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Ruling

Subject: GST and refund of overpaid GST on gambling supplies

Question 1

Are you entitled to reduce the global GST amount as calculated under section 126-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST ACT) to reflect a lower margin as a result of paying rebates to customers based on wagering turnover?

Answer

Yes

Question 2

Does section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA) apply to the refund?

Answer

No

Question 3

What tax periods are you able to revise given the impact of the four year rule which limits the time period for claiming overpayments of GST?

Answer

You can revise your activity statements (AS) for the monthly tax periods commencing from 1 July 2007.

Question 4

How do you give effect to the revisions on your AS?

Answer

You need to revise each AS for the relevant tax periods.

Relevant facts and circumstances

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

· You lodge your activity statements on a monthly basis.

· Your customers place bets with you on sporting events.

· You pay winning bets to your customers and retain your customers' losing bets.

· Because of the volume of bets placed by some customers you offer these customers a loyalty reward based on the dollar value of bets placed by these customers each month.

· The amount paid in the form of the rebate is solely based on a customer's level of betting in dollar terms. The amount of the rebate is then calculated on a sliding per centum scale based on by how much the dollar value of bets is above that benchmark.

· It is paid regardless of the outcome of a customer's betting for the month but the amount will vary depending upon the dollar value of bets made.

· None of your monetary prizes that you are liable to pay relate to supplies that are GST-free.

· You have not taken the amount refunded to your high turnover customers in determining your global GST amount under section 126-10 of the GST Act.

· You are seeking a refund of the overpaid GST where it is established that the rebate should have been included in the calculation.

· You advise that the tax periods for which you intend to claim a refund of the overpaid GST will not be outside the four year time limit.

Relevant legislative provisions

Schedule 1 to the Taxation Administration Act 1953

Section 105-65

Subsection 105-65(1)

Section 105-55

Subsection105-55

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

Section 126-10

Reasons for decisions

Question 1

Are you entitled to reduce the global GST amount as calculated under section 126-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST ACT) to reflect a lower margin as a result of paying rebates to customers based on wagering turnover?

Summary

The amount repaid to customers who reach the appropriate wagering turnover threshold is a monetary prize for the purposes of Division 126 of the GST Act.

Detailed reasoning

GST on gambling supplies is dealt with by using the global accounting system described in Division 126 of the GST Act. 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

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:

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

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).

A monetary prize is defined under section 195-1 of the GST Act to mean:

(a) any prize, or part of a prize, in the form of money; or

(b) 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.

The Australian Taxation Office's view on the global GST amount and prizes is explained in Goods and Services Taxation Ruling GSTR 2002/3.

'Rebates' based on turnover

We consider that it is appropriate to include the rebate refunded to your high volume customers in arriving at your GST global amount.

At issue is whether the amount returned should be deducted from the total amount wagered or considered to be monetary prize and hence added to that element of the equation.

Whether the amount is deducted from the total amount wagered or added to total monetary prizes produces the same result in terms of reducing the margin and hence the GST payable in a particular tax period.

Paragraphs 189 to 210 of GSTR 2002/3 deal with the GST treatment of points as prizes by providers of gambling supplies and the principles established therein may bear upon your matter.

They explain that a common practice in the gambling industry is for points to be awarded to players to encourage their further participation in gambling events or to facilitate the purchase of products or services sold in the club, hotel or casino.

These points represent an amount of value expressed in monetary terms. Points may be issued in the following circumstances:

o as a prize on a gambling event or a competition;

o on the basis of participation rather than for a win on a gaming machine or a card game at a casino; or

o on the purchase of meals, beverages and other non-gambling services.

Points awarded to players on gambling turnover and subsequently paid out to players in cash can be monetary prizes for the purposes of section 126-10 of the GST Act.

Paragraphs 189-210 of GSTR 2002/3 explain that participation in a gambling event is considered to have its own outcome.

Points awarded for participation, or on a result, are points awarded on the outcome of the gambling event.

Subsequently, when points are awarded for a winning bet, or for participation, and the points are redeemed for money (or redeemable gambling chips if paid by a casino) the money (or chips) is a monetary prize. This monetary prize is included in the total monetary prizes for the purposes of calculating the global amounts in section 126-10 of the GST Act.

For gambling points to be included as total monetary prizes it is not sufficient that they are merely awarded by the gambling supply provider. At the time of the awarding of the points, there is no liability upon the gambling supply provider to pay money, or to pay in the form of gambling chips if they are a casino. Only when the gambling points are redeemed, and the player is entitled to receive them as money (or in the form of gambling chips if the provider is a casino) will the gambling supply provider be able to include the amount as a monetary prize for the purposes of section 126-10 of the GST Act.

In your situation, to be eligible to receive the rebate your customers must reach a certain dollar value of bets in a monthly period. The rebate is only payable to those customers who achieve the requisite benchmark. The amount of the rebate is then calculated on a sliding per centum scale based on by how much the dollar value of bets is above that benchmark.

We consider that as the prerequisite for reaching the benchmark is the customer's participation in gambling events, we accept that amount rebated is awarded for participation in gambling events.

Therefore, rebates may be included as total monetary prizes when they are paid out by you.

Question 2

Does section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA) apply to the refund?

Summary

Section 105-65 of Schedule 1 to the TAA will not apply to your situation as it has resulted from a miscalculation of the amount of GST payable and not as a result of the mischaracterisation of the GST status of the gambling supply.

