tax deduction was
subject to the usual requirements, for example, Manufacturer X had to be in possession of a
valid tax invoice issued by Club Y.
Club Y
Similarly, Club Y supplied advertising and promotional services to Manufacturer X in return for
the use of the motor cars. Team Y had to accordingly account for output tax on the
consideration received by it for the supply of the services to Manufacturer X, being the open
market value of the right of use of the motor cars. Club Y had to, therefore, declare output tax
of R8 550 a month (R65 550 × 15 / 115) for the duration of the contract. However, Club Y also
acquired the right of use of a “motor car” as defined for VAT purposes 26 and had incurred VAT
on such acquisition. Club Y was not, however, entitled to deduct input tax incurred by it (being
the VAT portion of the open market value of the advertising and promotional services to be
supplied by the club to Manufacturer X as consideration in kind) for the supply of the right of
use of the motor cars, since an input tax deduction was denied under section 17(2)(c) of the
VAT Act. Under that provision, a vendor is denied an input tax deduction for VAT paid on the
supply of any “motor car” as defined and applies in these circumstances since the club was
not in the business of continuously or regularly supplying motor cars.
If the right to use the vehicles was supplied by Club Y to any of the players in the team (being
employees) for their personal use, it would have constituted a taxable fringe benefit for
employees’ tax purposes and would have also resulted in a deemed supply by the club for
VAT purposes. The consideration in money for such deemed supply is the amount determined
in the manner prescribed by the Minister of Finance by notice in the Gazette. Club Y was
accordingly required to account for output tax on the value of the benefit, calculated at 0,3%
of the determined value of the motor vehicle (for each month or part thereof) for each
employee. 27
4.4 Prizes
4.4.1 Introduction
A club or player may receive a prize, in money or in kind, for participating in (often referred to
as an appearance fee) or winning a particular sports competition. This prize is provided by the
person sponsoring the competition, that is, the event holder. Successful clubs or players will
receive different amounts or prizes in the form of assets depending on their position at the end
of the competition.
A club may in turn be the holder of the event and offer prizes for other participating clubs or
players.
Should the club subsequently distribute part of the prize to the players, provided that all the
requirements of the general deduction formula are met, the club will be able to claim a
deduction under section 11(a) of the amount so distributed to its players.
Any entry fee paid by a club or player to an event holder (a club) will constitute gross income
and fall to be taxed as such.
An event holder is similarly making a supply of services to participating clubs by permitting the
club to enter the competition.
Should a club that is a vendor receive the prize money on its own behalf and for its own benefit,
the prize money is consideration for the taxable supply of services made by the club to the
event holder. The prize money is deemed to be VAT-inclusive and the club must declare
28 Specifically included in the “gross income” of a taxpayer is any amount “in cash or otherwise” which
has been received by or has accrued to the taxpayer [section 1(1)].
29 See CIR v Witwatersrand Association of Racing Clubs 1960 (3) SA 291 (A); 23 SATC 380 at 383.
30 Section 1(1) of the VAT Act.
31 Section 1(1) of the VAT Act.
The same result arises when the prize is in the form of goods or services. Section 10(3)(b) of
the VAT Act provides that if any consideration is not in money, that is, in the form of goods or
services, then the consideration is deemed to be the “open market value” 32 of the relevant
goods or services received for having made the taxable supply.
The club should therefore issue a valid tax invoice to the event holder reflecting the
consideration received and the tax payable (being the tax fraction of the amount of the prize
money or, if the prize is in the form of goods or services, the tax fraction of the open market
value of the prize provided by the event holder). The event holder is in these circumstances
entitled to deduct the VAT component of the prizes awarded to the winning clubs as input
tax, 33 regardless of whether the prizes are in the form of money or goods or services.
In the event that an event holder (which could be a club) acquires goods or services in order
to provide those goods or services as a prize to the winning club or players, the event holder,
if a vendor, may generally claim an input tax deduction of the VAT incurred on acquiring the
prize. However, should the prize constitute “entertainment” (for example, accommodation,
food, alcohol, etc.) or a “motor car” as defined, the event holder will be denied an input tax
deduction on the acquisition of those goods or services under section 17(2)(a) and (c) of the
VAT Act respectively. An event holder will nevertheless be entitled to claim a deduction of any
input tax incurred on the acquisition of entertainment or motor car if one or other of the
exclusions provided for in section 17(2)(a) and (c) of the VAT Act applies.
Should cash or goods or services be given as a prize, the provisions of sections 8(13) and
16(3)(d) of the VAT Act, that essentially permit a vendor to deduct the tax fraction of any
payment made by the vendor as a prize or winnings, are not applicable. This is because the
prize is not provided by the event holder to the club in consequence of a “bet” being placed. 34
It follows that the event holder is, in these circumstances, not entitled to deduct the tax fraction
of any cash amount paid as a prize on the basis of these sections. Rather, the event holder,
is entitled to deduct the VAT incurred on the acquisition of the participation of the winning club,
as well as any goods or services provided as a prize (unless the goods or services provided
as a prize constitute “entertainment”’ or a “motor car” as defined, and none of the exclusions
apply) as input tax under section 16(3)(a) of the VAT Act.
However, while the winning club will have received consideration for rendering taxable
services to the event holder, the event holder will, in turn, have received consideration in the
form of the participation by the club for the prize given in the form of cash or goods or services.
As such, the event holder is required to account for output tax on the consideration received
(being the open market value of the services provided by the winning club) for the supply of
the prize in the form of money or goods or services. The event holder should therefore also
issue a valid tax invoice to the club reflecting the consideration received from the club in the
form of services rendered by the club in exchange for the prize. The tax invoice must reflect
the tax payable on the supply (being the tax fraction of the open market value of the services
32 “Open market value” is defined in section 1(1) of the VAT Act as the amount (including VAT) as
determined in accordance with the provisions of section 3 of the VAT Act. Section 3 essentially
provides that the open market value of consideration received in-kind is the consideration in money
that the supply of goods or services would generally fetch if supplied in similar circumstances, being
a supply freely offered and made between persons who are not connected persons.
33 Section 16(2)(a) read with sections 16(3)(a) or 16(3)(b) of the VAT Act (as the case may be).
34 See Interpretation Note 84 “The Value-Added Tax Treatment of Bets”.
Any entry fee received by the event holder will be subject to VAT and the event holder will be
required to account for output tax thereon, unless the zero rate applies as discussed in 4.5.3.
The income tax and VAT implications relating to players winning prizes are discussed in 5.6.
4.5 Ticket sales and the sale of merchandise and other sundry items
4.5.1 Introduction
Ticket sales, the sale of merchandise and programmes and other sundry items are important
sources of income for the hosting club. In hosting the event, the club will usually incur
expenses such as security, gate control, catering and, if applicable in the event that the
sporting venue is leased by the club, ground rental fees.
However, if the event is hosted by a local club in a stadium or other venue outside South
Africa, the ticket price will in most instances be subject to VAT at the zero rate. In these
circumstances the event takes place outside of South Africa and hence the associated
services are also performed outside of South Africa. Such services are zero-rated under
section 11(2)(k) of the VAT Act. Should the club sell the tickets as agent on behalf of some
other entity that is staging the event outside South Africa, any commission or fee earned for
selling the tickets will only be zero-rated provided the requirements of section 11(2)(l) of the
VAT Act are met. The zero-rating under section 11(2)(l) of the VAT Act requires the agency
services to be rendered to a person who is not a resident of South Africa and that the person
is not in South Africa at the time the services are rendered. Should the agency services (ticket
sales on behalf of the non-resident) not be zero-rated, the local club will need to account for
output tax on its commission or fee.
