Amateur sportspeople take part in a sport mainly for fun or fitness. Professional sportspeople do it for payment or financial reward.
You can be a professional for tax purposes even if your sporting code lets you compete as an amateur.
If you are an amateur sportsperson, any prize money won is generally not taxable, regardless of the amount received, and you do not need to include this in your tax return.
For example, if you participate casually in competitions and win prize money that is not connected to your business or income-earning activity, you will have no tax consequences.
If you’re a professional sportsperson for tax purposes, your tax return must include all the payments and prizes you receive. This includes:
- appearance money
- match fees
- win bonuses
- contract payments
- prize money
- prizes other than money
- speaking endorsements
- book sales
- testimonials and benefit matches.
You will need to pay income tax on any payments and prizes you receive. You might also need to pay goods and services tax (GST).
How you pay income tax depends on whether you’re an employee or self-employed.
If you’re an employee with salary or wages from sports
If you’re an employee who gets a salary or wages from sports, your tax (and the ACC earners’ levy) will be deducted before you get your pay.
Any amounts that have not had tax deducted from them must be included as income in your tax return. For example, from prizes not paid by your employer. You are treated as a contractor for this portion of your income.
If you’re self-employed or a contractor
If you receive prize money over $500 as a participant in a single event, withholding tax must be deducted from the part that’s over $500. You must declare the total prize money (including the first $500) in your tax return.
You must complete a Tax rate notification for contractors - IR330C form, listing the activity as ‘participants in sporting events’. If you do not complete an IR330C, your income will be taxed at the no-notification rate of 45%.
You can claim up to $500 in expenses against that prize money received per event. This covers expenses such as travel costs, accommodation, and entry fees. You do not need to provide receipts for this. If it costs you more than $500 to take part in an event, you may want to claim the actual and reasonable costs instead. To do this, you will need receipts for everything you’ve spent.
If you take part in an event and do not win prize money, you can take deductions for what it cost you to participate, as allowed under the ordinary deduction rules for businesses.
There are special rules for expenses if you buy an item of significant value. For example, a triathlon bike worth $12,000 will have to be depreciated over 3 years.
If you have come to New Zealand to play sport, you will need to decide if you are a New Zealand resident for tax purposes.
You will also need to decide if you are a resident for tax purposes if you live in New Zealand but compete overseas.
Goods and services tax (GST)
If you received $60,000 or more in payments or prizes, you will need to register for GST. You may also register voluntarily if you earn less than this.