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Edited version of private ruling
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Ruling
Subject: GST and treatment of vouchers
Question
Can third party vouchers paid as a prize for a gambling event be treated as monetary prizes for the purposes of working out your global goods and services tax (GST) amount in accordance with section 126-10 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act')?
Answer
No
Relevant facts and circumstances
You are make gambling supplies and "gambling events" to members and guests.
You are registered for GST.
You calculate your GST liability on your gambling supplies in accordance with section 126-10 of the GST Act.
There are a number of ways in which you award prizes for these gambling events. They include the provision of cash prizes, non-cash prizes (such as cars, meat trays etc), internal vouchers (to use for purchasing food and drink) and external (third party) vouchers.
The third party vouchers are purchased by you from retailers and are provided to the winners of the relevant gambling event.
You do not claim input tax credits for the voucher in accordance with Division 100 of the GST Act.
Currently you do include the vouchers as "monetary prizes" in your Global GST amount calculations (made under section 126-10 of the GST Act).
What you have argued in your request for a private binding ruling
Reasons for Decision
Division 126 of the GST Act uses a global accounting system to work out the net amount on gambling supplies.
Under subsection 126-5(1) of the GST Act, if an entity is liable for GST on a gambling supply, the net amount for the tax period to which the GST on the supply is attributable is worked out as follows:
Global GST amount + Other GST - Input Tax Credits
Section 126-10 of the GST Act defines the 'global GST amount' for a tax period as:
[Total amount wagered - Total monetary prizes] x 1/11
'Total amount wagered' is the sum of the consideration for all your gambling supplies that are attributable to that tax period.
'Total monetary prizes' is the sum of:
the monetary prizes you are liable to pay, during the tax period, on the outcome of gambling events, and
any amount of money you are liable to pay, during the tax period, under agreements between you and recipients of your gambling supplies, to repay to them a proportion of their losses relating to those supplies.
A 'monetary prize' is defined in section 195-1 of the GST Act to mean:
any prize or part of a prize, in the form of money, or
if the prize is given at a casino, any prize or part of a prize, in the form of money or in the form of gambling chips that may be redeemed for money.
Further, the term 'money' is defined in section 195-1 of the GST Act as follows:
money includes:
currency (whether of Australia or of any other country); and
promissory notes and bills of exchange; and
any negotiable instrument used or circulated, or intended for use or circulation, as currency (whether of Australia or of any other country); and
postal notes and money orders; and
whatever is supplied as payment by way of:
(i) credit card or debit card; or
(ii) crediting or debiting an account; or
(iii) creation or transfer of a debt.
However, it does not include:
a collector's piece; or
an investment article; or
an item of numismatic interest; or
currency the market value of which exceeds its stated value as legal tender in the country of issue.
Store Vouchers given as prizes
From the information received, the prizes that you give to winners of gambling events include retailer's gift vouchers. The vouchers (given out as prizes) are purchased from third party suppliers, have a stated monetary value and are transferable. The vouchers can be used to purchase goods or services from these third party suppliers.
Contention 1
Third party vouchers fall within the definition of "money" on the basis that the issue of a voucher constitutes the "creation of a debt" and the supply of that voucher by you to third parties constitutes the "transfer of a debt."
Our response
The glossary of terms contained in Goods and Services Tax Ruling GSTR 2002/2 "GST treatment of financial supplies and related supplies and acquisitions" provides the following definition for "debt":
An amount due from one entity to another or a presently existing obligation to pay an ascertainable amount at a future time.
The issuer of a voucher does not have an obligation to pay an ascertainable amount at a future time. Rather their obligation is to provide goods or services to a certain value when the voucher is presented for redemption. We are of the view that there is a significant difference between the two and as such a debt does not arise.
In furtherance to this, the issue of a gift voucher by a store could not constitute the creation of a debt because the store has received consideration to a certain value for it. Stores are in the business of selling products. They may do so at the point of sale, or at some stage in the future e.g. by way of lay-by or the issuance of vouchers. Either way, in exchange for money, they provide goods to their customers. The issuance of a voucher simply delays the point in time when goods change hands.
As such while the store will be obliged to provide goods to a certain value within the terms and conditions of the voucher if it is eventually presented for redemption, it does so not because it has a debt with the holder but because it has been prepaid.
Therefore, the vouchers you have acquired are not considered to be money as defined in section 195-1 of the GST Act and do not constitute the creation of a debt. Since a debt has not been created, we find that the act of providing the voucher to a third party does not constitute a transfer of a debt.
Contention 2
In the alternative you submit that the third party voucher is in the nature of or similar to a promissory note.
