Thursday, October 20, 2005

Million Dollar Quiz and Tax

The Tax Office wasn't going to comment on how much tax Rob Fulton owes following his win in the popular TV game show "Who wants to be a Millionaire".

The tax rate in Australia is 48.5% and 1.5% medicare. Rob could see up to half his winnings being pocketed by the Treasurer, and hopefully shared with the other 17 million Australians.

Under Australian Tax law, Rob has two ways to find out how much he owes:

1. He can obtain a Private Binding Ruling, detailing legal points for and against why he should not be taxed. For such a large winnings, he'll need to get a pretty good tax lawyer
2. He can pay up 50% of his winnings
3. He can elect not to pay, but risk an audit, which under Australia's tough self assessment laws can see him paying 50% penalty plus 14% interest. This could easily add up to more than 75% of his winnings.

The problem is Rob has been diligently preparing for his quiz shows for several years by studying magazines and reference books. Now one could term his winning as speculative but taxable income nontheless, similar to day traders who speculate on the stock market. In contrast, winnings due to raffles aren't taxable.

On the other hand, Rob could argue that he was able to participate in the game show only by chance, and all those studying would have come to nothing.

Maybe the Capital Gains tax would apply, since he has to give back a cheque worth $468,000 in order to take a chance on the million dollars.

Who knows? The tax legislation is heavy enough to kill someone.


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