Detailed reasoning

Under the general rules the Commissioner is required to give a refund a apply that amount in accordance with the running balance account in Divisions 3 and 3A of Part IIB of the TAA.

However, the requirement to give a refund of overpaid GST is subject to section 105-65 of Schedule 1 to the TAA which modifies the general rules so that the Commissioner need not give a refund or apply that amount if an entity overpaid net amount or an amount of GST where the requirements of the section are satisfied.

Subsection 105-65(1) of Schedule 1 to the TAA states:

(1) The Commissioner need not give you a refund of an amount to which this section applies, or apply (under Division 3 or 3A of Part IIB) an amount to which this section applies, if:

(a) you overpaid the amount, or the amount was not refunded to you, because a *supply was treated as a *taxable supply, or an *arrangement was treated as giving rise to a taxable supply to any extent; and

(b) the supply is not a taxable supply, or the arrangement was treated as giving rise to a taxable supply, to that extent (for example, because it is *GST-free); and

(c) one of the following applies:

(i) the Commissioner is not satisfied that you have reimbursed a corresponding amount to the recipient of the supply or (in the case of an arrangement treated as giving rise to a taxable supply) to an entity treated as the recipient;

(ii) the recipient of the supply, or (in the case of an arrangement treated as giving rise to a taxable supply) the entity treated as the recipient, is *registered or *required to be registered.

Note: * asterisk denotes a defined term in the Act

Miscellaneous Tax Ruling MT 2010/1 (MT 2010/1), which was issued on 15 December 2010, explains the general ATO view on how section 105-65 of Schedule 1 to the TAA applies.

Whether subsection 105-65(1) of Schedule 1 to the TAA applies

Section 105-65 of Schedule 1 to the TAA applies to restrict refunds of overpaid GST if the conditions in subsection 105-65(1) are satisfied, including that the supply was treated as a taxable supply to any extent when it was not a taxable supply to that extent.

MT 2010/1 expresses the view that the phrase 'to any extent' should be interpreted widely and that section 105-65 of Schedule 1 to the TAA covers overpaid amounts arising from miscalculations.

However, following the decision in the recent Federal Court case Sportsbet Pty Ltd v Commissioner of Taxation 2011 ATC 20-268 (Sportsbet), the ATO has issued a Decision Impact Statement (DIS) providing its response to the case, including changes to the ATO view on how section 105-65 applies.

The DIS outlines that in accordance with the decision in Sportsbet, the ATO will now administer section 105-65 of Schedule 1 on the basis that the provision does not apply where, in tax periods which commenced prior to 24 March 2010, gambling operators have miscalculated their global GST amount under Division 126 of the GST Act by failing to include the value of monetary prizes paid to non-resident customers.

It is considered that this extends to any miscalculation of the GST payable.

In your situation you have not included in your global GST amount the rebates paid to high volume customers.

It is our view that this is a miscalculation of the GST payable as the margin under the calculation would have been reduced. The overpayment of the GST has not resulted from a mischaracterisation of the gambling supply, i.e. it was always taxable.

Therefore, in this case section 105-65 of Schedule 1 to the TAA will not apply to your circumstances.

Question 3

What tax periods are you able to revise given the impact of the four year rule which limits the time period for claiming overpayments of GST?

Summary

The time limit on refunds of overpaid GST in your case restricts you from a refund of that GST for tax periods prior to 1 October 2007.

Detailed reasoning

Section 105-55 of Schedule 1 to the TAA Act provides for a four year time limit for entitlement to refunds, other payments or credits in relation to GST. The four year time limit commences after the end of the tax period to which the refund, other payment or credit occurred.

However, paragraph 105-55(1)(a) of Schedule 1 to the TAA provides that entitlement does not cease to exist if within the four year time limit an entity notifies that they are entitled to the refund, other payment or credit.

Miscellaneous Taxation Ruling MT 2009/1 explains the ATO's view in relation to the notification requirements for an entity under section 105-55 of Schedule 1 to the TAA.

Paragraph 12 of MT 2009/1 explains that inter alia an application for a private indirect tax ruling is a valid notification where it:

o asserts that an entity has an entitlement

o provides a description of the nature of the entitlement to the refund, other payment or credit, and

o specifies the tax periods to which the entitlement relates.

In your situation your ruling request which we received on in October 2011 is a valid notification for the purposes of the provision as it satisfies the above dot points.

Therefore, preservation to the refund is from tax periods commencing from 1 October 2007.

Question 4

How do you give effect to the revisions on your activity statement?

Summary

As the total amount of the corrections is greater than the relevant benchmark, you must revise each individual AS for the relevant tax periods.

Detailed reasoning

The ATO's publication entitled Correcting GST mistakes explains that where an entity has made a mistake or left something out on a previous AS the normal way would be to correct these mistakes is to revise the previous AS.

Where an entity is seeking to reduce the amount of GST paid the entity is subject to correction limits the quantum being based upon turnover.

You have advised that your turnover is in the order of $X.

Therefore for you to access this concession the total amount of your corrections must be less than the relevant benchmark for that turnover.

You have advised that the amount is above the relevant benchmark.

Consequently you are unable to make the correction in a current or later tax period.

You must revise each individual AS for the relevant tax periods.

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