Date: 17 August 2001
Attendees
Rad Rasaratnam
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ATO - Chairperson
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Andrew Allsop
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ATO
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Lisa Vosinthavong
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ATO
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Robert Lynch
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ATO
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Ian Stevenson
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ATO
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Kevin Waide
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ATO
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Julian Christian
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ARB
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Kevin Shaw
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ARB
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Karen Bachman
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ARB
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Rod Pollock
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(AHRC)
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Sonia Harkin
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(AHRC)
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Brian Williams
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(ANZGA)
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Greg Buckingham
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(TROA)
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Apologies
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Bruce McLennan
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(AHRC)
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Robert Shaw
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(ANZGA)
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Andrew Harding
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Greg Perfrement
|
|
The chair welcomed attendees to the meeting of the National Racing Industry Partnership. The chair introduced Ian Stevenson and Kevin Waide as representatives from the ATO's GST Large Enterprise Compliance (LEC) who will give a presentation on LEC's role and functions.
The proposed agenda was adopted.
The ATO presented a paper on the potential effects of the draft GST ruling on non-monetary consideration (GSTR 2001/D5) on the racing industry. (Refer also to Agenda Item 4 Minutes of meeting on 11/08/2000).
The GST is a tax on transactions and therefore it is important to focus on each transaction. In a competition scenario, there are generally two separate supplies that need to be considered for GST purposes. The first supply is the supply of "services" by the winning owner. The consideration for this supply is any prizemoney and trophy or other non-monetary payment.
The meaning of "supply" is broadly defined for GST purposes and generally includes a supply of anything (except the supply of money). Furthermore, something that is given as consideration can itself also be a supply. Given this wide definition, the second supply is the supply of the trophy or other non-monetary payment by the racing club or controlling body. The consideration for this supply is the "services" of the winning owner.
In the case where the winner is a GST registered owner, the two separate supplies will be taxable (refer Attachment A). The supplier's GST liability is calculated on the value of all consideration received. Therefore, the valuation must be of the consideration and the draft ruling addresses this issue.
In the case where the winner is an owner not registered for the GST, only the second supply will be taxable. That is, the supply of the non monetary payment by the racing club or controlling body will be taxable (refer Attachment B).
The ARB said that each state is accounting for trophies differently. In Victoria, GST registered owners are asked to invoice the racing club for the value of trophies and the clubs pay GST based on this invoice. Whereas in New South Wales, the controlling body includes trophies in the RCTIs they issue. In Queensland, the racing clubs are responsible for invoicing and paying the GST on trophies. The main problem with accounting for trophies is the issue of documenting the transactions so that participants in the racing industry understand.
The AHRC said that there is no problem in paying GST on trophies, but the practical problems with implementing documentation is a real issue. Substantial time, effort and cost has already been invested by the Racing Industry to comply with the GST.
The AHRC proposed that the Racing Industry "take trophies away" and make sponsors responsible. However, the ATO said sponsorships usually involve a separate transaction between the sponsor and racing club or controlling body. The supply of the trophy is still made by the racing club or controlling body to the winning owner. (Sponsorships are discussed later.)
The AHRC again suggested that a threshold would have solved the problem. The ATO stated, whilst they could understand the industry concerns unfortunately, there was no legislative provision in the GST Act for such a threshold. The threshold included in the draft ruling only applies to gifts of appreciation and not to competition (racing) scenarios.
The AHRC also raised the concern in the Racing Industry where owners do not actually get the trophy because it is "given" to the trainer. In this situation, owners do not get the trophy but have the GST liability. The ATO believed that the trainer is accepting the trophy on behalf of the owner. Who actually receives the trophy on race day does not remove the fact that the trophy is payable to the owner.
The Racing Industry also said that the treatment of trophies is complicated where ownership groups have a mix of GST registered and unregistered owners. (The issue of multiple entities is discussed later in the agenda.)
In terms of the valuation issue, what if a trophy is de-faced? The Racing Industry asked whether it can be argued that there is no value? (The issue of valuation is addressed later).
In terms of who should be accounting for trophies and therefore who is responsible for documentation, the ATO asked the racing codes who is liable for supplying the trophy and indicted that whoever has the legal liability to provide the trophy will most likely indicate who is responsible for accounting and documentation.
In most cases, the trophy will be advertised with the prizemoney by the controlling body. However, the liability for trophies was not consistent with each racing code or state. For example, the ARB said that in Victoria, the controlling body only funds prizemonies and the racing clubs are liable for providing the trophies. Whereas in New South Wales, the controlling body is liable for prizemoney and trophies. This is different in Queensland, where the controlling body is acting as agent for the racing clubs in paying prizemoney, with the racing clubs also liable for trophies.
