You may need to pay tax on prize money you win from sports events and competitions, even if your code lets you compete as an amateur.
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.
Amateur sportspeople
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.
Professional sportspeople
Money you receive may be taxable when it is income under the ordinary tax rules.
Income under ordinary tax rules
To prove that you are playing sport as a business and money you receive is taxable and expenses are claimable, you need to demonstrate that your activities are commercial in nature and aimed at generating income. Here are some ways to establish this:
- Business Plan: Having a detailed business plan that outlines your goals, strategies, and financial projections can show that you are serious about making a profit.
- Regular and Systematic Activity: Engaging in regular and systematic activities related to your sport, such as training, competing, and marketing yourself, indicates a professional approach.
- Financial Records: Keeping detailed financial records, including income from appearance fees, sponsorships, and endorsements, as well as expenses related to your sporting activities, helps demonstrate your profit motive.
- Marketing and Promotion: Actively marketing and promoting yourself as a professional sportsperson through social media, a personal website, or other channels can support your claim.
- Contracts and Agreements: Having contracts or agreements with sponsors, teams, or event organizers that outline payment terms and conditions can provide evidence of your intention to earn income.
- Professional Advice: Seeking advice from accountants, financial advisors, or Agents to manage your sporting career can further support your profit intention.
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
- endorsements
- contract payments
- sponsorships
- grants
- 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%.
Claiming expenses
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.
Repaying expenses
If your club repays you the amount of your actual expenses, they do not deduct tax from it.
If they pay above your actual expenses, the excess amount will be paid as a schedular payment. Your club will deduct tax from it at 33%.
This also applies to repayments from other types of sporting organisations, including directly from a sponsor.
International sportspeople
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.
International tax for individuals
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.