Title page for ETD etd-07252011-172831

Document Type Master's Dissertation
Author Rudolph, Johan Barend
Email johan.rudolph@samancorcr.com
URN etd-07252011-172831
Document Title A critical analysis of the deductibility of expenditure incurred in virtual worlds from a South African income tax perspective
Degree MCom
Department Taxation
Advisor Name Title
Prof M Cronje Co-Supervisor
Mr T L Steyn Supervisor
  • tax
  • belasting
  • South African Income Tax Act
  • Suid-Afrikaanse inkomste-belastingwet
  • virtuele węrelde
  • virtual worlds
Date 2011-04-07
Availability restricted
Benjamin Franklin once said that in this world nothing is certain but death and taxes. This seems to be even truer today, as revenue authorities across the world investigate ways in which to tax income earned from virtual worlds. Up until recently no formal guidelines have been issued by these revenue authorities in an attempt to tax this virtual world income. However, several countries, like China, have begun to take steps to collect taxes on real profits realised in transactions involving virtual currency and goods.

The rapid development of virtual worlds has made virtual currency and virtual property big business. Virtual currency from almost every game and social virtual world can be exchanged for real world currency. It is this type of exchanges from virtual currency to real world currency, generally at a profit, that caught the attention of tax authorities. Based on previous research that Lederman and Camp conducted in the United States of America in 2007, certain virtual world income is, in fact, taxable in the hands of the ‘player’. Further research conducted by Pienaar in 2008 concluded that certain income from virtual worlds will also be included in the gross income of a South African tax resident.

This study used the conclusions reached by Pienaar in 2008, that certain income earned in virtual worlds are taxable for a South African tax resident, and evaluate whether any deductions should be allowed against this income. This was achieved by comparing the requirements regarding expenses allowable as a deduction contained in section 11(a) of the South African Income Tax Act, to that of expenditure incurred in generating income in virtual worlds. The study assumed that this income that will be included in gross income is generated by means of trade, and not as a hobby or for recreational purposes.

The study concluded that where income from virtual worlds form part of a resident’s gross income, the expenditure incurred in generating this income, by means of a trading activity, qualify for a deduction in terms of the general deduction formula, contained in section 11(a) of the Income Tax Act of South Africa.

AFRIKAANS : Benjamin Franklin het op ‘n keer gesę dat niks in hierdie węreld seker is nie, behalwe vir die dood en belasting. Dit is steeds waar as gekyk word na belastingowerhede reg oor die węreld se aanslag om belasting te hef op inkomste wat verdien word uit virtuele węrelde. Tot onlangs was daar geen formele riglyne vanaf belasting owerhede oor hoe hierdie inkomste uit virtuele węrelde belas gaan word nie, maar verskeie lande, soos Sjina, het alreeds stappe begin neem vir die invordering van gerealiseerde winste uit transaksies met virtuele goedere en geldeenhede.

Die spoed waarteen virtuele węrelde ontwikkel het, het virtuele geld en eiendom ‘n winsgewende besigheid gemaak. Virtuele geld vanuit amper enige virtuele speletjie of sosiale virtuele węreld kan verruil word vir regte węreldse geld-eenhede. Dit is hierdie verruilling van virtuele geld vir regte geld wat die belastingowerhede se oog gevang het. In navorsing wat deur Lederman en Camp gedoen is in die Verenigde State van Amerika in 2007, is tot die slotsom gekom dat sekere inkomste wat gegenereer word in virtuele węrelde wel belasbaar is in die hande van die ‘speler’. Verdere navorsing wat gedoen is deur Pienaar in 2008, het tot die slotsom gekom dat sekere inkomste uit virtuele węrelde ook belasbaar is in die hande van ‘n Suid Afrikaanse belastingpligtiges.

Hierdie studie sal die gevolgtrekkings wat deur Pienaar in 2008 bereik is gebruik, naamlik dat seker inkomste uit virtuele węrelde wel belasbaar is vir ‘n Suid-Afrikaanse belastingpligtige, en evalueer of enige aftrekkings toegestaan behoort te word in die voortbrenging van hierdie inkomste. Om tot ‘n gevolgtrekking te kom sal die vereistes wat vervat is in artikel 11(a) van die Suid-Afrikaanse inkomste-belastingwet, vergelyk word met die uitgawes wat aangegaan word in die voortbrenging van inkomste uit virtuele węrelde. Dit word in die studie aanvaar dat die inkomste uit virtuele węrelde wat deel vorm van bruto inkomste, gegenereer is by wyse van handelsaktiwiteite.

Die studie sluit af met die gevolgtrekking dat uitgawes wat aangegaan is in die voortbrenging van inkomste uit virtuele węrelde, wat deel vorm van die bruto inkomste van ‘n Suid-Afrikaanse belastingpligtige, aftrekbaar is ingevolge die bepalings van artikel 11(a) van die Suid-Afrikaanse inkomste-belastingwet.

© 2010, University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria.

Please cite as follows:

Rudolph, JB 2010, A critical analysis of the deductibility of expenditure incurred in virtual worlds from a South African income tax perspective, MCom dissertation, University of Pretoria, Pretoria, viewed yymmdd < http://upetd.up.ac.za/thesis/available/etd-07252011-172831/ >


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