Edited version of your written advice

Authorisation Number: 1051437905693

Date of advice: 30 October 2018

Ruling

Subject: GST and the global amount

Question

Does cash paid by you, to patrons for the redemption of their reward points, awarded on the outcome of a gambling event, constitute ‘total monetary prizes’ for the purposes of section 126-10 of the GST Act?

Answer

Yes, when the points are awarded for a winning bet, or for participation, and those points are redeemed for money, the money paid out to the patron is a monetary prize. This monetary prize is included in the ‘total monetary prizes’ for the purposes of calculating the global GST amount in section 126-10 of the GST Act.

Relevant facts and circumstances

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

You operate hotels. Amongst other services, the hotels offer various gaming services to patrons, who must be over the age of 18 years.

Certain hotels offer also offer a loyalty program which allows members to earn points (reward points) for various activities undertaken in the venue, including gambling activities.

The purpose of the loyalty program is to improve customer experience, drive customer loyalty, and increase revenue from new and returning customers.

Members voluntarily participate in the loyalty program of the respective hotel or pub, and there is no charge to become a member.

Upon activation of their membership, members of the loyalty program also receive a membership card. The membership card is not a credit or charge card, is not transferable and remains the property of the hotel at all times. The membership card is designed to be presented and used in conjunction with playing, staying and dining at the respective venues.

Membership of the loyalty program is specific to each hotel, and reward points cannot be transferred or redeemed at other hotels that offer the loyalty program.

Members are able to earn reward points by inserting their membership card into the gambling machines available at the venue, such as poker machines where winnings from the respective patron’s gambling activities will be reflected as rewards points on their membership card. It is the responsibility of the patron to ensure that their membership card is properly inserted into the card reader and is generating reward points. Any play accumulated without the membership card being properly inserted will not generate reward points.

Members are also able to earn reward points by swiping their membership card upon entry to the respective hotel or pub to which the loyalty program the membership card relates.

Reward points may be redeemed by members for either cash or non-cash rewards at the respective venue which the membership card relates.

This private ruling request only deals with the issue of reward points that are redeemed for cash.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 126-5.

A New Tax System (Goods and Services Tax) Act 1999 section 126-10.

A New Tax System (Goods and Services Tax) Act 1999 section 126-35.

A New Tax System (Goods and Services Tax) Act 1999 section 195-1.

Reasons for decision

Global GST amount and prizes

The special rules contained in Division 126 of the GST Act apply to gambling supplies.

Section 126-5 of the GST Act provides that if an entity is liable for GST on a gambling supply, its net amount includes its global GST amount.

Subsection 126-10(1) of the GST Act defines the global GST amount for a tax period as:

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

(Total amount wagered - Total monetary prizes) x 1/11where:

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 or *digital currency 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).

(*Denotes a term defined in section 195-1 of the GST Act)

In your case we need to consider if your payment of cash to patrons for the redemption of reward points constitutes ‘total monetary prizes’ for the purposes of section 126-10 of the GST Act to the extent that the reward points were earned by way of gaming events.

To fall within the definition of ‘total monetary prizes’ there must be a monetary prize that meets the definition in section 195-1 of the GST Act and the monetary prize must be payable on the outcome of a gambling event as required by subsection 126-10(1) of the GST Act.

The definition of ‘monetary prize’ in section 195-1 of the GST Act is restricted to prizes which are provided either in the form of money or digital currency or if the prize is given at a casino gambling chips that may be redeemed for money or digital currency.

The term money is defined in section 195-1 of the GST Act to include both Australian and foreign currency, promissory notes and bills of exchange, negotiable instruments, postal notes and money orders, payments by way of credit card or debit cards, or the crediting or debiting of an account or the creation or transfer of a debt.

In your case, a member can redeem loyalty reward points for money which meets the definition of ‘monetary prize’.

A ‘gambling supply’ is defined in subsection 126-35(1) of the GST Act and includes a taxable supply involving the acceptance of a bet (however described) relating to the outcome of a gambling event.

A ‘gambling event’ is in turn defined to include a race, game, or sporting event, or any other event, for which there is an outcome. [Subsection 126-35(2) of the GST Act]

The Commissioner's views on the supply of prizes by the provider of gambling supplies under Division 126 of the GST Act is contained in Goods and Services Tax Ruling GSTR 2002/3 Goods and services tax: prizes.

In paragraph 178 of GSTR 2002/3 the Commissioner considers that gambling events include gaming machines in clubs and hotels. We consider the gaming machines offered at your hotel venues which offer the loyalty program constitute gambling events.

The Commissioner in GSTR 2002/3 states 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 [paragraph 189].

The Commissioner at paragraph 190 of GSTR 2002/3 considers that these points have a monetary value and that points may be issued in in circumstances such as:

● a prize or part of a prize on a gambling event or a competition (for example, points are awarded for a win on a gaming machine);

● on the basis of participation rather than for a win on a gaming machine or a card game at a casino (for example, points awarded on the basis of the number of games played, time or money spent playing on gaming machines, or the time spent at gaming tables)

In paragraph 191 of GSTR 2002/3 the Commissioner considers that participation in a gambling event has its own outcome. Points awarded for participation, or on a result, are points awarded on the outcome of the gambling event.

Points awarded for a gambling event

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 GST amounts in section 126-10. [Paragraph 192 of GSTR 2002/3]

Points awarded on the purchase of meals, beverages and other non-gambling services

Paragraphs 193 and 194 of GSTR 2002/3 provide:

193. However, points awarded for the purchase of meals, beverages and other non-gambling services supplied by an entity, or points purchased by a participating member, are not awarded on the outcome of a gambling event. Where these points are redeemed for money, this amount cannot be included in the calculation of the global GST amount as a monetary prize. These points need to be separated from points awarded for gambling activities as the GST treatments are different. If the points cannot be separately identified they can be apportioned on a reasonable basis.

194. Where points awarded on the outcome of a gambling event are redeemed for a non-monetary prize (which does not include redeemable gambling chips if provided by a casino), the value of that prize cannot be included as a monetary prize for the purposes of calculating the global GST amount.

As outlined above and in examples 22 to 26 at paragraphs 198 to 207 in GSTR 2002/3, only money paid over for redeeming points awarded on the outcome of a gambling event can be included as part of the total monetary prizes when calculating the global GST amount.

In your case, your payment of cash to your members for the redemption of their reward points constitutes ‘total monetary prizes’ for the purposes of section 126-10 of the GST Act to the extent that the reward points were earned by way of gaming events.

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