The general time of supply rule is applicable to sales of tickets and sundry items. The supplies
are therefore regarded as being made at the earlier of the time that an invoice 36 is issued or
any payment is received for such supplies. As tickets for entry into an event are usually issued
instead of invoices, the payment of the admission price or any part thereof will usually
determine the tax period in which the club must account for output tax on the ticket sales.
As invoices are often not issued for the supply of sundry items such as programmes, the club
will similarly be required to account for output tax when payment is received. In the event that
35 See South African Football Union v CIR [1999] 4 All SA 444 (A), 61 SATC 406.
36 An “invoice” for VAT purposes is any “document notifying an obligation to make payment”
[section 1(1) of the VAT Act].
A club is required under section 20(1) of the VAT Act to issue a valid tax invoice to the recipient
in respect of the supply of tickets and sundry items by the club, whether or not the supply is
subject to VAT at the standard or zero rate. The club is not obliged to issue a valid tax invoice
to the recipient if the consideration for the ticket or sundry item does not exceed R50. 37
The requirements of a valid tax invoice are prescribed in section 20(4) and (5) of the VAT Act.
Should a club be of the view that it is impractical to issue a valid tax invoice in relation to the
sale of the tickets or sundry items, it may approach SARS for a decision that –
• any of the particulars prescribed by section 20(4) or (5) of the VAT Act not be reflected
in the tax invoice;
• a tax invoice need not be issued; or
• the particulars prescribed in section 20(4) or (5) of the VAT Act be furnished in any
other manner. 38
As there is no special value of supply rule which applies to sales of tickets and sundry items,
VAT will be levied on the full price of the ticket or sundry item. Unless the amount of VAT is
indicated separately on the relevant tax invoice issued by the club, the amount of output tax
that must be accounted for on the ticket or sundry item must be determined by applying the
tax fraction (15 / 115) to the VAT-inclusive price.
In the event that a person has to buy a programme to get into a sporting event, the payment
for the programme is regarded as the consideration for the admission. Moreover, if tickets,
tokens, vouchers or programmes are issued on payment of the admission charge which
entitles the bearer to admittance to the premises, function or event, the payment thereof will
usually determine the time the supply is made and the liability for output tax arises.
There are a variety of contractual arrangements which may apply in regard to admissions to
sporting events and other supplies made at the event. The VAT treatment of these supplies
will depend on who stages the event, who owns or operates the venue, what supplies are
made between the parties (or other outside contractors), and whether the parties to the
agreement are VAT vendors or not. For example, sports stadiums are usually owned by
provincial sporting bodies, sports clubs, municipalities or property holding entities connected
to sporting bodies.
The contract between the sporting organisation and the owner of the stadium will determine
for whose benefit the admission or entrance fee is charged, and should provide details of any
other supplies which may be necessary to stage the event, or which are allowed to be made
by other persons carrying on activities at the event. For example, vendors that supply snacks,
drinks and sporting memorabilia will usually be responsible to account for VAT on their own
supplies, but they may pay a facility fee or rental charge to the owner or operator of the
stadium. The owner or operator of the stadium will therefore also have to account for VAT on
these other amounts of consideration received in connection with the event.
Alternatively, the stadium owner may stage the event and pay the clubs a performance fee. In
such a situation, the stadium owner will charge and account for the VAT on any entrance fees
collected from patrons and the VAT paid on performance fees may be deducted as input tax
subject to the normal prescribed documentary requirements being met. The clubs must
declare output tax on any performance fees which they receive.
Any compensation received from the insurance company under an insurance claim must be
included in the club’s gross income if the amount is received to fill a hole in the profits 39 of the
club. If the insurance claim is received to fill a hole in the capital assets 40 of a club, the amount
will be of a capital nature and will not be included in the club’s gross income in which case the
amount could be subject to CGT. However, compensation received from an insurance
company may result in a recoupment under section 8(4)(a) of any deductions or allowances
previously claimed under the Act. 41 In such cases, the compensation amount would be
included in the club’s gross income and accordingly excluded from “proceeds” for CGT
purposes.
39 Bos v Commissioner for the South African Revenue Service (2008) ZAGPHC 208, 70 SATC 187.
40 Burmah Steamship Co Ltd v IRC 1931 SC 156, 16 TC 67.
41 Moorreesburg Produce Co Ltd v CIR 1945 CPD 289, 13 SATC 245.
Importantly, under section 23(c), any loss or expense incurred by a club, which would
otherwise be deductible, is not deductible to the extent to which it is recoverable under a
contract of insurance.
Any VAT incurred on the short-term insurance premiums may be deducted as input tax by the
club, if a vendor, since the expenditure will have been incurred in the course or furtherance of
the club’s enterprise. The same will apply if the club pays an insurance premium to cover the
risks associated with injury to players (employees). However, the ability to deduct input tax on
insurance premiums incurred for enterprise purposes by the club is limited to short-term
insurance, as the provision of long-term insurance is an exempt financial service and the
premiums will accordingly not include any VAT.
When an indemnity payment is made to a club that is a vendor under a taxable short-term
insurance policy, the club receiving the payment (the insured) is deemed to make a taxable
supply to the insurer. As the indemnity payment is regarded as having been received by the
club in the course or furtherance of the club’s enterprise, the club will be required to declare
output tax at the standard rate on the amount of the indemnity payment. 42
No deemed supply arises and no output tax should be declared by the club if any indemnity
payment is received under a long-term insurance contract. 43
Certain conditions must be met before a benefit will constitute a taxable benefit for purposes
of the Seventh Schedule. These include that the benefit must –
• be granted by an employer 44 to an employee; 45
• have been granted as a benefit or advantage or, or by virtue of, employment, or as a
reward for services rendered or to be rendered;
• have been granted to the employee or to his or her relatives or any other person;
• have been granted in respect of the employee’s employment with the employer;
• have been granted during the year of assessment; and
• be a taxable benefit as defined in the Seventh Schedule.
Once these requirements have been met, the cash equivalent of the value of the taxable
benefit as determined under the Seventh Schedule must be included in the player’s gross
income.
A benefit is also granted to a player when an associated institution in relation to a club grants
a taxable benefit to the player. An associated institution in relation to a club is essentially any
company managed or controlled directly or indirectly by the same person, as well as any fund
established for the benefit of employees or former employees of an employer or any company
associated with that employer.
44 An “employer” as defined in paragraph 1 of the Seventh Schedule is essentially any “employer” for
employee’s tax purposes.
45 An “employee” as defined in paragraph 1 of the Seventh Schedule is essentially any “employee” in
relation to an “employer” for employees’ tax purposes.
As mentioned above, the amount that must be included in a player’s gross income when the
club has granted the player a taxable benefit, is the cash equivalent of the value of the taxable
benefit as determined under the Seventh Schedule. In most instances, the cash equivalent of
the value of the taxable benefit is based either on the cost to the club or the market value of
an asset granted to the player, or the amount of expenditure incurred by the club in granting
the benefit. Section 23C provides that if the club is a vendor under the VAT Act, and the club
was entitled to an input tax deduction under section 16(3) of the VAT Act, the cost, or market
value, or amount of expenditure incurred, as the case may be, is deemed to be the cost,
market value, or amount of expenditure incurred excluding the deductible input tax for
purposes of calculating the cash equivalent of the value of the fringe benefit.
