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Ruling

Subject: GST payable on a Prize

Issue:

Is goods and services tax (GST) payable in relation to the Prize that you have received?

If GST is payable in relation to the Prize that you have received, what is the amount of GST payable?

Advice/Answers:

Yes, GST is payable in relation to the Prize that you have received.

The GST payable is 1/11^th of the Prize that you have received, that is 1/11^th of the Prize money.

Relevant facts

You are a professional practitioner.

You are registered for GST.

You entered a competition which is awarded by entity A.

Under the conditions of entry into the competition,

· the overall winning artwork is not available for sale and will be acquired by entity A,

· all other Prizes are non-acquisitive,

· all works entered must be available for the duration of the exhibition,

· the sale price indicated in the entry form shall apply and shall remain fixed for the duration of the exhibition,

· entity A will charge a commission on all sales (which shall be deducted from the indicated sale price),

· an entry fee for each artwork entered is payable.

You were awarded the overall winner's Prize and you received a particular sum of money (Prize money). This amount was paid by another entity (other entity).

The other entity has not provided a recipient created tax invoice.

A third entity has retained your artwork for their collection. You have not received any payment from that entity, nor has entity A paid you a separate amount for your winning artwork.

Relevant legislative provisions

Section 9-5 of A New Tax System (Goods and Services Tax) Act 1999

Reasons for decision

Question - 1

GST is payable on taxable supplies.

Goods and Services Tax Ruling, Goods and services tax: prizes (GSTR 2002/3) states the following:

22. The supply of a thing made in the course of an event is a taxable supply if the elements of section 9-5 are satisfied....

A taxable supply is defined in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as follows:

You make a taxable supply if:

(a) you make the supply for *consideration; and
(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and
(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.

Terms marked with an asterisk (*) are defined in section 195-1 of the GST Act

The first requirement of section 9-5 of the GST Act is that a supply is made for consideration. A 'supply' is defined under subsection 9-10(1) of the GST Act as '….any form of supply whatsoever'. There can be several supplies, in relation to competitions and Prizes.

Did you make a supply for which the Prize money was the consideration?

· Supply

Relevantly, GSTR 2002/3 states the following at paragraphs 25 and 29

Supplies made in the course of an event

25. 'Supply' is defined very broadly in section 9-10, which provides that 'a supply is any form of supply whatsoever' and includes a supply of goods or services. An event where a prize is awarded to a winner may involve several stages, with supplies that are identifiable for GST purposes at each stage.
...

Supply by the participant - participating in, or contesting an event

29. All participants make a supply to the event holder by participating in the event, although the event holder may give a prize only to the winner of the event. Other participants may receive nothing despite having also supplied their participation.

Accordingly, we are of the view that your supply is your 'participation' in the event.

· Is there sufficient nexus between your supply and the Prize money?

Paragraphs 36 to 39 of GSTR 2002/3 state:

Taxable supply of winner's participation

Prizes as consideration

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.

38. Where a prize is consideration for a supply of participation and the other requirements of section 9-5 are satisfied in relation to the supply, the supply is a taxable supply. For example, where a registered owner of a racehorse st the horse in a race in the course of an enterprise the owner carries on, and the horse wins a prize, the owner is liable for GST of 1/11 of the prize.

39. The price of the supply of the horse's participation in the race is the amount of prize money (if any) together with the GST inclusive market value of non-monetary prizes.

You entered into the competition which was organised and run by entity A. Thus, your supply of 'participation in the event' was made to entity A. There was an undertaking made by entity A that the winner would receive the Prize money. On that basis, we are of the view that there is a sufficient nexus between the supply that you have made (which is your participation in the event) and the Prize money. It did not matter, who was paying the Prize money. The term of the conditions of entry between you as a participant and entity A was that the winner would receive Prize money. Therefore, consistent with the explanation provided in GSTR 2002/3 in paragraphs 36-39, the Prize money can be regarded as the consideration for your supply of participation in the event.

Other requirements of section 9-5 of the GST Act

You are a professional and we are of the view that you participated in the event in the course of your enterprise. You are registered for GST and the event was held in Australia.

Your supply is neither GST-free nor input taxed. Therefore, you have made a taxable supply of participation in the event and the Prize that you have received is the consideration for your supply. As such, GST is payable on your supply of participation for which the Prize money that you have received is consideration.

Question - 2

Supply of your participation in the competition

As stated in paragraph 38 of GSTR 2002/3, the GST payable on a supply of participation is 1/11^th of the Prize. Therefore, you are liable for an amount of GST equal to 1/11^th of the Prize money that you have received.

Supply of your winning artwork

As you have not made a taxable supply of your winning artwork, there is no GST payable on this supply. See below regarding why this supply is not a taxable supply.

Additional information

GSTR 2002/3 provides an explanation on how the different types of supplies made in relation to competitions should be treated for GST purposes.

The supply of your winning artwork

We note that the supply of your artwork to entity A (who in turn has supplied it to a third entity), is also a supply for GST purposes. However, entity A has not provided any consideration for this supply. You have not received any consideration for the supply of your artwork itself. As explained above, there is a clear nexus between the Prize money and your supply of 'participation' in the event. Accordingly, because one of the requirements of section 9-5 of the GST Act (namely paragraph 9-5(a) of the GST Act) is not satisfied, the supply of your artwork itself is not a taxable supply.

Supplies between the other entity and entity A

It is apparent that there is an understanding/agreement between entity A and the other entity for the other entity to pay the winner the Prize money. Please refer to paragraphs 74-77 of GSTR 2002/3 which cover GST consequences of sponsorship monies.