Edited version of private advice

Authorisation Number: 1052258805751

Date of advice: 7 June 2024

Ruling

Subject: GST grouping and gambling supplies

Question

In calculating the 'global GST amount' within the meaning of section 126-10 of the GST Act, for the purpose of working out its 'net amount' under section 126-5 of the GST Act, is the GST group representative required to:

a.    calculate a notional 'global GST amount' for each GST group member within section 126-5 of the GST Act as if each member were required to lodge a GST return and aggregate those individual notional global GST amounts; or

b.    identify and aggregate the consideration received for all gambling supplies made by each GST group member to give rise to cumulative 'total amounts wagered' and aggregate the monetary prizes that each GST group member is liable to pay to give rise to cumulative 'total monetary prizes'?

Answer

The GST group representative is required to calculate the global GST amount individually for each GST group member and aggregate those individual global GST amounts for the purpose of working out its net amount under section 126-5 of the GST Act.

Proposition 'b' is incorrect as gambling losses of one GST group member cannot be applied against what would otherwise be gambling profits of another GST group member.

This ruling applies for the following periods:

From the tax period starting 1 August 2017 to the tax period ending 31 August 2025

The scheme commenced on:

1 August 2017

Relevant facts and circumstances

Entity A is the GST Group Representative Member for a GST group that make taxable supplies of gambling supplies.

Entity A has calculated significant carried forward gambling losses under section 126-15 and section 126-20 of the GST Act.

Prior to 1 August 2021, Entity A aggregated the Global GST amount of all its GST group members in the calculation of its net amount under section 126-5 of the GST Act, effectively, offsetting gambling losses from one entity against gambling profits of other GST group members. That is, Entity A treated all members of the GST group as a single entity for the purposes of determining the global GST amount and net amount under Division 126 of the GST Act. In this way, Entity A has reduced the calculation of the global GST amount for the GST group.

In calculating its global GST amount under section 126-10 of the GST Act, Entity A:

•         identified the consideration received for gambling supplies by all GST group members and aggregated those amounts to determine the total amounts wagered; and

•         identified the monetary prizes liable to be paid by all GST group members and aggregated those amounts to determine the total monetary prizes. In determining total monetary prizes, Entity A also took into account carry forward losses, bad debts and repayments of gambling losses of each GST group member.

Entity A then subtracted the total monetary prizes from the total amounts wagered and divided the resulting figure by 11. Where this amount was less than zero, Entity A used zero as the global GST amount.

Relevant legislative provisions

Acts Interpretations Act 1901 Section 15AA

A New Tax System (Goods and Services Tax) Act 1999 Section 17-5

A New Tax System (Goods and Services Tax) Act 1999 Division 48

A New Tax System (Goods and Services Tax) Act 1999 Section 48-40

A New Tax System (Goods and Services Tax) Act 1999 Subsection 48-40(1)

A New Tax System (Goods and Services Tax) Act 1999 Section 48-45

A New Tax System (Goods and Services Tax) Act 1999 Subsection 48-45(1)

A New Tax System (Goods and Services Tax) Act 1999 Section 48-55

A New Tax System (Goods and Services Tax) Act 1999 Subsection 48-55(1)

A New Tax System (Goods and Services Tax) Act 1999 Division 126

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 126-15

A New Tax System (Goods and Services Tax) Act 1999 Section 126-20

A New Tax System (Goods and Services Tax) Act 1999 Division 165

Does Division 165 apply to this private ruling?

Division 165 of the GST Act is a general 'anti-avoidance' rule that can apply in certain circumstances if you or another entity obtains a GST benefit from a scheme that you entered into or carried out for the main purpose of obtaining a GST benefit or allowing another to obtain one. It may also apply in some cases where the GST benefit arises as a principal effect of a particular scheme. An entity can get a 'GST benefit' under the GST, Luxury Car Tax or Wine Equalisation Tax laws. If Division 165 of the GST Act applies, the benefit can be cancelled. For example, we might increase the net amount for a particular tax period.

We have not considered the application of the anti-avoidance provisions to your case. As it is the Commissioner's view that you, as the group representative, are required to calculate the global GST amount individually for each GST group member and aggregate those individual global GST amounts, it is unnecessary for the Commissioner to consider Division 165 of the GST Act.

Reasons for decision

All legislative references are references to A New Tax System (Goods and Services Tax) Act 1999 unless otherwise stated.

The representative member of the GST group is required to calculate the global GST amount individually for each GST group member and aggregate those individual global GST amounts for the purpose of working out its net amount under section 126-5.

