Edited version of private ruling

Authorisation Number: 1011555235741

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Ruling

Subject: GST and interlinked jackpot

Question 1

Is the jackpot fee in connection with, in response to or for the inducement of a supply made by the gambling operator?

Answer

No

Question 2

Should the jackpot fee be included in your global GST amount calculations in accordance with section 126-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as a 'monetary prize' paid by you?

Answer

Yes

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You are in the business of, amongst other things, providing gambling events to members and their guests. Those gambling events include use of installed poker machines.

You have entered into an arrangement (agreement) with another entity (operator) for a number of your gaming machines to be connected to the operator's linked gaming system (LGS) as part of the linked jackpot games.

The operator holds an interclub linked jackpot licence. The objective of the LGS is to allow players to play for a larger prize pool through the pooling of prize pool funds from participating clubs.

You supplied details of the agreement.

You currently claim an input tax credit in respect of the fee on the basis that the Operator treats the Jackpot Fee as consideration for a taxable supply.

You do not currently include the jackpot fee as monetary prize in your Global GST amount calculation under section 126-10 of the GST Act.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Sections 9-10, 9-15, 126-10.

Reasons for decision

Question 1

Summary

The jackpot fee is not in connection with, in response to or for the inducement of any supply.

Detailed reasoning

Under the Agreement you are required to pay fees to the operator. The Agreement also provides that the fees will comprise two parts:

· Part 1: a fixed daily fee per participating machine per day. You have provided that you and the operator both treated this component as payment for a taxable supply and do not request the Australian Taxation Office for a ruling on the GST implication on this component of the fee.

· Part 2: an amount equals to a fixed percentage of the total turnover of each participating machine.

The issue arises as to whether the payment of the jackpot fee (a fixed percentage of the total turnover of each participating machine) is consideration for any supply.

The term 'consideration' is defined in section 9-15 of the GST Act to mean:

(1) Consideration includes:

(a) any payment, or any act or forbearance, in connection with a supply of anything; and

(b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

(2) It does not matter whether the payment, act or forbearance was voluntary, or whether it was by the *recipient of the supply.

(2A) It does not matter:

(a) whether the payment, act or forbearance was in compliance with an order of a court, or of a tribunal or other body that has the power to make orders; or

(b) whether the payment, act or forbearance was in compliance with a settlement relating to proceedings before a court, or before a tribunal or other body that has the power to make orders…

The asterisk denotes a defined term in the GST Act.

Section 9-15 of the GST Act provides that a payment will be consideration for a supply if the payment is in connection with, in response to, or for the inducement of a supply. Therefore, there are two elements to the definition of consideration:

· The first is the payment from one entity to the other entity (the operator), and

· The second is the nexus that must be established between the payment and a supply.

The term 'supply' is defined in section 9-10 of the GST Act to mean:

(1) A supply is any form of supply whatsoever.

(2) Without limiting subsection (1), supply includes any of these:

(a) a supply of goods;

(b)  a supply of services;

(c)  a provision of advice or information;

(d)  a grant, assignment or surrender of *real property;

(e)  a creation, grant, transfer, assignment or surrender of any right;

(f)  a *financial supply;

(g)  an entry into, or release from, an obligation:

(i) to do anything; or

(ii) to refrain from an act; or

(iii) to tolerate an act or situation;

(h)  any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).

(3) It does not matter whether it is lawful to do, to refrain from doing or to tolerate the act or situation constituting the supply.

(3A) …

(4) However, a supply does not include a supply of *money unless the money is provided as *consideration for a supply that is a supply of money.

It is not in dispute that payments are made by you to the operator. We need to consider whether there is a nexus between those payments and any supply. That is, your payments of the Jackpot Fee are made in connection or in response to or for the inducement of a supply (as defined above) of anything.

You have provided further that:

· Part 1 is the Service Fee payable in connection with the services provided by the Operator in the management and operation of the LGS:

- connecting the relevant poker machines in your premises to the LGS

- administering the LGS

- promoting the LGS to persons visiting your premises, and

- paying prize money to the winning players.

· Part 2 is the Jackpot Fee. Each participating club is required to pay a predetermined percentage of the turnover of the linked machine into the prize pool. The Operator uses this pool to pay prizes and issues regular reconciliations to the participating clubs to demonstrate that all of the prize pool funds are paid out as prizes.

· The amount collected by way of the Jackpot Fee are accumulated by the Operator and held in trust to be paid out as prize money. The Operator is required to fully distribute monies collected in this manner as prizes and is not entitled to receive or retain any of these amounts.

