Edited version of private ruling

Authorisation Number: 1011835511124

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Ruling

Subject: GST treatment of poker tournament payments and prizes

Question 1:

Is an 'Entry Fee' as defined in the Casino's Rules for Poker ('Rules') received by Casino from a poker tournament player consideration for a taxable supply made by Casino which is subject to GST under the basic rules in Chapter 2 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act')?

Answer:

Yes, an 'Entry Fee' as defined in the Rules received by Casino from a poker tournament player is consideration for a taxable supply made by Casino which is subject to GST under the basic rules in Chapter 2 of the GST Act.

Question 2:

Is an amount received by Casino from a player in the form of a buy-in, re-buy or add-on and which is a 'Prize Pool Contribution' as defined in the Rules consideration for a supply made by Casino?

Answer:

No, an amount received by Casino from a player in the form of a buy-in, re-buy or add-on and which is a 'Prize Pool Contribution' as defined in the Rules is not consideration for a supply made by Casino.

Question 3:

Is a Prize Pool Contribution distributed by Casino to a poker tournament player as a cash prize a supply of money and therefore not a supply?

Answer:

Yes, a Prize Pool Contribution distributed by Casino to a poker tournament player as a cash prize is a supply of money and therefore not a supply.

Relevant facts and circumstances:

Background:

Casino is GST registered and operates a casino pursuant to a licence granted under State legislation.

In addition to other gambling activities, Casino conducts poker tournaments on a regular basis.

20XXl GST private ruling:

In 20XX the ATO issued a GST private ruling to Casino which confirmed that the portion of a Poker Championship entry fee paid to Casino which was contributed to the prize pool was not consideration for a gambling supply made by Casino and could not be treated as an amount held in trust by Casino, and that both the entry fee and contribution to the prize pool were subject to GST.

In the request for that ruling Casino had submitted that each player's contribution to the prize pool should be treated as part of Casino's 'global GST amount' for the purposes of Division 126 of the GST Act rather than being subject to GST as a standalone amount. Casino submitted that a player's contribution to the prize pool was in the nature of acceptance of a bet by the player on the outcome of a game whereby Casino agreed to return a portion of the prize pool to the player in the event that the player won or placed highly in the Australian Poker Championship. Consequently a player's contribution to the prize pool was consideration for a 'gambling supply' made by Casino (as defined in paragraph 126-35(1)(b) - the acceptance of a bet relating to the outcome of a gambling event) and fell within the definition of 'total amounts wagered' in section 126-10 of the GST Act.

The ATO rejected Casino's submission that contributions to the prize pool were consideration for a gambling supply. The ATO considered that Casino merely organised the Poker Championship and that players in that poker tournament accepted bets against each other and not against Casino. Consequently Casino did not make a 'gambling supply', so a player's contribution to the prize pool was not consideration for a 'gambling supply'.

The ATO considered that a player's contribution to the prize pool formed part of the consideration for a taxable supply made by Casino (i.e. the right to enter the Poker Championship) within the meaning of section 9-5 of the GST Act regardless of how that amount was held by Casino. Consequently Casino was required to account for GST of 1/11^th of the contribution to the prize pool.

2007 GST private ruling:

In 2007 Casino sought a further GST ruling in respect of poker tournaments run by Casino. Casino submitted that player contributions to prize polls were held by Casino for the benefit of eventual winning players and should not be treated as amounts received by Casino on Casino's own behalf.

Casino submitted that in the 20XX GST private ruling the ATO had stated that player contributions to the prize pool 'do not represent consideration received by Casino for its gambling supplies' and submitted that the ATO's view that such player contributions were consideration for a taxable supply of the right to participate in the poker tournament was at odds with that view.

The ATO issued a GST private ruling to Casino which confirmed that the 'Casino entry fee' received by Casino from each player in the Poker Championship and the contributions made by each player to the prize pool were consideration for a taxable supply made by Casino (i.e. the right to participate in the Poker Championship).