If the employer is not a VAT vendor, or was not entitled to an input tax deduction in relation to
the relevant expenditure, the cost or market value of the asset, or the amount of expenditure
incurred, must include VAT for purposes of calculating the value of the taxable fringe benefit.
The most common fringe benefits granted to players and the determination of the cash
equivalent value of those fringe benefits is dealt with in 5.10.2.
The deemed supply may, however, itself be exempt or zero-rated for VAT purposes. 48 In
addition, no deemed supply is triggered if the relevant fringe benefit is granted by the club in
the course of making exempt supplies. 49
For example, although low-interest loans and residential accommodation (discussed in 5.10.4)
may constitute taxable fringe benefits for income tax purposes, for VAT purposes no deemed
taxable supply by the club arises as the underlying supplies are exempt from VAT.
As mentioned, there are special rules governing the valuation of a fringe benefit involving the
supply of the right of use of a motor vehicle for VAT purposes. See 5.10.5(c)for more details
in this regard.
The VAT implications of the most commonly provided fringe benefits granted to players and
the determination of the deemed consideration for the related deemed supplies are dealt with
in detail in 5.10.3.
For more details on the VAT implications of fringe benefits in general, see the VAT 404 –Guide
for Vendors on the SARS website as well as sections 18(3) and 10(13) of the VAT Act.
Non-contracted sports players, for example golf or tennis players, are not employees of a club,
but are self-employed. These non-contracted players, or independent contractors as they are
colloquially referred to, have full control of their involvement in the relevant sport and decide
which events or games they will enter and also the frequency of entering events.
Independent players also receive payments arising out of their participation in matches or
competitions which constitute “gross income” and such payments are accordingly taxable in
the hands of the player concerned. These receipts must be declared in the player’s annual tax
return. However, as the independent player and the person paying the player for the player’s
participation are not in an employer/employee relationship, the payments will not constitute
“remuneration” as defined for employees’ tax purposes and as such will not be subject to
employees’ tax. These independent players must register as provisional taxpayers.
The deductions that an independent sportsperson may make from gross income differs
significantly from those permitted to a player who is an employee and who earns income
primarily from a salary.
In the case of an independent sportsperson, a deduction would only be available under the
general deduction formula (see 2) if the player is able to demonstrate that the relevant
expenditure (a) has been incurred in the production of income, (b) is laid out for the purposes
of trade, and (c), is not of a capital nature. Certain other expenditure and allowances may be
available to the independent sportsperson under other specific provisions of the Act, such as
the wear and tear allowance available under section 11(e) that may be claimed on sporting
equipment used by the sportsperson.
Any payment made to a player who is not an employee (that is, an independent contractor)
may be subject to VAT if the person concerned is registered or required to be registered as a
VAT vendor. In such a case, the player will have to charge VAT and account for output tax at
the standard rate on any match fees or other payments received for rendering services to the
club, as the payments will be received in the course or furtherance of the player’s enterprise.
Should a player who is a vendor receive a payment from a club for services physically
rendered outside South Africa, the payment received by the player will be zero-rated. 50 In both
instances the player must provide the club with a tax invoice for the services rendered.
The club may deduct the VAT charged by the player as input tax on the local supplies, but
there will be no input tax in the case of services rendered outside of South Africa.
5.2.1 Introduction
5.2.2 Income tax implications
In the event of a player receiving a transfer fee, this portion will be regarded as forming part
of such player’s signing-on fee, the income tax implications of which are dealt with in 5.3.2.
From the player’s perspective any signing-on fees received as an employee of the club will
constitute ”remuneration” for employees’ tax purposes and will not include any VAT. In the
case of a player that is an employee of the club, but at the same time is registered for VAT in
respect of other taxable activities, the signing-on fee paid in order to secure the services of
that player as an employee of the club will similarly not attract VAT.
In the case of signing-on fees paid to a player who is a vendor and that person’s services are
acquired as an independent contractor to the club, such fees will include VAT. In such a case,
the normal VAT rules will apply insofar as input tax and output tax is concerned, and subject
to the usual documentary requirements.
Image rights are essentially personal rights that are vested in the player as an individual
person. 51 These rights cannot be separated from the sportsperson, and consequently, cannot
be disposed of or “sold” to another person. Further, “a sportsperson has a proprietary interest
in his identity and an infringement of such personality right caused by unlawful commercial
exploitation can lead to economic loss.” 52
The Tax Court was called upon in ITC 1735 53 to decide whether a payment made to a famous
golfer for the right to use his name, likeness and biographical material for promotional
purposes was of a revenue or capital nature. The court held that: 54
“The appellant by allowing his name and reputation to be used did not dispose of such
assets and continued to possess them after the tournament and after he received the
It is therefore clear that payments made to a sportsperson for the right to use the
sportsperson’s “image” rights will be included in the sportsperson’s gross income and will be
taxable as such.
Should such a payment be made to a sportsperson by the club to whom the sportsperson is
contracted, these payments will constitute “remuneration” for employees’ tax purposes.
Since the amount paid to the sportsperson for the exploitation of the sportsperson’s “image”
rights is in these circumstances paid by an “employer” (the club) to an “employee” (the
sportsperson) as contemplated in the Fourth Schedule to the Act, the club is obliged to
withhold employees’ tax and the amount paid for the use of the sportsperson’s “image” rights
must be disclosed on the sportsperson’s IRP5.
The same treatment will apply to endorsement fees and appearance fees, as all three are of
a revenue nature and therefore taxable.
The person who pays for the right of use of the sportsperson’s “image” rights may be entitled
to deduct input tax on the consideration paid for the rights, provided the sportsperson is a
vendor and subject to the usual requirements for deducting input tax, for example, a tax invoice
must be held and the expense must be incurred for the purpose of making taxable supplies.
5.5 Sponsorships
5.5.1 Introduction
Sponsorships are offered to players in various forms such as cash, equipment, clothing,
watches, transport and travel.
Generally an employer-employee relationship will not exist between the provider of the
sponsorship and the player. In situations in which no such relationship exists, and the player
is not deemed to be an employee for employees' tax purposes, 55 the sponsor will not be
required to withhold employees' tax as the amount paid to the player is not remuneration.
55 Which could be the position if, for example, the player is regarded as a “personal service provider”
as defined (paragraph 1 of the Fourth Schedule). A “personal service provider” is essentially any
trust or company where services are provided on its behalf by a connected person in relation to
such trust or company, that is, the player.
Example 6–Sponsorships
Facts:
Player B and Player C were both employed by Club A, which had entered into a sponsorship
agreement with Swiss Watches Limited in terms of which each player of the club received a
free watch worth R5 000. In addition, Player C had, independently of Club A, entered into an
agreement with Magic Motor Manufacturers (MMM), in terms of which Player C was granted
the right to use a vehicle manufactured by MMM for a period of 3 years in exchange for the
right to have Player C’s name advertised on the vehicle.