A) Valuation
The ATO highlighted paragraph 140 of the draft GST ruling GSTR 2001/D5, which lists examples of reasonable methods that are acceptable in determining the market value of non monetary consideration:
- the market value of an identical good, service or thing,
- the market value of a similar good, service or thing,
- the market value of the supply, or
- a professional appraisal.
As previously explained, the trophy needs to be valued (as consideration for the "services" of the winning owner) and the "services" of the winning owner needs to be valued (as consideration for the trophy).
It is difficult to value the "services" of the winning owner, however a reasonable method would be to value with reference to the market value of the supply (ie. the trophy). This in effect combines the valuation issue into one - of valuing the trophy.
Paragraph 141 of the draft ruling states that the purchase price is acceptable as the market value if it is representative of the market value in the market in which you are dealing.
B) Recipient Created Tax Invoices (RCTIs)/ Invoicing
The ARB also understood and accepted that trophies had to be accounted for, however they are looking for a solution to address the practical problem of documentation. The Racing Industry believes that showing trophies on RCTIs will create another layer of confusion for racing participants.
The ATO advised the Racing Industry that the supplier is only required to issue a tax invoice within 28 days if a recipient requests one (for the purpose of claiming input tax credits). It would be unlikely that an owner not registered for the GST, would request a tax invoice for the supply of the trophy. An unregistered owner would not be entitled to claim an input tax credit for the acquisition of the trophy.
When the owner is registered for the GST, the RCTI issued by the controlling body should include the total price of the (owner's) supply. That is, the RCTI should show both the prizemoney and trophy as consideration. Given that RCTIs may include taxable supplies by the recipient, the supply of the trophy by the controlling body can also be included, but not offset. (Refer to Attachment C for an example of what should be included on the RCTI).
The ARB asked who should remit the GST on trophies? Is it the controlling body or the racing club? The ATO said that this depends on whether there is an agency relationship between the parties. As previously explained, the Racing Industry needs to determine who is liable to supply the trophy. Whoever is liable to supply the trophy will be the party making the taxable supply and therefore liable to remit the GST.
If the controlling body is the principal in paying prizemoney and trophy, the RCTI should include the total price of the owner's supply (ie. prizemoney and trophy). It should also show the supply of the trophy as a separate supply by the controlling body (similar to nomination fees).
If the controlling body is the principal in paying prizemoney only and the racing club is principal is paying the trophy, it may be possible to have two separate RCTIs. That is, the owner is making two separate supplies - one supply to the controlling body (consideration being prizemoney) and one supply to the racing club (consideration being trophy). In this case, the racing club will also need to show their supply of the trophy on the documentation they issue.
Alternatively, if the racing club is liable for supplying the trophy, the controlling body (as agent) can include the taxable supply of the trophy on the RCTI they issue.
The ARB argued that for all the paperwork and systems changes required, the GST on trophies represent only a small amount, as compared with total prizemonies paid.
C) Multiple Entities
Where an ownership group consists of GST registered and unregistered entities, only the GST registered owners are making a taxable supply. The consideration (prizemoney and trophy) needs to be apportioned according to the percentage of GST registered owners. The controlling body "grosses up" prizemoney according to this percentage.
Refer to example on page 4 of the draft document "The potential effects of the Draft Goods and Services Tax Ruling on Non Monetary Consideration (GSTR 2001/D5) on the racing industry".
D) Sponsorships
The Racing Industry raised the issue of who is responsible for accounting for and invoicing of the GST on trophies, where the trophy is given by a sponsor.
The ATO stated that generally, sponsorships involve two separate transactions. One transaction is the trophy supply from the sponsor to the racing club or controlling body. The other transaction is the trophy supply from the racing club or controlling body to the winning owner.
The trophy supply from the sponsor to the racing club or controlling body is commonly a barter transaction or contra deal and will have separate GST implications. As explained above, the racing club or controlling body will still have a GST liability on the trophy supply to the winning owner.
The Racing Industry asked what happens when a sponsor "gives" the trophy directly to the winning owner, such that the racing club or controlling body is not liable for providing the trophy? The ATO questioned, in substance, who really is liable for the trophy, given that the trophy is advertised by the racing club or controlling body. Generally, a sponsorship involves an exchange of something by parties involved in the sponsorship, rather than a pure gift from one party to another. Also, it would be uncommon for the sponsor to supply the trophy directly to the winning owner as a pure gift.
The ATO explained that where the sponsor supplies the trophy to the racing club or controlling body as an unconditional donation or gift, there will be no GST implications on the transaction. However, there will be GST implications when the racing club or controlling body supplies the trophy to the winning owner.
We need to look at the specific facts of each "sponsorship" arrangement.