The ATO referred to the Poker Championship rules which defined 'Entry Payment' as the cost of entering the tournament and defined 'Prize Pool Contribution' as the portion of the Entry Payment that forms the prize pool. The ATO did not consider that the ATO's statement that player contributions were not consideration received by Casino for gambling supplies for the purpose of the special rules in Division 126 of the GST Act meant that such contributions could not be consideration for supplies which are taxable under the basic rules in Chapter 2 of the GST Act.

The ATO also considered additional material supplied by Casino with the request for the 2007 GST private ruling, i.e. a promotional flyer which referred to a player paying a 'Casino Entry Fee' and a 'Prize Pool Contribution'; advice that, pursuant to rules approved by the State casino regulatory authority Casino (as agent or trustee for the players) held prize contributions only until winners are identified; and advice that Casino did not treat prize pool contributions as income for accounting or income tax purposes.

Notwithstanding that additional material, the ATO confirmed the 20XX GST private ruling as that ruling had taken into account that the Entry Payment paid by players comprised two distinct amounts. The ATO noted that although players may believe that prize pool contributions were collected and held by Casino as agent or trustee, the poker tournament rules approved by the State casino regulatory authority gave Casino the right to determine the players' contribution to the prize pool (clause X) and allowed the Casino to determine the amount paid out as prizes (clauses X and X). The ATO therefore considered that player contributions were part of the consideration for the supply of a right to participate in the poker tournament. The ATO also considered that Casino's GST treatment of contributions to the prize pool did not have to be consistent with Casino's income tax and accounting treatment of those contributions.

Current GST treatment:

In accordance with the 20XX and 2007 GST private rulings, Casino has treated poker tournament entry fees, buy-ins and re-buys as consideration for a taxable supply made by Casino and has remitted 1/11^th of those amounts to the ATO as GST.

Ruling request:

Casino pointed out that its current ruling request relates to all poker tournaments organised by Casino, not just the Poker Championship.

Casino advertises the poker tournaments in advance. Casino provided copies of such advertisements, one of which set out the following details of one event in a poker tournament held during 2011:

Casino advised that the Buy-in specified in the advertisement was required to be paid to Casino by a player when the player registered to play in the poker tournament and comprised two separate components:

· a 'Casino Fee' for the right to pay in the poker tournament; and

· a 'Prize Pool Contribution' which was a contribution to the poker tournament's prize pool.

The Casino's Poker Rules (see below) define a 're-buy' as an option given to tournament players to buy more chips after dropping below a certain amount or losing all their chips and an 'add-on' as an option during a tournament to purchase more chips.

At the commencement of the tournament Casino provides each player with chips equivalent to the buy-in amount. Those chips are specific to the tournament and cannot be used for other gambling activities operated by Casino.

Casino advised that 'prizes' awarded to winning players are paid from a pool comprising all the buy-ins and re-buys contributed by all the players in the tournament.

Casino advised that under the rules and regulations applicable to poker tournaments Casino undertakes to hold buy-ins and re-buys on behalf of the players until the prize pool can be distributed to the winners and that Casino acted as an agent or trustee for the players when collecting the buy-ins and re-buys.

Entrant Register and Terms and Conditions:

A player wishing to play in a poker tournament must sign the Entrant Register for that poker tournament, which includes a statement that the player has read and agrees to abide by the Tournament Terms and Conditions. The Entrant Register records that the player has paid the Entry Payment for the poker tournament and the relevant receipt number.

The Poker Tournament Terms and Conditions require entrants to provide approved photographic identification and to be Casino player rewards cardholders.

Casino Poker Rules:

Specific rules of the Casino Poker Rules ('Rules') govern poker tournaments and prevail over the other Rules to the extent of any inconsistency during the playing of a tournament.

Rule X states that an Entry Payment may be required to enter a poker tournament and may include a Prize Pool Contribution and a Casino Entry Fee and that the Prize Pool Contributions charged are to be paid out as prizes by Casino in accordance with Rules X.

'Entry Payment' is defined in the Rules as the total cost of entering a tournament and 'Casino Entry Fee' is defined in as the portion of a tournament Entry Payment retained by Casino as a charge for conducting a poker tournament.

