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Ruling

Subject: GST and Gambling Supplies

Question

Can store gift cards be treated as monetary prizes under Division 126 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act') to reduce your gambling supplies under the global accounting method for goods and services tax ('GST')?

Advice/Answers:

No.

Relevant facts:

You are a registered club offering gambling supplies.

You are registered for GST.

You calculate your GST liability in relation to gambling supplies under Division 126 of the GST Act.

To increase loyalty amongst members, you offered a loyalty program where members can receive points for money spent within your club.

The members can earn 'points' from a variety of sources within your club.

Members are able to redeem these points for the purchase of meals and drinks and other prizes supplied by you.

You conduct raffles & bingo gambling events within your club and as prizes you provide the winners of these gambling events with gift cards.

Members may also redeem points from your loyalty program to receive these gift cards.

You acquired the gift cards from various stores (which are not authorised deposit-taking institutions).

This ruling applies to where the gift cards are in relation to gambling supplies only. You acknowledged that where payments for these cards are for non-gambling activities, the payments will not be covered under Division 126 of the GST Act, and are not included in the GST global amount.

From the gift cards' terms and conditions it provides (amongst other things) that:

· A monetary value up to a maximum of $XXX can be loaded on each gift card.

· Gift cards cannot be reloaded/re-charged/re-activated.

· Gift cards cannot be refunded or used to obtain cash.

The gift cards have an expiry date.

Lost or stolen gift cards are not replaced or refunded (or there are no obligations to do so).

You claim that the gift cards take the character of a debit card in that they are able to be redeemed for goods and services to the value available on the card that were paid by you.

Reasons for decision:

Gambling is dealt with under Division 126 of the GST Act by using a global accounting system to work out the GST payable 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:

· credit card or debit card; or

· crediting or debiting an account; or

· 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.

Gift cards given as prizes

From the information received, the prizes that you give to winners of gambling events include gift cards. Further members can redeem points from your loyalty program to receive these gift cards. The gift cards (given out as prizes) are purchased from third party suppliers, have a stated monetary value and are transferable. The gift cards can be used to purchase goods or services from these third party suppliers.

You claim that the gift cards take the character of a debit card in that they are able to be redeemed for goods and services to the value available on the card that were paid by you.

Of relevance from the definition of money is subparagraph 195-1(e)(i) of the GST Act, which refers to whatever is supplied as payment by way of a debit card.

The term 'debit card' is defined in the Dictionary of A New Tax System (Goods and Services Tax) Regulations 1999 ('GST Regulations'), which states:

debit card means an article intended for use by an entity in obtaining access to an account held by the entity for the purpose of withdrawing or depositing cash or obtaining goods and services.

In the Glossary of Terms in Schedule 1 to the Goods and Services Tax Ruling GSTR 2002/2: GST treatment of financial supplies and related supplies and acquisitions (GSTR 2002/2), it adds to the above definition and states:

Debit Card

….. Use of a debit card transfers funds directly from client account to merchant account or provides a voucher cashable by the merchant.

The term 'account' is then further defined in the Dictionary of the GST Regulations (although specific to the GST Regulations, it provides some general guidance):

account:

· means an account mentioned in item 1 in the table in regulation 40-5.09; and

· includes an account in relation to which the account holder (the customer) has the right:

· to have the account maintained by the account provider (the provider); and

· to repayment of the amount credited to the account by the provider; and

· to require the provider to act on directions by the customer that are in accordance with the arrangements, or any agreement, between the provider and the customer in relation to operation of the account.

Paragraph (a) of the definition of account refers back to an Item 1 in the table in subregulation 40-5.09(3) of the GST Regulations, which states:

An interest in or under an account made available by an Australian ADI (authorised deposit-taking institution) in the course of:

(a) its banking business within the meaning of the Banking Act 1959; or

(b) its State banking business

In relation the gift cards, they are not made available by an Australian ADI in the course of a banking business. Therefore, paragraph (a) of the definition of account is not applicable.

Paragraph (b) of the definition of account also applies to non-ADIs. However, for the gift cards there is no right to repayment of the money (amount credited), and therefore paragraph (b) of the definition of account is not applicable

Further, we consider that the primary function for the recipient or user of the gift card product is that it is a widely accepted payment instrument, rather than the opening and operation of an account (held by an account holder). As generally the key features of a gift card product are that: there is no right to repayment of the money; the cardholders' entitlement expires after a set period and the balance is forfeited; and the provider's obligation is not always to the original customer who creates the gift card, but is to any person that presents the card. As such, the original customer who creates the gift card does not necessarily have any contractual right to repayment (even via payments for goods and services).