The payment of the jackpot fee to the operator as required under the Agreement is not payment for the services provided by the operator in relation to the LGS. The payment of the fixed service fee (Part 1) is made in return for those services including the management of the system and the jackpot pool by the operator.

The jackpot fee that the operator receives under the agreement does not belong to the operator. The jackpot fees are accumulated by the operator and held in trust to be paid out as prize money.

The payment to a jackpot pool (jackpot fee) is not made in return for any supply from either the operator or the players. By entering into the Agreement, you have an obligation to make payment of the jackpot fee to the operator (towards the Jackpot pool). The obligation under the agreement is extinguished by the act of payment and does not depend upon any action on the part of the operator. None of the supplies listed in section 9-10 of the GST Act would apply in relation to the payment of the jackpot fees. It is considered that the extinguishment of an obligation to pay by the act of payment does not constitute a supply by the operator who receives the payment.

As there is no supply made in return for the payment, the jackpot fee:

· is not made in connection with a supply of anything; and

· is not made in response to or for the inducement of a supply of anything.

It is the view of the ATO in paragraph 224 of Goods and Services Tax Ruling GSTR 2002/3 that:

Some gaming machines in licensed clubs and hotels may be linked to provide opportunities to play for larger jackpots. Participating clubs and hotels contribute to a 'jackpot fund' to cover the payment of a cross-venue jackpot that is set up. It is not known when and where the jackpot will be won.

The fee referred to as 'jackpot fee' is a contribution made by you towards the total prize pool available for the linked jackpot machines, and is not consideration for any supply.

Question 2

Summary

The jackpot fee should be included in your global GST amount calculations in accordance with section 126-10 of the GST Act as a monetary prize.

Detailed reasoning

Section 126-5 of the GST Act provides that if you are liable for the GST on a gaming supply, your net amount for the period is:

Global GST amount + other GST - the input tax credits.

The calculation of the 'Global GST amount is explained in section 126-10 of the GST Act as follows:

Your global GST amount for a tax period is as follows:

[Total amount wagered - Total monetary prizes]X 1/11

where:

total amounts wagered is the sum of the *consideration for all of your *gambling supplies that are attributable to that tax period.

total monetary prizes is the sum of:

(a) the *monetary prizes you are liable to pay, during the tax period, on the outcome of gambling events (whether or not any of those gambling events, or the *gambling supplies to which the monetary prizes relate, take place during the tax period); and

(b) any amounts 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 (whether or not the supplies take place during the tax period).

The term 'monetary prize' is defined in section 195-1 in the GST Act to mean any prize, or part of a prize, in the form of money.

The term 'total monetary prizes' is defined in subsection 126-10(1) of the GST Act to mean

the sum of monetary prizes you are liable to pay, during a tax period, on the outcome of gambling events (whether or not any of those gambling events, or the gambling supplies to which the monetary prizes relate, take place during the tax period).

Therefore, in order to be included in the total monetary prize, the jackpot fee must be monetary prizes you are liable to pay on the outcome of gambling events.

Gambling event is defined in section 126-35(2) of the GST Act as follows:

(a) the conducting of lottery or raffle, or similar undertakings; or

(b) a race, game, or sporting event or any other event, for which there is an outcome.

As discussed above in (1) that the jackpot fee is your contribution towards the prize pool to cover the payment of the cross-venue jackpot. The jackpot is the monetary prize payment for the outcome of gambling events through the gaming machines.

Although the jackpot is paid out by the operator to the winners, you are a participant in the linked jackpot, the supplier of the gambling supplies and are liable to pay on the outcome of a gambling event. As the outcome is not known when and where (the venue) all participant in the LGS are required to regularly contribute to the prize pool that will be paid out to winners.

It is the view of the ATO in paragraph 225 of GSTR 2002/3 that the contributions towards the jackpot pool (prize pool) are monetary prizes for the purposes of section 126-10 of the GST Act. This paragraph states:

The contributions into the jackpot fund are treated as being a monetary prize for the purposes of section 126-10, as they are for the sole purpose of being paid out as a monetary prize. The contribution to the jackpot pool by each participating gambling supply provider has the same effect as if the amount had been paid out by them as a monetary prize on the outcome of a gambling event. Each contributing member is entitled to claim the value of the extent of their contribution to the jackpot pool as a monetary prize when calculating their global GST amount.

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