Specific rules set out the following:

· a minimum amount (i.e. 50% or 70%) of the Entry Payment which must be a Prize Pool Contribution for various types of poker tournaments;

· that the Prize Pool Contribution shall be distributed as prizes;

· that Casino may offer other prizes to poker tournament players, but those other prizes are to be in addition to prizes allocated from the Prize Pool Contributions;

· that if an ineligible player is deemed a winner and realised after the fact, Casino reserves the right to offer the applicable prize to the next runner-up and if a player is deemed to be ineligible due to being underage then the prize is forfeit to the Crown;

· that a list of prizes shall be made available during tournaments once the total prize pool is known.

Accounting treatment of Prize Pool Contributions:

Casino advised that a separate General Ledger suspense account is used for the receipt of Prize Pool Contributions and the payment of prizes.

Poker Tournament Prizes:

Casino provided an example of how the Prize Pool Contribution is distributed to winning players as prizes. Poker tournament prizes are generally distributed to players who come in first to Xth place. The player placed first receives X% of the pool and the players placed second onwards receive decreasing percentages of the pool (e.g. the player placed Xth receives X% of the pool). The advertisements for some poker tournaments referred to guaranteed cash prizes or prizes in the form of a ticket to another poker tournament. the Casino advised that these prizes were in addition to prizes paid out of the Prize Pool Contribution for the tournament.

Submissions:

The submissions in the ruling request referred to a 2010 GST private ruling issued to another taxpayer in which the ATO ruled that Division 126 did not apply to entry fees, buy-ins, re-buys or add-ons paid to a casino operator in respect of poker tournaments because they were not consideration for a 'gambling supply' made by the casino operator within the meaning of subsection 126-35(1) of the GST Act, i.e.:

(a) the supply of a ticket (however described) in a lottery, raffle, or similar undertaking; or

(b) The acceptance of a bet (however described) relating to the outcome of a gambling event.

Casino submitted that, similarly, payments received by Casino from poker tournament players are not consideration for gambling supplies made by Casino. Casino also submitted that prizes paid by Casino to poker tournament players are not subject to Division 126 as the 2010 GST private ruling also stated that poker tournament prizes were not included in the casino operator's global GST amount for the purposes of Division 126.

Casino submitted that, for the purposes of the general rules in Chapter 2 of the GST Act, Casino made a number of supplies to a player in relation to a poker tournament - a right to participate, an undertaking to organise and administer the poker tournament according to the Rules, access to poker tournament venues, casino facilities, and entry to casino functions. Casino submitted that those supplies are made in carrying on Casinos enterprise and are connected with Australia and Casino is GST registered.

Casino noted that Casino received consideration from each player in the form of an entry fee, buy-in amount, and re-buy amount. Casino submitted that the entry fee had the relevant nexus with the supply by Casino of the right to participate in the poker tournament plus incidental supplies such as access to poker tournament venues and use of facilities and Casino's undertaking to organise and administer the poker tournament according to the Rules. Casino submitted that any buy-in or re-buy amount, on the other hand, was paid to Casino on the understanding that it would be contributed to the prize pool for the poker tournament and was not paid in return for any supplies made by Casino. Casino referred to the following passage from the 2010 GST private ruling:

In this case, we consider the money for the buy-ins (where applicable add-ons and re-buys) is not consideration for any supply made by you since you do not receive the money for your own use and instead you kept it and made it available to be given as a prize to the winner. Accordingly, there will be no GST consequences for you in regard to the buy-in, add-ons and re-buys fees you collected.

Casino also submitted that Casino has no GST liability in respect of prizes paid to poker tournament winners. Casino referred to Goods and Services Tax Ruling GSTR 2002/3 (Paras 20 and 30) which states that an event holder does not make a supply when paying prize money to a competitor because 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 (subsection 9-10(4) of the GST Act).

Reasons for decision:

Question 1

Summary:

The portion of an Entry Payment which is a Casino Entry Fee is consideration for a taxable supply by Casino, i.e. the supply of the right to participate in the poker tournament plus use of facilities.

Detailed reasoning:

Clause X of the Rules state that an Entry Payment to enter a poker tournament may be required and may include a Prize Pool contribution and a Casino Entry Fee.