Action Item:
Racing Industry to submit specific sponsorship scenarios for ATO comment
The ATO raised the concern that there may be a number of owners who may have incorrectly registered their racing activities for GST. That is, the nature of these owners' activities would more likely be a hobby, rather than an enterprise.
Furthermore, where an owner conducts other activities and are registered for GST for those activities, they should not assume their racing activities are an enterprise. They will be incorrectly quoting their ABN and GST registration to the controlling body if their racing activities are merely a hobby. An owner needs to look at each activity and racing is a separate activity.
The ATO also pointed out that an owner cannot class activities with one horse/dog as a hobby and activities with another horse/dog as an enterprise. All racing activities should be considered in total.
The ARB agreed that they will include further information or a reminder to owners on their internet site. In Queensland, a number of owners have deregistered because they realised they were incorrectly registered.
The AHRC stated that the responsibility for determining GST registration lies with the owners, however they have adopted a common sense approach when obtaining ABN/GST registration details. The AHRC also agreed that they will include information in their publications and requested the ATO to provide a "Question & Answer" on registration issues.
The ATO currently has on its website, information on the enterprise test and registration for owners. However, the ATO agreed that a revised "Q&A" specifically on GST registration and de-registration would be beneficial.
Action Item:
ATO to prepare "Question & Answer" on GST registration issues for inclusion in Racing Industry publications/websites
Representatives from the Victorian LEC team explained that the ATO's approach to compliance is structured into three levels:
1. LEC - approximately 1,000 clients with turnover greater than $100 million who account for 40% of total GST revenue collected,
2. Segment teams - usually industry based and clients with turnover between $10-$100 million, and
3. General field teams - clients with turnover less than $10 million.
In terms of LEC, the purpose of attending industry partnership meetings is to understand the client's business and to identify any needs for information and education. Compliance activity is based on a selection of clients as a representative of the industry. Compliance activity is conducted systematically, ranging from low key (speaking with clients, investigating unusual or specific transactions) to a full audit.
The LEC team acknowledged the assistance provided by the professional bodies in GST implementation and gave positive feedback on the ARB's compliance efforts in Victoria. It was apparent that appropriate systems had been adopted to account for the GST and education seminars had been conducted within the industry around the state. The LEC team are also aware that the ARB are working to resolve outstanding issues (such as accounting for trophies).
The ARB said that Queensland had adopted a similar communication approach in implementing the GST and asked whether compliance activity will be conducted in other states? The LEC team said that compliance activity will be undertaken at some stage and Victoria will contact other states to ensure the same compliance approach is taken.
The AHRC asked whether compliance visits would include someone from the GST Racing & Gambling team? The LEC team said that the two teams would work together and if required, also attend such visits.
The ARB raised the issue of ABN/GST registration of non-resident jockeys being a difficult and cumbersome process. Also, are they classed as entertainers and therefore require different tax treatment? The ARB are aware of withholding requirements, however were unclear as to the correct rates and on what amounts to withhold if the jockey is registered for the GST.
The ATO suggested the use of voluntary agreements between the controlling body and non-resident jockeys to bring payments into the PAYG withholding system. Such agreements exclude these payments from the GST system and assists the jockey in meeting their income tax obligations.
Action Item:
ATO to provide more information on voluntary agreements for non residents and whether jockeys are regarded as entertainers
The AHRC pointed out that an anomaly exists where both stamp duty and the GST is charged on insurance premiums in the Racing Industry. This dual levy is detrimental to the industry as it forces people to self-insure. However, the ARHC is aware that this applies to other insurance premiums.
The GST is a Commonwealth tax whereas stamp duty is imposed by the States and Territories. The GST is calculated on the stamp duty exclusive value of insurance premiums, ie stamp duty is applied after GST. Stamp duty is the responsibility of each State and Territory and any queries regarding its application should be referred to the relevant State Revenue Office.
Next Meeting - To be scheduled
Venue: Racing Victoria, Flemington
Attachment A
Attachment B
Attachment C
Proceeds (Taxable supply by Owner)
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|
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GST
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TOTAL
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Prizemoney
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$5,000
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$500
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$5,500
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Trophy
|
600
|
60
|
660*
|
|
|
|
560
|
|
Expenses (Taxable supply by Racing body)
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Nomination fees
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$100
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$10
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$110
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Trophy
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600
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60
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660*
|
|
|
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70
|
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Total Cheque
|
|
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$5,390
|
The information in the above example applies where the controlling body:
- is the principal in paying both prizemoney and trophy, or
- acts as agent for the racing club in paying prizemoney and trophy, or
- is the principal in paying prizemoney and acts as agent for the racing club in paying the trophy.
* Owners are not out pocket when accounting for the GST on trophies because they can claim a corresponding input tax credit (assuming consideration and supply have equal value).
Last Modified: Thursday, 29 May 2003