Explanatory MemorandumCirculated By the Authority of the Treasurer, the Hon Wayne Swan MP)
Chapter 4 - Gambling activities by entities outside Australia
Outline of chapter
4.1 Schedule 4 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to clarify how the gambling operator's margin is calculated where the supplies made by the operator are GST-free.
4.2 All references in this chapter are to the GST Act unless otherwise specified.
Context of amendments
4.3 The goods and services tax (GST) applies to gambling supplies on a global rather than an individual basis. This reflects the difficulty of applying GST to every gambling transaction and allowing input tax credits for the prize money to be paid out on each bet. Instead GST is applied to the gambling operator's margin. This is intended to be broadly comparable to applying GST to individual bets and allowing input tax credits to the operator for prizes to be paid out.
4.4 The GST payable is based on a global formula, in which the net amount of GST payable is related to the global GST amount. The global GST amount is one-eleventh of the 'total amount wagered' less the 'total monetary prizes' that the gambling operator is liable to pay ('the gambling operator's margin'). The terms 'total amount wagered' and 'total monetary prizes' are defined terms in the GST Act. Broadly, 'the total amount wagered' is the total value of bets placed with the gambling operator in a tax period, excluding those bets that are GST-free.
4.5 There is uncertainty in calculating the margin where the bets accepted are GST-free and prize money is to be paid out on those bets. The total amount wagered is related to the GST on the individual bets. For example, bets enjoyed by entities outside Australia are not subject to GST and are excluded from the total amount wagered. Consequently, total monetary prizes should exclude the prize money to be paid out by the gambling operator on bets made by entities outside Australia.
4.6 This is the basis on which the Commissioner of Taxation administers the law. However, on a literal reading of the relevant section of the GST Act, gambling operators may conclude that the prize money liable to be paid to entities outside Australia is not excluded from total monetary prizes.
4.7 The Board of Taxation in its Review of the Legal Framework for the Administration of the Goods and Services Tax recommended that the current GST treatment of gambling transactions by 'non-residents' be confirmed. The Government accepted this recommendation in its response to the report (then Assistant Treasurer's Media Release No. 042 of 12 May 2009). The amendments provide a general clarification of the GST treatment of prize money that gambling operators are liable to pay out on GST-free supplies.
Summary of new law
4.8 Schedule 4 excludes from total monetary prizes amounts that the gambling operator is liable to pay out on supplies (bets) that are GST-free. This will mean that the prize money that the gambling operator is liable to pay to entities outside Australia will be excluded from total monetary prizes (because supplies made to entities outside Australia are GST-free).
4.9 The change will apply to monetary prizes that arise on or after the commencement of the first quarterly tax period after Royal Assent.
Comparison of key features of new law and current law
|New law||Current law|
|'Total monetary prizes' explicitly exclude prize money payable in relation to GST-free supplies.||'Total monetary prizes' only explicitly exclude prize money payable in relation to supplies that are GST-free if they arise out of gambling events conducted by gift-deductible entities or are otherwise GST-free under section 38-270 of the GST Act.|
Detailed explanation of new law
4.10 GST is applied to the gambling operator's margin, which reflects the difference between bets accepted by the gambling operator and the monetary prizes it is liable to pay out on the bets. Where the individual bets are excluded from the gambling operator's global GST amount, it is appropriate to exclude prize money liable to be paid to entities outside Australia. This will ensure that, over time, GST is applied to an amount that reflects the value added by the gambling operator for consumption in Australia.
4.11 Under the current law, the GST payable on gambling is based on a global formula, under which the net amount of GST payable is the sum of the global GST amount and other GST less input tax credits (that relate to amounts other than prize money). The global GST amount (the gambling operator's margin) is one-eleventh of the total amount wagered less the total monetary prizes. The total amount wagered reflects the consideration for the gambling supplies made by the gambling operator in a particular tax period. The total monetary prizes are:
- the prize money that the gambling operator is liable to pay in that tax period on the outcome of gambling events (the gambling event or the gambling supplies do not have to take place during that tax period); and
- any refunds of losses, whole or in part, that the gambling operator is required to make in that tax period (the refunds do not have to relate to gambling supplies in that tax period).
4.12 Wagers by entities outside Australia are GST-free by virtue of item 2 or 3 of subsection 38-190(1) of the GST Act. Hence, they are not taxable supplies. Since the total amount wagered includes only gambling supplies, which are taxable supplies, the total amount wagered will exclude bets made by entities outside Australia. However, on a literal interpretation, total monetary prizes include prize money liable to be paid out on all bets, including bets by entities outside Australia. Total monetary prizes include any amount of money the gambling operator is liable to pay out on the outcome of gambling events and these amounts are not restricted to gambling supplies. This would mean the gambling operator's margin does not reflect the value added over time for consumption in Australia.
4.13 Under the amendments, amounts are not included in total monetary prizes where the amounts are prize money liable to be paid out on GST-free wagers. Currently, the GST law only excludes from the global GST amount prize money liable to be paid out in relation to wagers that are GST-free under subsection 38-270 (that is, broadly, prize money payable on gambling competitions run by gift-deductible entities). This amendment will mainly affect prize money payable to entities outside Australia on their wagers. However, the monetary prizes liable to be paid out in relation to other GST-free wagers would be excluded from the global GST amount also, even where the wagers were not placed with gift-deductible entities. The treatment of gambling competitions run by gift-deductible and similar entities is not affected by the amendments. [Schedule 4, item 1, subsection 126-10(3)]
4.14 For prize money to be excluded from total monetary prizes, the prize money must relate to supplies that reflect the issue of a ticket, however described, or acceptance of a bet in a gambling event (as in the current law). The amendments do not alter the nexus required between supplies and the liability to pay prize money under the current law.
Example 4.1 David is a gambling operator who only accepts wagers from entities outside Australia. In the global GST amount, the total amounts wagered and the total monetary prizes are zero and David has no GST liability on his margin (although he may have a GST liability or refund as a result of supplies and acquisitions he makes that do not relate to the outcome of gambling events).
Application and transitional provisions
4.15 The amendments apply to monetary prizes for which liability arises during or after the first quarterly tax period that commences on or after Royal Assent. The gambling operator itself need not have a tax period commence at this time or pay GST quarterly. [Schedule 4, item 2]
4.16 The supplies or gambling events to which the monetary prizes relate do not have to arise in the tax period during which the liability for the prize money arises. This means that the gambling operator will not have to match up its monetary prizes with the particular supplies on which the liability to pay arises in order to determine the start date of the measure (or for general GST accounting).
4.17 These amendments do not affect the treatment of gambling supplies.