Our response
GSTR 2002/2 clarifies what will constitute a financial supply under Division 40 of the GST Act. Schedule 1 of GSTR 2002/2 provides a comprehensive glossary of terms used in connection with financial supplies as is referred to here to define these terms included in the definition of money in section 195-1 of the GST Act.
In relation to promissory notes the Ruling states:
Promissory note is an unconditional promise in writing requiring the party to whom it is addressed to
pay the amount stipulated on demand or at a fixed or determinable future time.
The above definition is consistent with those provide by the various dictionaries you have cited in your submission which refer to a 'written promise to pay a stated sum of money' (the Black's Law Dictionary refers to a written promise by one party to pay money).
Based on these definitions, it is clear that unless a voucher is only redeemable for money, it cannot be considered to be a promissory note.
You have presented an argument that the Commissioner should consider a voucher to be in the form of a promissory note as goods are exchanged when the voucher is redeemed.
In your case the retailers have issued vouchers that are redeemed for goods that they stock. As they are not redeemable for money, then they cannot be seen to be similar in nature of a promissory note.
Given the above considerations, we do not accept your contention that the vouchers you provide should be included as monetary prizes in the calculation of your global GST amount on the grounds they are similar in nature to promissory notes.
Contention 3
Items 6.203, 6.205 and 6.207 of the Explanatory Memorandum to the GST Act support your contention that the legislative intent of section 126 of the GST Act is to include vouchers as being monetary prizes for the purposes of calculating a Global GST amount.
Our response
The GST Act has been subject to a number of amendments since its introduction. Amongst these was the insertion of Division 100 as a result of A New Tax System (Indirect Tax and Consequential Amendments) Act (no. 2) 1999.
The supplementary EM that was circulated with A New Tax System (Indirect Tax and Consequential Amendments) Bill (no. 2) 1999 provides the legislative intent for Division 100 of the GST Act. Items of relevance for the purpose of discussion are repeated below:
1.92 A gift voucher once purchased creates a right to acquire something when the voucher is presented. The purchase of a voucher would generally be a taxable supply. A later supply of goods or services to which the voucher relates would also be a taxable supply. However, subsection 9-15(3)(a) of the GST Act currently operates so that there is only GST on the first supply of the right that is at the time the voucher is purchased. When the voucher is redeemed, consideration on the second supply is limited to the additional amount of consideration provided for the thing supplied. This treatment creates difficulties where the voucher is used to buy goods that are GST-free or input taxed.
1.93 Amendment 56 inserts new Division 100 so that a supply of a voucher is not a taxable supply if on redemption the holder of the voucher is entitled to supplies up to a monetary value stated on the voucher and the consideration provided for the voucher does not exceed that monetary value. Instead, GST will payable at the time the voucher is redeemed for goods or services.
Item 1.92 of the supplementary EM outlines that the introduction of Division 100 was to overcome a deficiency in the GST Act, if at the time of its issue, a voucher (those within in the meaning of Div 100) was subject to GST.
The entitlement to an input tax credit depends on the satisfaction of the requirements in section 11-5 of the GST Act where the supply to the recipient is taxable and therefore includes a GST component. As the supply of the vouchers in question is not subject to GST (due to the operation of 100-5 and 100-25), there is no entitlement to an input tax credit.
By not considering whether a supply of a voucher is taxable or not is contrary to the basic principle that supplies are either GST-free, input taxed or subject to GST. However 'shifting the taxing point' to the time the vouchers are redeemed overcomes the problem of needing to predict the character of the supply a voucher holder will receive at redemption. Division 100 operates in accordance with the legislative intent and for the reasons outlined above.
You contend that if a third party voucher were not included in the definition of monetary prizes, an entity would not be entitled to claim an input tax credit for the provision of those vouchers as prizes. You submit that this is counter intuitive to the purpose of Division 126 which was to ensure that gambling operators were entitled to input tax credits for all prizes that they paid out.
You contention does not acknowledge the implications where the voucher is used to acquire goods that are not subject to GST. This is one of the scenarios that were contemplated by the legislators and one of the reasons for the amendment to the GST Act.
Thus we do not agree with your contention that the EMs to the GST Act supports the contention that vouchers should be included as monetary prizes.
Contention 4
The NZ experience as outlined in your submission recognised the principle that vouchers provided as prizes should receive the same GST treatment as other goods/services/money provided as prizes to ensure consistency and equity.
Our response
As the Commissioner of Taxation does not have jurisdiction of NZ taxation laws we are unable to comment.
If however you are of the opinion that the NZ experience is of relevance, then you may wish to lobby your local Member of Parliament for an amendment to the (Aust) GST Act.
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