The Lotteries Commission conducts an instant lottery called ‘Set for Life’ under

Question

The Lotteries Commission conducts an instant lottery called ‘Set for Life’ under which a winner who scratches three ‘set for life’ panels wins $50,000 each year for 20 years. The first $50,000 is payable as soon as the winner is notified, and later amounts are payable on the first anniversary of the first payment. In the event of the death of the winner, the Commission may pay any outstanding amounts to the deceased’s estate. Requirement: Is the annual payment income? Give reasons for your decision The Lotteries Commission conducts an instant lottery called ‘Set for Life’ under which a winner who scratches three ‘set for life’ panels wins $50,000 each year for 20 years. The first $50,000 is payable as soon as the winner is notified, and later amounts are payable on the first anniversary of the first payment. In the event of the death of the winner, the Commission may pay any outstanding amounts to the deceased’s estate. Requirement: Is the annual payment income? Give reasons for your decision Is the annual payment income? Give reasons for your decision

Explanation / Answer

There are basically two options by which winner can obtain lottery amount

1. Lumsum

2. Annual instalments

and as given in question winner choose to get in annual instalments.

The first $50000 is chargeable at the current rate and rest amount thereafter in instalments are chargeable at the same rate at which lump sum is chargeable but instead of paying them at once they are chargeable in proportion to the instalments the winner received.

So, Yes it is an annual payment income, only taxes part is distributed according to the proportion of instalment the winner received annually.

Even after the death of the winner, the estate of the deceased will be liable to pay taxes on the annual payment received by them for the lottery(only if there is still outstanding amount remains to be received after the death of original winner).

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