Clause X of the Rules defines an Entry Payment as the total cost of entering a poker tournament. The Rules divide an Entry Payment into a Prize Pool Contribution (defined as the portion of a tournament Entry Payment that forms the prize pool) and a Casino Entry Fee (defined as the portion of a tournament Entry Payment retained by Casino 'as a charge for conducting a tournament').

In our view these provisions in the Rules indicate that the portion of an Entry Payment which is a Casino Entry Fee is consideration for the supply by Casino to the player of the right to participate in the poker tournament.

Our view is based on Goods and Services Tax Ruling GSTR 2002/3 which states that by accepting an entry into an event, an event holder is supplying a right to participate in the event (Para 26) plus use of facilities (Para 27) and that an entry fee paid by a participant is consideration for the supply of the right to participate in an event (Para 34). GSTR 2002/3 sets out the following example of where the organiser of a tournament makes a supply of such a right which is taxable under the basic rules in Chapter 2 of the GST Act:

Example 1: Supply of right to participate in the event

35. Rod is a professional golfer and is registered for GST. He enters a tournament being run by event holder, Golfers Unlimited (GU). He completes an entry form and pays an entry fee of $55. GU's supply to Rod of a right to participate in the event is a taxable supply for consideration of $55. The price of the supply is the consideration of $55. GU accounts for $5 GST payable, being 1/11 of the price. Rod is entitled to an input tax credit of $5 for the creditable acquisition of GU's supply.

Question 2

Summary:

As Casino accepts the Prize Pool Contribution component of an Entry Payment subject to an obligation to use that Prize Pool Contribution to pay out prizes, the Prize Pool Contribution is not consideration for a supply made by Casino.

Detailed reasoning

Rule X of the Rules states that an Entry Payment may include a Prize Pool Contribution and

the Prize Pool Contributions so charged are to be paid out by the Casino as prizes in accordance with these Rules.

and Rule X states:

the Prize Pool Contribution shall be distributed as prizes.

In our view the effect of these rules is that Casino accepts the Prize Pool Contribution component of an Entry Payment subject to an obligation to use that Prize Pool Contribution to pay out prizes. We consider that an amount received by Casino as a Prize Pool Contribution under the Rules is not consideration for a supply made by Casino because Casino does not receive that amount for Casino's own use but instead is obliged to keep it available for distribution in accordance with rule X.

We note that we reached a different conclusion in the GST private ruling issued to Casino in 20XX in relation to the portion of the Poker Championship entry fee which was paid into a prize pool. Our reasoning was that as the amount contributed to the prize pool formed part of the entry fee and a player could not participate in a poker tournament unless the contribution was paid, the contribution was consideration for the taxable supply of the right to participate in the poker tournament. In light of rules X and X of the Rules referred to above, we now consider that a Prize Pool Contribution is not consideration for a supply made by Casino.

Question 3

Summary

Any Prize Pool Contribution distributed by Casino as a cash prize is a supply of money and therefore not a supply as defined in section 9-10 of the GST Act.

Detailed reasoning:

As noted above, rule 102 of the Rules obliges Casino to distribute the Prize Pool Contribution as prizes, although rule 102 also states that prizes may be cash and/or in kind.

GSTR 2002/3 states that giving prize money is not making a supply (Para 20):

When an event holder gives prize money to a winner, it is not making a supply for GST purposes, as a supply does not include a supply of money unless the money is provided as consideration for a supply that is itself a supply of money.⁵ However, prize money, as well as prizes of goods or services, may be consideration for a supply made by the winner.

Footnote 5 in Para 20 of GSTR 2002/3 refers to subsection 9-10(4) of the GST Act. Section 9-10 deals with the meaning of 'supply', subsection 9-10(1) provides that a supply is any form of supply whatsoever, and subsection 9-10(4) provides:

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.

Section 195-1 of the GST Act defines 'money' to include currency, promissory notes, bills of exchange, negotiable instruments and whatever is supplied as payment by way of credit card or debit card. In our view any Prize Pool Contribution distributed by Casino as a cash prize is a supply of money for the purposes of subsection 9-10(4) of the GST Act and not a supply as defined in section 9-10.

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