Result:
As the watches were given to the players by virtue of their employment with Club A or for
services rendered or to be rendered by the players to the club, the club was regarded as
having provided them with a taxable benefit under the Seventh Schedule. The market value
of the watches (R5 000) was accordingly both gross income and remuneration in Player B and
Player C’s hands. Club A was obliged to deduct or withhold employees’ tax from such
remuneration. While the sponsorship received by the players was not in cash, Club A had to
still deduct or withhold the relevant employees’ tax from any other cash remuneration derived
by the players. In the event that the aggregate amount of employees’ tax to be deducted or
withheld was greater than the cash remuneration derived by the players, Club A had to notify
SARS immediately.
The market value of the use of motor vehicle sponsorship received by Player C from MMM
was also gross income in Player C’s hands and was subject to income tax. However, in this
instance the amount received was not remuneration as Player C had not received the
sponsorship by virtue of their employment with Club A. Club A therefore did not have to deduct
or withhold any employees’ tax for the vehicle sponsorship enjoyed by Player C. The sponsor
MMM may, however, have an obligation to deduct employees’ tax, depending on the terms of
the sponsorship agreement and if the relationship between MMM and Player C amounts to an
employer-employee relationship.
The position is the same regardless of whether the sponsorship is in cash or in kind (goods or
services). Should the sponsorship be in kind then, in essence, two supplies have taken place,
namely, a supply of services by the player to the sponsor in exchange for the sponsorship and
the supply of the goods or services by the sponsor to the player in exchange for the services
rendered by the player. The consideration for the relevant supplies (by the player and by the
sponsor) is, in these circumstances deemed to be the open market value of the consideration
received. 57 In an arm’s length situation, the open market value of the services rendered by the
player and the sponsorship in the form of goods and services would be expected to be the
same. 58
Example 7–Sponsorships
Facts:
Player X and Player Y were both employed by Club Hockey on a full-time basis. Club Hockey
entered into a sponsorship agreement with Shirts Limited in terms of which each player of the
club received branded casual clothing worth R50 000 for the season. Player Y was a vendor
in relation to her non-employment related taxable sporting activities.
While both Player X and Player Y have received R50 000 worth of branded casual clothing,
Player Y had, independently of Club Hockey, entered into an agreement with Beach Motors
in terms of which Player Y was being granted the right to use a motor vehicle of the type
usually sold by Beach Motors for a period of 3 years, and in exchange the motor vehicle had
to have Player Y’s name as well as Beach Motors’ logo painted on the vehicle. The reciprocal
supplies were regarded as being of equal value and the open market value of the use of the
motor vehicle was determined as being R5 000 per month (including VAT) under sections 3
and 10(3) of the VAT Act.
Result:
Since the branded clothing was acquired by the players by virtue of their employment with
Club Hockey or for services rendered or to be rendered by the players to the club, Club A was
regarded as having granted the players a taxable benefit for income tax purposes. The market
value of the clothing was accordingly both gross income and remuneration in Player X’s and
Player Y’s hands. As the sponsorship constitutes remuneration in Player X’s and Player Y’s
hands, the sponsorship did not give rise to any VAT implications for either player, regardless
of the fact that Player Y was a vendor in relation to her non-employment related activities.
5.6 Prizes
5.6.1 Introduction
A prize for winning a sporting event may be paid in cash or in kind and either directly or
indirectly to the winning club, team or individual sportsperson, or a combination thereof. In the
event of a team winning a tournament and the players not being paid the prize directly by the
tournament sponsor, two scenarios could occur regarding the winning team and the
subsequent entitlement of the sportsperson to all or part of the prize.
The first is that the sponsor awards the prize to the winning club and the club then distributes
the prize amongst the players. In the case of all or part of the prize being distributed to the
players it is often at the discretion of the club or determined by prior agreement between the
club and the players as to how much each player receives.
The second scenario is that the prize is paid to the club, but the prize is expressly for the
benefit of the individual players. The club, in these circumstances, acts merely as a conduit
through which the prize is distributed to the players.
In the unlikely event that the player is an independent contractor, the prize would still be gross
income in this player’s hands, but would not be remuneration that would be subject to
employees’ tax as the club and player are, in these circumstances, not in an employee-
employer relationship for employees’ tax purposes. The independent contractor must declare
the prize money in the income tax return.
The sportsperson receives the prize indirectly: The prize is paid to the club for its benefit but
is subsequently paid to the players
Any prize (whether in cash or in kind) received by a club that is subsequently distributed by
the club to the players in its employment is derived by the players by virtue of their employment
or for services rendered by them and accordingly forms part of their gross income. The prize
would also fall within the definition of “remuneration” for employees’ tax purposes and would
be subject to employees’ tax, as an employer-employee relationship exists between the club
and players.
Should the prize accrue to the player via the club as conduit, there will generally be no
obligation on the part of the sponsor to withhold employees' tax, since it cannot be said that
there is an employee-employer relationship between the player and the sponsor. Similarly, the
club will not need to account for any employees’ tax in this instance as it will not have paid
any remuneration to the player as the club has in effect merely acted as conduit for the
payment of the prize (often referred to as a paymaster arrangement).
The player is required to disclose the prize in the income tax return.
The sportsperson receives the prize indirectly: The prize is paid to the club for its benefit but
is subsequently paid to the players
Any part of the prize that is contractually owing to the club but which is distributed by the club
to any individual team player who is an employee of the club would constitute remuneration
for employees’ tax purposes. Such remuneration is specifically excluded from the ambit of the
definition of “enterprise” and as such would not be subject to VAT, even if the player was
registered as a vendor in respect of the player’s other taxable activities. It follows that the
player would not be required to account for any VAT on the portion of the prize received by
him or her. As no VAT is included in the payment to the player, the club would not be entitled
to deduct any tax it might have incurred on acquiring the prize awarded to the player.
In the event that the player is independent and a vendor, the player would need to account for
VAT (output tax) on the prize (consideration) received by the player for the supply of his or her
services to the club. Should the prize be in kind, for example, a car or free services, the open
market value of the prize would need to be determined and such value would constitute the
“consideration” derived by the player for the services supplied by the player to the club.
The player is required in these circumstances to issue a valid tax invoice to the club.
59 See CIR v Witwatersrand Association of Racing Clubs 1960 (3) SA 291(A), 23 SATC 380.
Should a player receive compensation that is not regarded as being revenue in nature, being
compensation for damage to the player’s income-earning structure (the player’s body), the
compensation could constitute proceeds derived by the player for the disposal of a capital
asset, as the right to claim compensation is an asset in the hands of the player. However,
under paragraph 59 of the Eighth Schedule a natural person must disregard a capital gain or
a capital loss on a disposal which results in that person receiving compensation for personal
injury, illness or defamation. The stated reason for this exclusion is that “any compensation
received would normally be intended to restore the person who has suffered harm to the
position he or she was in before the injury, illness or defamation.” 61
Result:
The amount of R250 000 compensation received by Magic Striker from the club was taxable
in Magic Striker’s hands under paragraph (c) of the definition of “gross income”.
The compensation of R20 000 received from the other player, being of a capital nature and
unrelated to Magic Striker’s employment, fell outside paragraph(c) and was excluded from
CGT under paragraph 59 of the Eighth Schedule.
