Virtual Worlds and Tax Deductions - A South African Perspective

The arrival of the Internet and the World Wide Web has had a radical impact on commerce and people’s ability to interact virtually. Through these channels various new methods of earning income have been created. Income earned virtually creates a new type of commerce not previously envisioned whilst the South African Income Tax Act was drawn up. The revenue earned is, however. encompassed in the Act. South African residents have as a result entered the taxation net of the South African Revenue Services without understanding the full implications of being taxed. Of particular importance are the deductions available to residents whose incomes are earned through virtual worlds. The various deductions available in the South African Income Tax Act do not specifically deal with the expenses incurred in the production of virtual world income. The study revealed that deductions would be allowed against taxable income earned through conducting virtual world commerce. The general deduction formula should be applied to all expenses. It appears that the Act can be applied to non- capital expenses incurred for trading in virtual worlds.