Proposition 'b' is incorrect as gambling losses of one GST group member cannot be applied against what would otherwise be gambling profits of another GST group member. Generally, each entity that is registered for GST is required to lodge a GST return for each tax period which sets out a net amount. Section 17-5 provides that an entity's net amount for a tax period is the sum of all the GST for which it is liable less the sum of all the input tax credits to which it is entitled for that period. However, an entity's net amount may be modified by a special rule in the GST Act. Furthermore, an entity's GST liability may also be shifted to a different entity by a special rule in the GST Act.

Division 48

Section 48-40 is one of those special rules and it provides that the GST payable on taxable supplies made by members of a GST group is payable by the GST group representative member and not the individual GST group members:

48-40 Who is liable for GST

(1)  GST that is payable on any *taxable supply an entity makes and that is attributable to a tax period during which the entity is a *member of a *GST group:

(a)  is payable by the *representative member; and

(b)  is not payable by the entity that made it (unless the entity is the representative member).

No provision in Division 48 alters the meaning of net amount for the purposes of section 17-5. Section 48-40 only shifts the liability to pay the GST from the GST group member which made the taxable supply to the GST group representative member. In this way, the net amount of the GST group representative member includes the GST that would otherwise be payable by the GST group member, but for the special rule for GST groups in section 48-40.

Scope of the single entity rule in Division 48

Division 48 does not contain a general or comprehensive single entity principle. There is a single entity rule in section 48-55, but it specifically only covers input tax credits and adjustments (it treats a GST group as a single entity only for the purposes of working out the amount of input tax credits and adjustments the GST group representative member is entitled to). This section has no application to GST on supplies.

One of the principal objectives of the GST grouping provisions is to eliminate the administrative and cash-flow costs associated with transactions between related entities (see Explanatory Memorandum to the Indirect Tax Legislation Amendment Bill 2000 at paragraph 11.22). The provisions enable entities within the same business structure to effectively treat the structure as a single entity for many but not all GST purposes (see Senate Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 at paragraph 1.53 and Explanatory Statement to the A New Tax System (Goods and Services Tax) Amendment Regulations 2003 (No. 1).

Compliance costs are reduced for members of a GST group because only one group member is responsible for GST payment and reporting obligations of the group.

For GST groups, what would otherwise be a liability of a group member to pay GST becomes a liability instead of the representative member. Correspondingly, an entitlement to input tax credits that a group member would otherwise have becomes instead an entitlement of the representative member.

Division 48 does not create a single entity rule in the same way or to the same extent as the income tax consolidations provisions contained in Part 3-90 of the Income Tax Assessment Act 1997 (ITAA 1997). In a consolidations context, the subsidiary members of the group are deemed to be part of the head company for core purposes. This position on Division 48 is recognised in The Taxpayer and Commissioner of Taxation [2010] AATA 497 where, at 32, Hack DP stated:

... The GST system does not have a single entity style rule of the kind provided for in part 3-90 of the Income Tax Assessment Act 1997 (Cth). Particular, and it might be observed, piecemeal, provision is made in the GST Act for dealing with, or ignoring, some, but not all, transactions that occur within a GST group. These provisions, and the effect they produce, can be described in the terms referred to in the Explanatory Memorandum. These references in the Explanatory Memorandum are not a warrant for advancing a single entity concept that would allow the term "your acquisition" to be construed as an acquisition by another entity...

In Confidential and Commissioner of Taxation [2012] AATA 408, Fice SM, however, distinguished that decision and accepted a broader single entity concept.

The ATO Decision Impact Statement published in response to Confidential and Commissioner of Taxation [2012] AATA 408 states our preferred view:

We consider [The Taxpayer and Commissioner of Taxation [2010] AATA 497], which has not been disturbed on appeal, properly reflects the fact that Division 48 of the GST Act does not confer an unqualified single entity treatment for GST groups under which actions of one group member can generally be ascribed to another.