From 1 March 2015 the premiums paid on income protection policies are no longer deductible
in the determination of a person’s taxable income, but any compensation paid under these
policies are exempt from normal tax. 62 Similarly, the premiums paid on capital protection
policies (long-term policies) are not deductible in the determination of taxable income since
they do not produce income, while the compensation payable under these policies may be
excluded from gross income if they are capital in nature and may also be excluded from CGT
if certain requirements are met. 63
The merits of each case should be considered when deciding whether an amount of
compensation constitutes a receipt of a revenue or capital nature in the player’s hands.
Any indemnity payment made under a contract of insurance to a player who is a vendor is
deemed to be consideration received for a supply by the player 64 to the extent that it relates
to a loss incurred in the carrying on of his or her enterprise. This will, however, apply only if
the contract is one of taxable short-term insurance. While the definition of “insurance” 65 is very
broad and includes any insurance against loss, injury or risk of any kind whatever, specifically
excluded is any “long-term insurance policy” as defined. 66 As a general rule, therefore, a player
who is a vendor and who receives compensation under a contract of long-term insurance for
loss of earnings will not have to account for output tax. As in the case of income tax, there
may be some exceptions as each case must be considered based on the facts and
62 Sections 10(1)(gG)(i), 10(1)(gI), 23(r), and paragraph 12C of the Seventh Schedule, as amended
and inserted by the Taxation Laws Amendment Act, 2013 with effect from 1 March 2015.
63 Paragraph 55 of the Eighth Schedule.
64 Section 8(8) of the VAT Act.
65 Section 1(1) of the VAT Act. See also the VAT 421 – Guide for Short-term Insurance for more details
in this regard.
66 Section 2(2) of the VAT Act.
In other situations a player maybe paid a bonus on achieving a certain result, such as a bonus
paid to members of a team on winning a particular competition or for achieving a personal
best; or an award such as a “man-of-the-match”. This additional amount paid to the player is
an incentive payment or bonus that arises from normal employment and thus forms part of the
player’s taxable income.
All of these benefits (benefit match proceeds, bonuses and man-of-the-match awards)
received by a player from the club constitute remuneration, as they are received for or by virtue
of services rendered, employment or the termination of employment. The full award (whether
in cash or kind) is taxable and employees' tax must be deducted therefrom by the club.
In the case of benefit match proceeds, bonuses and “man-of-the-match” awards being
received directly by a player from sponsors or third parties, the amount received must also be
included in the gross income of the player. Should the player receive these benefits in the form
of goods or services, the market value thereof must be included in the player’s gross income.
However, if there is no employer-employee relationship between the sponsor and the player
in these circumstances, no employees' tax withholding obligation arises.
Similar bonuses and benefit payments made to non-contracted players (that is, so-called
independent contractors) would be subject to VAT only if the player is a vendor since the
67 Paragraphs (c) and (d) of the definition of “gross income” in section 1(1).
Reimbursements and advances are not subject to tax in the hands of the employee when the
employer instructs the employee to expend money on its behalf, for purposes of the
employer’s trade, and the employer requires proof of the expenditure from the employee. 69
Sometimes employees are in receipt of allowances that are greater than the true anticipated
business expense. This excess portion is regarded as normal remuneration for services
rendered, and constitutes gross income that is subject to the normal employees’ tax rules.
Also applicable to allowances and advances are the exemptions provided for in section 10.
For example, uniform allowances are exempt from income tax, provided it meets the
conditions specified in the particular exemption provision.
68 Section 8(1)(a)(i).
69 Section 8(1)(a)(ii).
70 Section 8(1)(c).
As regards employees’ tax, 80% of the allowance is generally subject to the deduction of
employees’ tax on a monthly basis. However, if an employer is satisfied that at least 80% of
the use of the vehicle for a year of assessment will be for business purposes, only 20% of the
travel allowance or advance is included as remuneration and is subject to the deduction of
employees’ tax on a monthly basis.
While 80% of any travel allowance granted to a player would generally be treated as
remuneration subject to employees’ tax, this is not necessarily the amount that is taxable in
the player’s hands. The travel allowance granted to a player need only be included in the
player’s taxable income to the extent that it is not expended on business travel. In order to
determine the cost incurred by the player on travelling for business purposes, the player is
required to keep accurate records of business travel (which may be in the form of a logbook).
Two methods may be used to calculate the deduction – the player can choose either of the
two methods described below:
• Actual business kilometres travelled during the year of assessment multiplied by the
deemed rate per kilometre. 71
• Actual business expenditure, that is, actual business kilometres travelled during the
year of assessment multiplied by actual expenditure incurred divided by total
kilometres travelled in that year. The player must be able to provide accurate
information to substantiate the expenses, which information may be in the form of
keeping a logbook.
71 The deemed rates per kilometre are published annually in the SARS Electronic Travel Logbook,
available on the SARS website.
No deduction for travelling is permitted if detailed records are not kept. Expenditure on private
travelling (for example, from home to the place of employment) is not deductible.
Having determined the actual kilometres travelled by the player on business, the next step is
to multiply the kilometres travelled on business by the actual or deemed cost per kilometre to
arrive at the deductible business expense. In the event that actual data is used to determine
the cost per kilometre, a player must retain sufficient documentation in order to prove, if
requested, the accuracy of such data. In the alternative, the player can use the deemed cost
per kilometre specified by the Minister of Finance in the Government Gazette.
In circumstances in which the allowance granted to a player is for a vehicle that the player has
been granted the right to use under paragraph 7 of the Seventh Schedule (that is, an
“employer-owned company car”), the allowable deduction is Rnil.
A player that receives a travel allowance and a travel reimbursement must add the amount of
the travel reimbursement to the amount of the allowance and determine the allowable
deduction for the amount of business usage using one of the two methods discussed above.
As the player (being an employee) will have incurred the related travel costs in a private
capacity, no VAT implications should arise. It cannot be said that the player has in these
circumstances acted as an agent on behalf of the club in incurring the relevant expenditure.
Should the player be a vendor and part of the travel allowance does not constitute
remuneration, but rather, consideration for a taxable supply by the player, the player would be
entitled to claim an input tax deduction for the VAT incurred on any qualifying expenditure.
As noted above, no input tax deduction may be claimed on the acquisition of a “motor car” as
defined, 73 while fuel is zero-rated and no input tax deduction is similarly available on this
expenditure item.
72 Paragraph (iii)(aa) of the proviso to the definition of “enterprise” in section 1(1) of the VAT Act.
73 Section 1(1) of the VAT Act.
Should the amount reimbursed meet the requirements set out above, the amount falls to be
treated in a similar manner to a travel allowance, namely, that the amount of the
reimbursement is regarded as taxable income to the extent that the amounts reimbursed are
not expended on business travel. 74 However, as in the case of a travel allowance, the player
will be regarded as having expended so much of the amounts reimbursed on business travel
as does not exceed the actual distance travelled multiplied by the rate per kilometre fixed by
the Minister of Finance in the Government Gazette. The amounts reimbursed will not
constitute remuneration 75 to the extent that they do not exceed the limits referred to above, 76
and the club will only need to account for employees’ tax on any amount reimbursed to a
player for having used his or her private vehicle to travel on the club’s business that exceeds
the limits referred to above. The amount reimbursed to the player in such circumstances is
also required to be reflected under code 3702 on the player’s IRP 5.
The distance travelled for business purposes can be proved by a logbook in which the
business kilometres, destinations and dates on which the travelling occurred, must be
reflected.