Therefore, the gift cards that you have acquired from the stores are not considered to be an account held by you or the cardholders, and are not debit cards.

A gift card does not take the character of a debit card in that it does not transfer funds directly from client account to merchant account. Neither does it provide any voucher cashable by the merchant. Rather a gift card can be classified as a stored value card which takes the form of a card where value is stored on the card itself used for specific supplies. (Please see paragraphs 51 to 59 on the analysis of a stored value card in Goods and Services Tax Ruling GSTR 2003/12: when consideration is provided and received for various payment instruments and other methods of payment.)

Additionally, a gift card can never be a form of negotiable instrument used or circulated as currency. As the term "negotiable instrument" is not defined in the GST Act or Regulations, we have to take its ordinary meaning. GSTR 2002/2 however provides some guidance in this regard. It is defined under the Glossary of Terms in Schedule 1 to GSTR 2002/2 as "an instrument such as a bill, promissory note or cheque that is capable of being transferred by delivery or endorsement and delivery, so as to give a good title to the transferee, taking bona fide and for value, thus constituting it the true owner, notwithstanding any defect in title in the transferor". Clearly a gift card does not fall within the definition of a negotiable instrument used or circulated as currency as it does not share the characteristics of a negotiable instrument set out above.

A gift card also cannot be characterised as a debit card because it does not operate as an account required of a debit card for the purposes of treating it as a form of money under e(i) of the definition for "money" under section 195-1 of the GST Act. Given the features of the gift cards as set out above, they do not satisfy the requirements of an "account" because:

· the gift cards do not operate on accounts made available by an Australian ADI in the course of its banking business as they are made available by the stores which are not Australian ADIs;

· the gift card do not operate on accounts in relation to which the account holder (customer) has the right:

· to have the account maintained by the account provider (provider) as the store gift card providers do not provide accounts as such before they issue those cards;

· to repayment of the amount credited to the account by the provider as the store gift cards are issued on the express provision that there is no right to repayment of the money credited by the providers to the customers; and

· to require the provider to act on directions by the customer that are in accordance with the arrangements, or any agreement, between the provider and the customer in relation to operation of the account because the provider's obligation is not always to the original customer who creates the gift card, but is to any person that presents the card. As such, the original customer who creates the gift card does not necessarily have any contractual right to repayment (even via payments for goods and services).

Loyal points redeemed for gift cards

From the information provided, the members can earn 'points' from a variety of sources within your club, and that members are able to redeem these points for the purchase of meals and drinks and other prizes supplied by you. You have advised that loyalty points are occasionally redeemed for the gift cards.

Part B of Goods and Services Tax Ruling GSTR 2002/3 explains how Division 126 of the GST Act deals with prizes resulting from gambling.

We note that points awarded for participation in a gambling event, or on a result, are points awarded on the outcome of the gambling event. However, points awarded for the purchased of meals, beverages and other non-gambling services are not awarded on the outcome of a gambling event.

The issue of redeemable points is discussed in paragraphs 189 and 190 of GSTR 2002/3:

189. 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.

190. These points have a monetary value. For example, 30 points may be worth $15. Points may be issued in the following circumstances:

as a prize or part of the prize on a gambling event or a competition (for example, points are awarded for a win on a gaming machine or a player's success in a card game at a casino);

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); or

on the purchase of meals, beverages and other non-gambling services supplied by the entity.

The redemption of these points is discussed in paragraphs 192, 194 and 196 of GSTR 2002/3:

192. 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.

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.

196. In these circumstances, the giving of the non-monetary prize by the gambling supply provider is not a taxable supply, as there is no further consideration provided by the winner of the prize.

As outlined above and in examples 22 to 26 at paragraphs 198 to 207 in GSTR 2002/3, only money paid over in 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.

Where the loyalty points awarded on the outcome of a gambling event, are redeemed for gift cards, these prizes are not in the form of money, and do not satisfy the definition of monetary prizes for GST purposes (as outlined above). Therefore, in this instance, the value of the loyalty points redeemed cannot be included in the calculation of your global GST amount.