Edited version of private ruling

Authorisation Number: 1011831320098

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Ruling

Subject: GST and prizes

Questions

(1) Is your supply to the patrons of the opportunity to win a monetary prize a taxable supply?

(2) Are you entitled to claim GST credits (input tax credits) for monetary prizes you provide to the patrons?

Advice/Answers

(1) No. Your supply to patrons of the opportunity to win a monetary prize is not a taxable supply.

(2) No. You are not entitled to claim input tax credits for monetary prizes you provide to the patrons.

Relevant facts

You have an Australian business number (ABN) but are not registered for goods and services tax (GST).

You propose to operate a gaming machine in licensed venues. The machine features a number of games that challenge a player's skill. Each games offers instant cash prizes.

You will purchase the machines outright from a supplier prior to supplying the games in licensed venues.

The patrons will pay cash to play the games and receive the opportunity to win a monetary prize based on the skills or performance of the player/patrons. You consider the winning of the games is not based on chance. The patrons are individuals only.

You propose to split net cash takings with the licensed venue based on negotiated rate. The takings paid to the licensed venue are treated as rentals for the provision of venue to install the machines and the use of their facilities. No agreements have been drafted to date

You have not applied for a gaming permit. You advised that your projected GST turnover will be less than $75,000 based on gross takings from the machines and you are not required to be registered for GST.

Reasons for decisions

1. Your supplies to the patrons

'Supply' is defined in section 9-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) which provides that 'a supply is any form of supply whatsoever' and includes the creation or grant of a right. Therefore, it is necessary to determine the nature of the supply that you make to the patrons when they play the games from the gaming machine.

Gambling supply

Section 126-35 of the GST Act provides the meaning of gambling supply and gambling event.

Subsection 126-35(1) of the GST Act states:

(1) A gambling supply is a *taxable supply involving:

(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.

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

A 'gambling event' is defined in subsection 126-35(2) of the GST Act as:

(2) A gambling event is:

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

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

Goods and Services Tax Ruling GSTR 2002/3 discusses prizes and participation in an event. Paragraphs 178 and 179 of the ruling provide examples of gambling events and states:

178. Examples of gambling events include:

· games offered in casinos;

· gaming machines in clubs and hotels;

· lotteries; and

· raffles.

180. In addition, any race, game or sporting event, or any other event for which there is an outcome is a gambling event under paragraph 126-35(2)(b). Common examples of these include:

· horses and greyhound racing;

· football and other sporting matches; and

· other events, the outcome of which will not be known until some time in the future, such as which participant will receive an award.

The games provided from the machine are not undertakings similar to a lottery or a raffle, as such, the paragraphs 126-35(1)(a) and 126-35(2)(a) of the GST Act do not apply.

The gaming machine will be installed in clubs and hotels. The games will have an outcome, that is, which patron will win the games and subsequently receive the cash prize. Therefore, it is considered as a gambling event under paragraph 126-35(2)(b) of the GST Act.

To make a gambling supply, paragraph 126-35(1)(b) of the GST Act requires the acceptance of a bet (however described) relating to the outcome of a gambling event. We accept that the games you offer are events for which there is an outcome and are therefore gambling events. However, we have to determine whether the receipt of money from the patrons to play the games is considered as the acceptance of a bet.

The word 'bet' is not defined in the GST Act. Therefore we have to take the ordinary meaning of the word. The Australian Oxford Dictionary defines 'bet' as '…risk a sum of money etc. against another's on the basis of the outcome of an unpredictable event (esp. the result of a race, game etc., or the outcome in a game of chance)…'

Further, paragraph 180 of GSTR 2002/3 explains the concept of making a gambling supply. It also illustrates the difference between making a gambling supply and participating in the gambling event and states:

180. A gambling supply, in relation to the above examples, is a supply of a ticket for the raffle or lottery, or the acceptance of a bet. When a sporting team plays a match, it is not making a gambling supply. However, a bookmaker in accepting a bet relating to the outcome of the match, is making a gambling supply.

The money paid by the patrons is not considered as risk against another's. Rather, it enables patrons to participate in the games. Therefore, it is not the acceptance of a bet which relates to the outcome of a gambling event. As such, paragraph 126-35(1)(b) of the GST Act does not apply.

Furthermore, a gambling supply is defined subsection 126-35(1) of the GST Act as a taxable supply.

Under section 9-5 of the GST Act, you make a taxable supply if:

(a) you make the supply for consideration

(b) the supply is made in the course or furtherance of an enterprise that you carry on

(c) the supply is connected with Australia, and

(d) you are registered, or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

For the supply that you make to the patrons to be a taxable supply, all of the requirements listed in section 9-5 of the GST Act must be satisfied.