The Explanatory Statement to the A New Tax System (Goods and Services Tax) Amendment Regulations 2003 (No. 1) also makes it clear that Parliament did not contemplate that GST group members would be a single entity for all GST purposes. Paragraph 6.22 of the Explanatory Memorandum states:

If you join a GST group you cease to be responsible for accounting for your own taxable supplies, certain taxable importations, creditable acquisitions and creditable importations and adjustments unless you are the representative member. For example, if you made an acquisition before you were a member of the GST group and an adjustment arises after you joined, the representative member of the GST group is responsible for the adjustment. If you made a taxable supply before you were a member of a GST group, and only part of the GST on a taxable supply was attributed to a tax period before you joined, the representative member accounts for the rest of the GST. [Emphasis added]

The ATO view in Goods and Services Tax Ruling GSTR 2013/1 Goods and services tax: Tax Invoices is that a group member is still the one making the actual supplies and issuing tax invoices in its own name. GSTR 2013/1 states:

99. Where the supplier is a member of a GST group, section 48-40 makes the representative member liable to pay the GST. However, the member is the entity that makes the taxable supply. As such, the member must issue a tax invoice for the taxable supply when requested by the recipient.

100. Similarly, the representative member is entitled to the input tax credit under section 48-45, although a member of the group is the entity that makes the creditable acquisition and is therefore the recipient of the supply. Ordinarily, a tax invoice would have to include enough information to clearly ascertain the recipient's identity or ABN.

101. However, if a document contains sufficient information to clearly show the identity of the GST group, the representative member or another member of the GST group, and would otherwise be a tax invoice if it contained information from which the recipient's identity or ABN could be determined, then the document is taken to be a tax invoice in the approved form. [Emphasis added]

Essentially, section 48-40 simply shifts the liability to pay the GST on any taxable supplies made by any member of a GST group to the GST group representative member. The members of a GST group are and remain the entities which make the taxable supplies.

Division 126

Division 126 is another special rule in the GST Act, and it provides rules for working out the net amount for entities that make gambling supplies. Essentially, Division 126 uses a global accounting system to determine the GST payable on net profits from taxable supplies involving gambling. Paragraph 6.203 of the Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 explains that applying the ordinary GST rules to gambling supplies would be difficult and, as such, applying the GST to the margin on gambling activities achieves the same result as applying GST to individual wagers and allowing input tax credits in relation to prizes paid out.

Subsection 126-5(1) provides a method for determining the net amount of any entity which makes taxable supplies of gambling supplies and states:

126-5 Global accounting system for gambling supplies

(1)  If you are liable for the GST on a *gambling supply, your net amount for the tax period to which the GST on the supply is attributable is as follows:

Global GST amount + Other GST − Input tax credits

where:

global GST amount is your *global GST amount for the tax period.

input tax credits is the sum of all of the input tax credits to which you are entitled on the *creditable acquisitions and *creditable importations that are attributable to the tax period.

Note: Any supplies under the global accounting system will not have attracted input tax credits.

other GST is the sum of all of the GST for which you are liable on the *taxable supplies that are attributable to the tax period, other than *gambling supplies.

Section 126-10 defines how the global GST amount is calculated and subsection 126-10(2) specifically states that the global GST amount is zero if the prizes paid out exceeds the amount wagered in a tax period. That is, the global GST amount cannot ever be a negative amount, even if the supplier of the gambling supplies makes a loss on their gambling events in a tax period.

126-10 Global GST amounts

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

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

where:

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).

For the basic rules on what is attributable to a particular period, see Division 29.

(2)  However, your global GST amount is zero for any tax period in which total monetary prizes exceeds total amounts wagered.

Section 126-15 provides that an amount by which the total monetary prizes exceeds the total amounts wagered in any given tax period is carried over to the next tax period (that is, there will be no refund). Effectively, the gambling losses are offset against the next gambling profit, by adding the excess to the total monetary prizes for the next tax period.

126-15 Losses carried forward

If, for any tax period, your total monetary prizes referred to in subsection 126-10(1) exceed your total amounts wagered referred to in that subsection, the amount of that excess is to be added to your total monetary prizes, referred to in that subsection, for the next tax period.

This is an important contextual indicator of the general policy behind the gambling provisions. The fact the GST global amount for an entity cannot be a negative amount reflects the statutory scheme that the gambling operations of the entity cannot be used to shelter (or reduce) an amount of GST that would otherwise be payable by reason of the entity's other (non-gambling) operations or increase the refund entitlement otherwise arising by reference to those operations.

Thus, if an entity would otherwise have a negative global GST amount, the negative excess is carried forward to the next tax period and is available to reduce what might otherwise be a positive global GST amount through the mechanism of being added to the total monetary prizes figure for that next period, and if still not fully utilised, carried forward to the next period after that.