74 Section 8(1)(a).
75 Paragraph (cA) of the definition of “remuneration” in paragraph 1 of the Fourth Schedule, read with
section 8(1)(b)(iii).
76 Paragraph (cC) of the definition of “remuneration in paragraph 1 of the Fourth Schedule.
5.9.4 Accommodation
(a) Introduction
A player may receive an allowance to cover the cost of expenses for accommodation, meals
and other incidentals incurred while away on business. The allowance would be applicable if
the club does not pay for or reimburse the player for the expenditure incurred.
The deduction available on the portion of the allowance for accommodation is the actual
expenditure incurred by the player, limited to the portion of the allowance relating to
accommodation.
The deduction available on the portion of the allowance for meals and incidentals (commonly
referred to as a subsistence allowance) may be calculated as follows:
• Actual expenditure, limited to the amount of the allowance 79 (the player must retain the
supporting documentation to prove the expenditure incurred); or
• The amount as set by the Commissioner and published in the Government Gazette. 80
For the years of assessment commencing on or after 1 March 2019 , the amount
deemed to have been expended for meals and incidentals for travel in the Republic is
R435 per day while for incidentals only, the rate is R134 per day. The amount for travel
outside the Republic depends on the particular country where the travel occurred – a
list of the rates is available on the SARS website.
77 Section 8(1)(a)(i)(bb).
78 While the Act provides that any subsistence allowance must be included in a player’s taxable
income, the amount of subsistence allowance to be so included must in essence be reduced by the
amount actually expended by the player on accommodation, meals and other incidental costs while
the player is away from his or her usual place of residence in South Africa for at least one night
[section 8(1)(a)(i)(bb)]. In reality therefore, no deduction per se may be claimed by the player, the
amount of the subsistence allowance is merely reduced by the amount actually expended by the
player on accommodation, meals and other incidental costs.
79 Section 8(1)(c)(i).
80 Section 8(1)(c)(ii).
In a case in which the allowance or advance does not constitute remuneration because it is
paid to an independent contractor, the amount received will constitute consideration received
by the player for the supply of services for VAT purposes and the player would need to account
for output tax thereon if registered as a vendor. This will also be the case if such amounts
(either alone, or together with other non-remuneration amounts earned) cause the player to
exceed the compulsory VAT registration threshold.
From a VAT perspective, the club, if a vendor, is deemed to have made a supply of the taxable
benefit to the player concerned and may be required to account for output tax at the standard
rate on the deemed consideration for that supply. The consideration for such a supply is
deemed to be the cash equivalent value of the benefit for income tax purposes (except in the
case of the grant of the right of use of a motor car by the club, in which case specific valuation
rules apply for VAT purposes).
The VAT implications that arise in consequence of the grant by a club of specific taxable fringe
benefits are dealt with in detail under 5.10.2 to 5.10.10.
The taxable amount of the benefit is equal to the rental value, calculated as stipulated in the
Act, less any rental consideration the player pays to the club for the benefit.
81 Paragraph (iii)(aa) of the proviso to the definition of “enterprise” in section 1(1) of the VAT Act.
Holiday accommodation is also a taxable benefit but it is not calculated using the formula
above – it would be based on the cost incurred by the employer or a market related rental per
day if the employer does not incur any direct costs (for example, a holiday house owned by
the employer).
A cash allowance that has been granted to a player in order to defray accommodation costs
will be subjected to employees’ tax (see 5.9.4).
The cash equivalent of the value of the taxable benefit must be calculated during the year of
assessment at the same intervals at which the player is remunerated, and employees’ tax
must be deducted.
The cash equivalent of the value of the taxable fringe benefit must be reflected under code
3805 on the player’s IRP5 certificate.
82 A rate of 18% will apply if the accommodation consists of at least 4 rooms and is unfurnished but
power or fuel is supplied by the club, or if the accommodation is furnished but power and fuel is not
provided by the club. A rate of 19% will apply if the accommodation consists of at least 4 rooms
which are furnished and power or fuel is supplied by the club.
The value of the private use is calculated at 3,5% per month of the “determined value” of the
vehicle (as defined in the Seventh Schedule, generally the cash cost of the vehicle acquired
by the employer including VAT). The percentage reduces to 3,25% per month if the vehicle is
the subject of a maintenance plan which commenced at the time the vehicle was acquired.
The actual cost incurred (including the cost of fuel) must be used to calculate the taxable
benefit when the motor vehicle was acquired by the employer under an operating lease
concluded by parties transacting at arm’s length and that are unconnected to each other.
The determined value of the motor vehicle is reduced when the player is first granted the right
of use of the motor vehicle 12 months or more after the club first acquired the motor vehicle
or the right of use thereof. The reduction is by means of a depreciation allowance of 15%
determined in accordance with the reducing balance method for each completed 12-month
period from the date the club acquired the motor vehicle.
The value of private use of a motor vehicle which is only used for part of the month must be
apportioned and only that part of the month in which it was used must be taken into account.
For example, if a player only gets the use of the motor vehicle half way through the month only
half a month is taken into account. The period taken into account does not exclude temporary
absences, such as the motor vehicle being in for repairs or the player being on holiday.
Should more than one vehicle be made available to a player at the same time, each vehicle
represents a separate taxable benefit. However, if a player is able to satisfy SARS that each
vehicle was used during the year of assessment primarily for business purposes, the value to
be placed on the private use of all the vehicles is deemed to be only that of the vehicle with
the highest value of private use.
The cash equivalent of the value of the taxable benefit is equal to the value of private use
(generally calculated as discussed above) less any consideration the player pays the club for
the private use of the vehicle (excluding any consideration for the cost of licences, insurance,
maintenance or fuel).
See Interpretation Note 72 “Right of Use of Motor Vehicles” for additional detailed guidance
on the calculation of the taxable benefit arising from the use of an employer-owned vehicle if
required.
The taxable benefit may be adjusted on assessment of a player’s income tax return, based on
the ratio of business kilometres and private kilometres travelled, provided the player maintains
an accurate record, which may be in the form of a logbook. Further relief could be available
on the cost of licence, insurance, maintenance and fuel for private travel, if the full cost of
these expenses were borne by the player.
However, the cash equivalent value of the motor car fringe benefit is not the deemed
consideration upon which output tax must be accounted for by the employer (club).
The consideration for the supply is instead required to be calculated in the manner prescribed
by the Minister of Finance in Regulation GN 2835 – Directions for purposes of sections 10(8)
and (13) – dated 22 November 1991.
This Regulation basically provides that the consideration in money for the deemed supply
(taxable benefit) upon which VAT is payable is calculated as being –
• 0,3% of the determined value (see above) of the motor vehicle (for each month or part
thereof) if an input tax credit on the supply of the motor vehicle was specifically denied
under section 17(2) of the VAT Act; or
• 0,6% of the determined value (see above) of the motor vehicle (for each month or part
thereof) if an input tax credit has, or may be deducted by the club on the supply to the
club of the motor vehicle.
However, no value is placed on the private or domestic use of an asset provided by a club to
a player if the asset consists of a telephone or computer which the player uses mainly for the
purposes of the employer’s business. The term “mainly” has been interpreted by our courts to
mean usage in excess of 50%.
The cash equivalent value of the taxable benefit is the cost to the club of rendering the
communication services or having such services rendered to the player, less any amount paid
by the player to have the services rendered.
