Edited version of your written advice

Authorisation Number: 1012919943532

Date of advice: 14 December 2015

Ruling

Subject: GST implications in regard to the operation of an animal racing competition

Question 1

What are the GST implications for you in regard to prize money paid to winners of the race?

Question 2

What are the GST implications for you in regard to title sponsorship from a business for which you provide advertising and naming rights?

Question 3

What are the GST implications for you in regard to winnings provided to individuals and syndicates who bet on the race?

Answer 1

Prizes (either monetary or non-monetary) that you provide to registered winners (that are participating in the course or furtherance of their enterprise), are consideration for a taxable supply of the participation. You are entitled to an input tax credit of 1/11^th of the GST-inclusive market value of the prize.

If the prize-winner is not registered (or required to be), or does not enter the competition as part of its enterprise, the supply of its participation is not a taxable supply.

Answer 2

Sponsorship rights and advertising provided to sponsors are taxable supplies if the requirements under section 9-5 of the GST Act are met.

Answer 3

The supply that you make to individuals and syndicates who bet on the race is a gambling supply. GST applies to the margin in gambling supplies not to individual gambling sales.

Relevant facts and circumstances

You are an incorporated entity which is registered for GST.

The competition is run throughout the year, once an animal has been nominated, points are accumulated throughout the year. Animals that compete at the event are determined by the amount of individual/syndicate sponsors at the end of the year.

Winners include sponsors of the competition and owners/riders of the event.

Winning sponsors and winning riders are not all business operators, some operate as hobbyists.

You provide title sponsorship to a business providing cash and/or products. This sponsorship is a contractual agreement whereby you in return provide advertising and naming rights.

Anyone can provide 'Individual/Syndicate sponsorship' of the competition as a whole by placing bets on animals. You pay on winning bets. This does not involve a contractual agreement, but you provide some advertising.

Animals must be registered with you. There is a one-off flat fee and registration is for 'lifetime'.

All cash received includes GST.

No additional fees are charged to enter the event final.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Subsection 9-5(a).

A New Tax System (Goods and Services Tax) Act 1999 Section 9-10.

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

Reasons for decision

Summary

Prizes (either monetary or non-monetary) that you provide to registered winners (that are participating in the course or furtherance of their enterprise), are consideration for a taxable supply of the participation. You are entitled to an input tax credit of 1/11^th of the GST-inclusive market value of the prize.

If the prize-winner is not registered (or required to be), or does not enter the competition as part of its enterprise, the supply of its participation is not a taxable supply.

Sponsorship rights and advertising provided to sponsors are also taxable supplies if the requirements under section 9-5 of the GST Act are met.

The supply that you make to individuals and syndicates who bet on the race is a gambling supply. GST applies to the margin in gambling supplies not to individual gambling sales.

Detailed reasoning

Question 1

GST is payable on taxable supplies. Under section 9-5 of the GST Act 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 the indirect tax zone; 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.

'Supply' is defined in section 9-10 of the GST Act which provides that 'a supply is any form of supply whatsoever' and includes the creation or grant of a right. By accepting an entry into an event, an event holder is supplying a right to participate in the event.

'Consideration' is defined in the GST Act to include a payment or any act or forbearance in connection with a supply of anything. The payment of a fee to compete in a sports event represents consideration for a supply by the sports club or organisation of the right to participate in the event.

Goods and Services Tax Ruling GSTR 2002/3 discusses prizes and participation in an event and is available at www.ato.gov.au . The prize you provide is consideration for a supply of participation by the entrant. Paragraph 36 to 39 of GSTR 2002/3 states:

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 race starts the animal in a race in the course of an enterprise the owner carries on, and the animal wins a prize, the owner is liable for GST of 1/11 of the prize.

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

An example of the GST implications of a prize being consideration in a sporting event is stated at paragraphs 40 and 41 and is set out below:

Example 2: Supply of participation in the event

40. Rod (from Example 1) makes a supply to GU by participating in the event. Rod wins the event and receives a non-monetary prize with a market value of $2,200, which is consideration for the supply of his participation. As Rod is registered for GST and is supplying his participation in the course or furtherance of an enterprise he carries on, the supply is a taxable supply.

41. The price of the taxable supply is the GST inclusive market value of the prize, which is $2,200. Rod accounts for the GST payable on his taxable supply of $200, being 1/11 of $2,200. GU is entitled to an input tax credit of $200 for the creditable acquisition of Rod's participation.

Question 2

The role of sponsors in your competition is discussed at paragraphs 74 to 75 and 78 to 79 of GSTR 2002/3 as shown below:

Supply from sponsor to event holder

74. Where goods or services are provided by a sponsor to an event holder for the purpose of being presented to a winner as a prize, the supply of the thing from the sponsor to the event holder is a separate supply for GST purposes from the supply of the prize to the winner of the event.

75. If nothing more than a mere acknowledgment of the sponsor's support, such as a brief mention of thanks in the event's program, is provided by the event holder in return for the support, (and if no consideration is received from any other entity), the supply of the goods or services by the sponsor to the event holder is not a taxable supply.

Sponsor presents prize to winner

78. Where a sponsor provides the goods or services to be given as a prize in the event and, in addition, presents the prize directly to the winner of the event, the GST consequences depend on the relevant contractual arrangements.

79. Where there are contractual arrangements between the sponsor and the event holder for the supply of the goods or services to be given as a prize, and between the participants and the event holder, we consider that for GST purposes, the sponsor is supplying the goods or services to the event holder, which the event holder then supplies to the winner. The fact that the sponsor may actually present the prize directly to the winner does not alter this situation.

Question 3

'Supply' is defined in section 9-10 of the 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 individuals and syndicates who bet on the race.

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 defines a gambling supply as:

(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.

GSTR 2002/3 discusses prizes and participation in an event. Paragraph 179 of the ruling provides examples of gambling events and states:

179. 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 sometime in the future, such as which participant will receive an award.

Therefore the race is considered as a gambling event under paragraph 126-35(2)(b) of the GST Act.

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

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.

Accordingly, the supply that you make to individuals and syndicates who bet on the race is a gambling supply. GST applies to the margin in gambling supplies not to individual gambling sales.

How GST applies to gambling sales you make

Gambling sales are taxable, but you only apply GST to your margin - not to individual gambling sales.

To work out your margin:

• work out the total amount you received in gambling event wagers for the tax period

• subtract the total monetary prizes you paid for the tax period.

If the total wagered amount you received is more than the total amount of monetary prizes you paid, you must pay GST on one-eleventh of this margin.

Example 1

Ronnie, a bookmaker, receives $86,000 in bets at the races and pays out $20,000 in cash prizes in one tax period. The margin on Ronnie's sales for GST purposes is $66,000 ($86,000 - $20,000).

Ronnie must pay $6,000 GST ($66,000 x 1/11) on his gambling sales for this tax period.

Further guidance to assist the entity to calculate its GST liability is available via a link: GST guidance for gambling and gaming venues | Australian Taxation Office