Interaction between Division 48 and Division 126

Subsection 126-5(3) specifically states that the calculation of an entity's net amount under section 126-5 occurs despite the normal method for determining an entity's net amount under section 17-5. This means that an entity which makes gambling supplies, calculates its net amount using the special rule under Division 126 and would normally report and pay that amount on its activity statement. However, where the entity making the gambling supplies is a member of a GST group, the interaction between Division 48 and Division 126 must be considered.

No provision in Division 48 alters the meaning of net amount for the purposes of section 17-5. Instead, section 48^-40 shifts the liability to pay the GST from the GST group member to the GST group representative member. In contrast, the wording in section 126-10 refers to the entity making the gambling supply. For example, the definition of 'total monetary prizes' in section 126-10 refers to the 'monetary prizes you are liable to pay' [emphasis added].

As Division 48 doesn't deem the supplies made by a GST group member to be made by the GST group representative member, an entity which makes gambling supplies must calculate its own global GST amount under section 126-10. This is because there are no provisions in the GST Act which deem the gambling supplies to be made by any entity other than the supplier. Subsequently, the global GST amounts calculated under section 126-10 for each GST group member (which cannot be less than zero as per subsection 126-10(2)) will then be used by the GST group representative member, to calculate its net amount under section 126-5 as a combined figure for all GST group members. This aggregation occurs because subsection 126-5(1) refers to the liability for the GST on a gambling supply and, as previously noted, section 48-40 makes the GST group representative member liable for the GST on taxable supplies (including gambling supplies) made by members of the GST group.

This approach to the interaction between Division 126 and Division 48 aligns with the policy intent of the Parliament to only allow gambling GST losses to be carried forward under section 126-15 rather than be offset against other GST obligations.

Further, in Project Blue Sky v Australian Broadcasting Authority [1998] HCA 28 (Project Blue Sky), McHugh, Gummow, Kirby and Hayne JJ, at [70], stated (footnotes omitted):

A legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals. Where conflict appears to arise from the language of particular provisions, the conflict must be alleviated, so far as possible, by adjusting the meaning of the competing provisions to achieve that result which will best give effect to the purpose and language of those provisions while maintaining the unity of all the statutory provisions. Reconciling conflicting provisions will often require the court "to determine which is the leading provision and which the subordinate provision, and which must give way to the other". Only by determining the hierarchy of the provisions will it be possible in many cases to give each provision the meaning which best gives effect to its purpose and language while maintaining the unity of the statutory scheme.

The interpretation that would best achieve the purpose or object of the Act is to be preferred to each other interpretation (see section 15AA of the Acts Interpretation Act 1901).

The Commissioner has a constructive obligation so far as possible to ensure that the law works coherently and that the legislative target is hit and not missed (see SAS Trustee Corporation v Miles [2018] HCA 55 at [20] and [41]; SZTAL v Minister for Immigration and Border Protection [2017] HCA 34 at [38]; ENT19 v Minister for Home Affairs [2023] HCA 18 at [87]; and Taylor v The Owners - Strata Plan No 11564 [2014] HCA 9 at [60]; Commissioner of Taxation v Douglas [2020] FCAFC 220 at [90]-[91]).

A key issue in this context, where a gambling supplier is a member of a GST group, is the extent to which the policy of control (in particular, segregating losses to be carried forward evidenced from the provisions in Division 126) relates to the grouping rules (which evidence a policy of reducing compliance costs). Nothing in the GST Act or extrinsic materials expressly articulates the policy intent regarding how the two Divisions are intended to interact.

In regard to these provisions, Division 48 as the general provision is to be regarded as the 'subordinate provision', and Division 126 as the specific provision is to be regarded as the 'leading provision'.

Conclusion

Taking into account the orthodox principles of statutory interpretation, including the approach outlined in Project Blue Sky and section 15AA of the Acts Interpretation Act, the better interpretation is that the GST payable by a GST group representative member on gambling supplies made by group members is worked out individually. That is, each group member's global GST amount is worked out separately and then that amount is aggregated with other group member's global GST amounts to then calculate the GST group representative member's net amount.

This approach best achieves harmonious operation of Divisions 126 and 48 to give effect to the competing policy objectives. There is an identified policy intent to restrict the use of losses in the gambling provisions in Division 126. With this intent in mind, it is appropriate to approach the construction of the GST grouping rules in Division 48 so they work to restrict a group representative member's access to what would otherwise be gambling losses at the individual member entity level, so as to only be available to be offset against gambling profits of that same member entity. This thereby reconciles the operation of Division 48 with the terms of Division 126. The fact that Division 48 does not codify a broad single entity principle and does not displace the group member from being the entity making the supply is also highly relevant in this regard.