No value is placed on a communication service which the player uses mainly for the purposes
of the club’s business. The term “mainly” has been interpreted by our courts to mean usage
in excess of 50%. For example, the portion of the bill that relates to private use will not result
in a taxable benefit in the hands of the player when the monthly network subscription is paid
for by the club but the network access is used mainly for business purposes.
Thus, insurance products such as group life or death and disability policies, in which the player
is covered under the policy irrespective of whether the insured event occurs as a result of such
player’s employment, constitutes a taxable benefit. However, insurance such as flight
insurance while travelling to a match in another city is not a taxable benefit as the relevant
insurance policy relates to an event (the match) arising solely out of and in the course of the
player’s employment by the club.
The cash equivalent value of the taxable benefit is the amount of any premiums incurred by
the club, directly or indirectly, under the policy. To the extent that the premium is paid for an
income protection policy, and is taxed as a taxable benefit in the player’s hands, it is regarded
as having been paid by the player and may therefore be deductible in the player’s hands.
From 1 March 2015 the premiums paid on income protection policies will no longer be
deductible, but any compensation paid under the policy will be exempt from normal tax. 83
Premiums paid on capital protection policies (long-term policies) are likewise not deductible.
Any compensation payable is excluded from gross income if it is capital in nature and may be
excluded from CGT if the provisions of paragraph 55 are met.
83 Sections 10(1)(gG)(i), 10(1)(gI), 23(r), and paragraph 12Cof the Seventh Schedule, as amended
and inserted by the Taxation Laws Amendment Act, 2013 with effect from 1 March 2015.
In the event that the club has borne the expense of transporting the player, members of this
player’s household and personal goods and possessions from a previous place of residence
to a new place of residence, the benefit is exempt from tax. 85
The following items are exempt from income tax if the club reimburses the player for the actual
expenditure incurred:
• Bond registration and legal fees paid for a new residence that has been purchased;
• Transfer duty paid on the new residence;
• Cancellation fees paid of the cancellation of bond on the previous residence;
• Agents commission on sale of previous residence;
• New school uniforms;
• Replacement of curtains;
• Motor vehicle registration fees; and
• Telephone, water and electricity connection. 87
The expenditure that is exempt from tax must be reflected under code 3714 on the player’s
IRP5 certificate. In cases in which the costs incurred by the club are taxable in the hands of
the player, the amount must be reflected under code 3713 on the IRP5 certificate.
84 Section 10(1)(nB).
85 Section 10(1)(nB)(i).
86 Section 10(1)(nB)(iii).
87 Section 10(1)(nB)(ii), read with paragraph 16.2 of the Guide for Employers in respect of Employees’
Tax (PAYE-GEN-01-G14).
88 Paragraph (a) of the definition of “taxable benefit” in paragraph 1 of the Seventh Schedule.
However, the value of a uniform or a reasonable uniform allowance is exempt from tax 89 if –
• the uniform (kit) is a special uniform;
• the player is, as a condition of employment, required to wear the uniform (kit) while on
duty; and
• the uniform (kit) is clearly distinguishable from ordinary clothing.
Unless all of the above conditions are satisfied, the value of the uniforms provided to players
is taxable and employees’ tax must be deducted from the player’s remuneration, or from the
allowance, if an allowance is paid. The value of the uniform or the allowance amount must be
reflected under code 3709 on the player’s IRP5 certificate.
Should the provision of uniforms to employees not be exempt from income tax and a taxable
fringe benefit arises for income tax purposes, the club will be required to account for output
tax on the cash equivalent of the value thereof. The output tax is calculated by applying the
tax fraction (15 / 115) to the cash equivalent of the value of the taxable benefit. Since the club
is deemed to make a taxable supply of the taxable benefit to the player, the club will be entitled
to deduct input tax on any goods or services acquired by the club in order to supply the
uniforms.
89 Section 10(1)(nA).
Any contributions paid by the club to a foreign medical aid scheme (that is, any fund which is
registered under similar provisions to South African registered medical schemes contained in
the laws of the foreign country where the medical scheme is registered) will also be treated as
a taxable fringe benefit in the hands of the player. For purposes of determining the MTC or
AMTC available to the player for medical contributions, the player is deemed to have paid the
contributions.
The income tax treatment of medical scheme contributions and medical expenditure incurred
by a player (or which are deemed to have been incurred by a player in the circumstances
mentioned above) is set out in the Guide on the Determination of Medical Tax Credits.
Any medical expenses or fees for hospitalisation paid by the club, or which are provided by
the club to any players who are injured on duty (whether provided at the club’s medical facility
or at a private facility), are treated as a taxable benefit under the Seventh Schedule. However,
a nil value (and accordingly a nil consideration for VAT purposes) may apply in certain
circumstances. The club would in these circumstances not be liable to account for output tax
on the benefit.
The club will, however, be entitled to deduct any VAT charged or included in the cost of
providing medical services to its players as input tax if the expense is incurred in the ordinary
course or furtherance of the club’s enterprise (that is, conducting the sporting activity). Should
the club pay medical expenses of any of the players’ family, those expenses are not regarded
as being incurred in the course or furtherance of the club’s enterprise and therefore no input
tax in respect thereof would be allowed.
In the event that a player is a vendor and incurs medical expenses as a consequence of any
illness or injury related to the player’s activities as player, the player is entitled to deduct input
tax (subject to the usual documentary requirements) since such expenses would have been
incurred in the course or furtherance of the player’s enterprise.
As regards the payment by a club of the membership fees due by the player to a professional
body to which the player is required to be a member as a condition of the player’s employment,
the cash equivalent value of the fringe benefit is deemed to be nil for income tax purposes.
The consideration for the deemed taxable supply is similarly deemed to be nil for VAT
purposes. Importantly, the club is not entitled to any input tax deduction of any VAT paid to
such a professional body as the relevant supply by the professional body is made to the player
and not the club.
The contributions (including arrear retirement fund contributions) that will be allowed as a
deduction in the year of assessment are limited to the lesser of the following: 95
• R350 000;
• 27,5% of the higher of remuneration or taxable income; or
• Taxable income before the player’s taxable capital gain is included.
The remuneration referred to is remuneration for employees’ tax purposes, but excluding
retirement lump sums 96 and severance benefits. The taxable income referred to excludes
retirement lump sums and severance benefits, and before the deduction of qualifying
retirement fund contributions, certain foreign tax credits and permissible donations.
Contributions made in prior years that were not allowed as a deduction due to the limitations
discussed above in those years, will be carried forward to the next year of assessment unless
they had been deducted from a retirement lump sum, or set off against a compulsory annuity. 97
The limits apply to the sum of all contributions made to pension funds, provident funds and
retirement annuity funds. The deduction may be set off against any income of the player,
including interest. 98
In circumstances in which a player is required to repay an amount to the club, and that amount
was previously included in that player’s taxable income, the amount repaid may be claimed
as a deduction in the year of assessment in which it is repaid. 99 A deduction is claimable only
on submission of the annual income tax return.
93 Section 11F(4).
94 Section 11F(1).
95 Section 11F(2).
96 These include retirement fund lump sum benefits and retirement fund lump sum withdrawal benefits.
97 Section 11F(3).
98 Section 11F(1).
99 Section 11(nA).
The repayment by the player of the amount previously paid by the club to the player does not
give rise to any VAT implications as the repayment of the amount does not constitute
consideration for any supply made by the club to the player.