You are not registered and you advised that you are not required to be registered for GST as your GST turnover is below the registration threshold of $75,000. Therefore, the requirement in paragraph 9-5(d) of the GST Act is not satisfied. As such, the supply you make to patrons is not a taxable supply.

Accordingly, the supply that you make to the patrons is not a gambling supply.

Whether you satisfy paragraphs 9-5(a), 9-5(b) and 9-5(d) of the GST Act are discussed below.

The right to participate in the event

Paragraphs 26 to 28 of GSTR 2002/3 state:

Supply by the event holder - the right to participate in the event

26. By accepting an entry into an event, an event holder is supplying a right to participate in the event. Intending participants may be required to formally enter the event by completing an entry form and paying an entry fee.

27. The supply that is made by the event holder may include other things in addition to the right to participate, such as use of facilities, entry to functions or items of clothing.

28. The supply of a right to participate in an event includes a contingent right to a prize. In order to claim the prize however, a participant must provide something additional to the entry fee, that is, participation or performance to a standard required by the conditions of the event.

Based on the facts provided, you are making a supply to the patrons of the right to participate in the games. The supply of a right to participate in the games includes a contingent right to a prize.

The payment of the consideration by the patrons to enter the games represents consideration for your supply. Therefore, you are making a supply in the form of an entitlement to enter the games and you receive consideration for that supply. Thus paragraph 9-5(a) of the GST Act is satisfied.

You have also met the requirements in paragraphs 9-5(b) and 9-5(c) of the GST Act as the supply of the right is made in Australia and in the course of carrying on your enterprise.

However, you are not registered for GST and you have stated that you are not required to be registered for GST. Hence, you have not met the requirement in paragraph 9-5(d) of the GST Act. As such, the supply that you make to the patrons is not a taxable supply.

Section 7-1 of the GST Act provides that GST is payable on taxable supplies. As the supply that you make to the patrons of opportunity to win cash prize is not a taxable supply, you are not liable for GST on the supply.

1. Entitlement to input tax credits

Section 7-1 of the GST Act provides that entitlements to input tax credits arise on creditable acquisitions.

Under section 11-5 of the GST Act, you make a creditable acquisition if:

(a) you acquire anything solely or partly for a creditable purpose

(b) the supply of the thing to you is a taxable supply

(c) you provide, or are liable to provide, consideration for the supply, and

(d) you are registered or required to be registered for GST.

As mentioned, you are not registered or required to be registered for GST, the requirement in paragraph 11-5(d) of the GST Act is not met. Therefore, you do not make a creditable acquisition and you are not entitled to claim input tax credits for monetary prizes you provide to patrons.

Additional information

This information will be applicable if you register or will be required to be registered for GST in the future.

Taxable supply

The supply of the right that you make to the patrons to participate in the games and have the opportunity to win a monetary prize will be a taxable supply and the consideration that you receive from the patrons for playing the games will be subject to GST.

Entitlement to input tax credits

Prize money, as well as prizes of goods and services, may be consideration for a supply made by the patrons.

Paragraphs 36, 37 and 42 of GSTR 2002/3 state:

36. A registered winner of a prize in an event, having participated in the event in the course or furtherance of an enterprise they carry on, has a GST liability for the supply of their participation where there is a sufficient nexus between the prize and the supply.

37. An event holder offers prizes in an event as an inducement and reward for a winning performance in the event. As these prizes are in the nature of rewards for services rendered, we consider that there is a sufficient nexus between a prize given to the winner and the supply of the winner's participation.

42. Regardless of whether a prize is consideration for the supply of the winner's participation, if the winner is not registered (nor required to be registered), or is registered but has not supplied the participation in the course or furtherance of an enterprise, the supply is not a taxable supply and the winner has no GST liability in relation to the supply.

Based on the facts provided, there is sufficient nexus between a prize given to a patron who plays the game and the supply of that patron's participation. Hence, the prize given to the patron is consideration for the supply of the patron's participation in accordance with paragraph 11-5(c) of the GST Act.

Where the prize money is consideration for a supply of participation from the patron and the other requirements of section 9-5 of the GST Act are satisfied by the patron in relation to the supply, the supply is a taxable supply to you. The patron, as the supplier, will incur a corresponding GST liability.

If the patron's supply of participation is a taxable supply to you and you satisfy the other requirements of section 11-5 of the GST Act, you will make a creditable acquisition of that supply. In this circumstance, you will be entitled to the input tax credit on the monetary prize that you give.

You advised that the patrons will be individuals and it is well assumed that they play the games as a private recreational pursuit or hobby. Even if they are registered for GST, they are most unlikely to be making this supply in the course or furtherance of an enterprise carried on by them. As such, the supply that they make to you (if any) of participation in the game is not a taxable supply and the requirement in paragraph 11-5(b) is therefore not met.

Goods and Services Tax Ruling GSTR 2002/3 discusses prizes and participation in an event and is available at www.ato.gov.au