The deduction of agent’s fees incurred by a player who is an employee in the production of
the player’s income that is not from employment (for example, if an agent secures a
sponsorship deal for the player which is not connected with the player’s employment), is not
prohibited by section 23(m).
A player, who is an independent contractor and who is registered as a vendor for VAT
purposes, will be entitled to claim as an input tax deduction any VAT charged by the agent as
the services provided by the agent will have been acquired by the player for the purpose of
making taxable supplies. A player who is in the employment of a club will not be entitled to
claim any input tax deduction on any VAT paid to an agent since the player will, in these
circumstances, not have acquired the services of the agent for the purpose of making taxable
supplies.
SARS is responsible for administering the SDL in so far as it relates to the collection and
payment of the levy by employers. The leviable amount is the total amount of remuneration
paid by an employer (club) to its employees (players) during any month and 1% of the leviable
amount is payable to SARS by the employer (club).
Amounts paid to players below the income tax threshold (that is, in those cases in which no
employees' tax is deducted) must also be included in the aggregate players’ remuneration
when determining the leviable amount for the club. Small businesses who anticipate that their
total payroll for the forthcoming 12 months will be less than R500 000, do not need to pay
these levies. The SDL is paid with the employees' tax on a monthly basis.
SETAs are regarded as public authorities and are not liable to register for VAT. Grants that
are paid by SETAs to sports clubs that are employers for the purposes of training their
employees are subject to VAT at the zero rate.
The rate of contribution is 1% by the club and 1% by the player on such player’s remuneration,
and the club is obliged to withhold the player’s contribution and pay both amounts to SARS.
If any player earns more than R14 872 per month (R178 464 annually), the total contribution
is payable only on the first R14 872 of remuneration. The maximum contribution is therefore
R297,44 per month, representing the total contribution by both the club and the player.
Unemployment benefits paid under the Unemployment Insurance Act 63 of 2001 are exempt
from tax. The benefits are paid in the following circumstances:
• Ordinary unemployment benefits to unemployed contributors who are capable of and
available for work.
• Illness allowance to contributors who are unemployed owing to illness.
• Maternity benefits to female contributors who are unemployed during the pregnancy.
• The spouse or minor child of someone who has died, if the deceased contributed to
the fund.
Unemployment Insurance Fund payments do not include any VAT and employers may not
deduct input tax on such payments. Any player that receives unemployment benefits will not
be regarded as having received consideration for services rendered and no VAT implications
will arise in the player’s hands, regardless of whether the player is a vendor or not.
Donations tax is payable by the donor on the value of any property disposed of under any
donation by any resident 100 unless an exemption applies. 101 If the donor fails to pay the
donations tax by the end of the month following the month during which a donation takes
effect, or a longer period as allowed by the Commissioner, the donor and the donee become
jointly and severally liable for the tax. 102
A donation (whether in money or in kind) made to an organisation which has been approved
under section 30 as a public benefit organisation will qualify as a deduction, but must actually
be paid or transferred during the year of assessment. 103
For more information on donations tax, see the Tax Exemption Guide for Public Benefit
Organisations in South Africa, which contains information regarding donations and public
benefit organisations (PBOs).
A donation made to a professional club that is given completely gratuitously will not constitute
“consideration” as defined unless it is paid in relation to a supply of goods or services by the
club to the donor or any other person. Stated differently, if a donation is paid “in respect of, in
response to, or for the inducement of, the supply of goods or services” by the club, it will be
regarded as “consideration” for the taxable supply of goods or services by the club. However,
given that the supply relating to the donation need not be made directly by the club to the
donor, but can be made to any other person, in the event that the sporting organisation
receiving the payment is not an association not for gain a donation (voluntary payment) will
usually constitute consideration received by the club for a taxable supply of goods or services
and will be subject to VAT at the standard rate. The donation in these circumstances will then
constitute a voluntary payment made in respect of a taxable supply by the club, albeit for the
benefit of a third party.
For further information regarding donations, see the VAT 414 – Guide for Associations not for
Gain and Welfare Organisations.
Over the years, South Africa has entered into a number of tax treaties concerning the
avoidance of double taxation with various countries which are aimed at regulating the taxation
of income which is earned in one country but which is subject to tax in both the country where
the player is a tax resident and where the player renders their services. The main objective of
a tax treaty is to avoid double taxation on the same income. Most tax treaties specifically
regulate the allocation of taxing rights in respect of sportspersons.
Section 6quat provides for the claiming of foreign taxes paid by a resident as a credit against
the resident’s South African tax liability. Importantly, the rebate is available only when the
relevant foreign taxes are imposed on income earned from a source outside South Africa that
is also subject to tax in South Africa. Additionally, section 6quat also provides for a deduction
from taxable income, derived by a resident from carrying on a trade, of foreign taxes which do
not qualify for a tax rebate. Note that the section 6quat rebate or deduction is granted in
substitution for the relief to which a resident would be entitled to under a tax treaty, and not in
addition to such relief.
Section 6quin provided for a rebate for foreign taxes paid on income derived by a resident
from services rendered in South Africa, but has since been repealed. Certain recoupment
provisions may still, however, be applicable.
For more information on the deduction of foreign taxes, see Interpretation Note 18 “Rebates
and Deduction for Foreign Taxes on Income”.
105 A “person” is defined in section 1(1) as including, amongst other things, a trust. Under the
Interpretation Act 33 of 1957, a “person” includes “any body of persons corporate or unincorporate”.
106 Paragraph (b) of the definition of “resident” in section 1(1).
The tax implications for foreign entertainers and sportspersons are briefly discussed below.
For more information contact the Office of Non-Resident Entertainers and Sportspersons via
email at [email protected]. A list of contact persons is also available on the
SARS website. 108
However, the withholding tax does not apply to players who are employees of a resident South
African employer (such as non-resident players contracted to play for a South African club for
a period of time), or to players physically present in South Africa for more than 183 days in
aggregate in any 12 month period, commencing or ending during the year of assessment, in
which the specified activity is exercised. These players will be subject to normal tax on any
income derived by them from a source in South Africa.
There is also an obligation on any resident who is primarily responsible for founding,
organising or facilitating a specified activity in South Africa to notify SARS of such activities
and to provide SARS with any details related thereto which may be requested.
For more information on residence and source, see Interpretation Note 3 “Resident: Definition
in relation to a Natural Person – Ordinarily Resident”; Interpretation Note 4 “Resident:
Definition in relation to a Natural Person – Physical Presence Test” and Interpretation Note 6
“Resident: Place of Effective Management (Persons Other Than Natural Persons)”.
107 “Specified activity” is defined in section 47A(b) as “any personal activity exercised in the Republic
or to be exercised by a person as an entertainer or sportsperson, whether alone or with any other
person or persons”.
108 www.sars.gov.za/Contact/Head-Office/Pages/Contact-for-non-resident-entertainers-and-
sports-persons.aspx [Accessed 7 February 2019].
11. Conclusion
This guide is meant to provide clarity on some of the issues and situations experienced by
sports clubs and sportspersons in South Africa. Since not every situation can be addressed,
the guide seeks to provide guidance on those matters most commonly experienced. Note that
each case has to be considered independently and on its particular facts when deciding on
the taxability of a specific activity or income source.
Further information can be obtained from the SARS website and from SARS offices
nationwide.