On 20 August 2021, the Full Federal Court allowed the ATO’s appeal, holding that commissions paid by, and rebates paid or received, under agreements with junket tour operators, should be not be taken into account, in working out the casino’s “global GST amounts” – because, in essence, they were not paid to the gamblers, but to the Junket Operator, and for that Operator’s promotional services – in getting these VIP gamblers, to the Casino, ready to gamble. The question is, however, whether this connection, to the promotional services, ought really disqualify, these additional payments and receipts, from being included, from this GST calculation, of its gross gambling profit or loss.
See below for further details.
ATO wins appeal in casinos’ GST “junkets” case – CofT v Burswood Nominees Limited as trustee for the Burswood Property Trust
The facts were these.
- Burswood Nominees and Crown Melbourne (the taxpayers) own and operate casinos in Perth and Melbourne respectively.
- The casinos entered into agreements with “junket tour operators”.
- The term “junket” is widely used in the casino industry to refer to a group of players who attend a casino together as a group for a set period of time, playing on special gambling terms and receiving VIP treatment.
- Depending on the type of program selected by the junket tour operator, commissions and/or rebates were payable by the casino to the junket tour operator, and rebates were payable by the junket tour operator to the casino.
The GST law for gambling is as follows.
Division 126 of the GST Act contains special rules for “gambling supplies” so that they are not taxable (s126-25), with inputs not creditable (s126-30). Rather, GST is levied on net gambling proceeds, call the “global GST amount” for the period (s125-5). The GST is 1/11th of this ‘global’ amount (s126-10(1)).
The all important ‘global GST amount‘ is difference between the “total amount wagered” and the “total monetary prizes” (s126-10). They are defined, in the GST Act, as follows:
- 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:
- 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
- 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).
The Full Federal Court, disagreed and unanimously allowed the ATO’s appeal.
- The commissions and rebates payable by the casinos to the junket tour operators were payable for the marketing, promotion and arrangement of junkets, by the junket tour operators to the casinos and were not “monetary prizes” for the purposes of s 126-10.
- Similarly, the rebates payable by the junket tour operators to the casinos were made as part of, and in connection with, the commercial arrangements for the junkets.
- Accordingly, those amounts did not form part of the expression “total amount wagered” in s 126-10.
In addition, the total amount payable at the end of a junket (which was a net amount taking into account winnings, losses, commissions and rebates) did not constitute or form part of the “total amount wagered” (if payable by the junket tour operator) or part of the “total monetary prizes” (if payable by the casino).
I’ve also set out this Court’s reasons, below (after this summary) and made an assessment of what the correct decision might be (and why). If you are interested, please read on.
(FCT v Burswood Nominees Limited as trustee for the Burswood Property Trust  FCAFC 151, Full Fed Ct, Jagot, Moshinsky and Colvin JJ, 20 August 2021.)
The ‘First Instance’ judgement, in favour of the Casino
The casino provided two types of concessions to Junket Operators and their individual gamblers –
- a ‘commission’ arrangement, where the Casino would pay the Junket Operator a negotiated percentage of the total amount of bets placed, by the junket gablers (see description iin para 18 of the judgement) and
- a ‘rebate’ arrangement, where Casino would pay back a negotiated percentage of the gamblers losses, or the Junket operator would pay back a percentage of their gamblers’ winnings (described in para 20).
It was the inclusion of these payments/receipts, into the net gaming amount, on which GST was paid, that was in issue, in the case. And the amounts were not small. In once case mentioned (in para 48), the rebate percentage was 72.5% and applied to gross bets totalling $749,545, produced a rebate as large as $543,420, leaving a net amount payable, of only $206,125. If the $543k reduces the amount, on which GST is paid, the result is significant. If it is left out, then the GST is commensurately higher, but also there is no input tax credit, on the payment – because s126-30. Gambling is, in essence, an ‘input taxed system’ save for the net gambling position being subject to GST.
No doubt there are ‘economic equivalence’ arguments, that upset the Commissioner – such as the cost of various ‘perks’ being non creditable, if they were part of the consideration for their gambling supplies. So, so rolling the perks into other ‘gaming dependant’ consideration, had some GST advantage. But ‘economic equivalence’ doesn’t drive tax.
The Commissioner’s argument was that the Casino’s payments and receipts were, contractually, for the Junket Operator’s marketing efforts, in assembling a ‘junket’ group of gamblers – ready to bet, and such receipts or payments did not answer the relevant statutory descriptions of “total amounts wagered” or “total monetary prizes” (see para 50).
The Casino’s argument was, that no contractual arrangements came into existence, until the junket players started to place bets, at which point there was a single, unseverable contact, between all of: the Casino, the Junket Operator and all the Junket gamblers – resulting in a ‘net’ liability or receipt, which was relevantly moved by the gambling – namely ‘prize’ paid, or ‘wagered’ amounts received. This was advanced as in in accordance with the principles in Clarke v Earl of Dunraven & Mount-Earl  UKLawRpAC 56;  AC 59 (The Satanita case) (at para 48) –
Her Honour agreed with the ‘Satanita’ argument. “When there is gambling, the effect is that there is a single contract, comprising all of the Casino, the Junket Operators and the Junket Gamblers, constituting the ‘rule of the game’, to which all parties are bound. (para 69).
Second, Her Honour found (at para 70) – that the accounting for the gaming, and the commission and rebate arrangements, was settled at once, into one net amount, and was not susceptible to being divided, severed, or apportioned, for the purposes of these statutory provisions.
Third, Her Honour held (71), that the meaning of the word ‘consideration’ established by the High Court, in the Qantas case  HCA 41, was sufficiently wide to allow receipts, under a rebate arrangement, to also be ‘consideration’ for ‘gambling supplies’ (relevant to the definition of ‘amounts wagered’, within the definition of ‘global GST amount’).
The Full Federal Court’s reasons for overturning the decision at first instance
The Full Court dealt with the three main reasons, Her Honour gave at first instance, as follows.
- It distinguished theatre-partite argument, in the Satanita case, because that was about a ‘competition’ (boat race) and there was no evidence that the Junket Gamblers even knew about the Program Agreement. Also, the ‘tri-partite’ agreement sat uncomfortably, they said, with the Promotion Agreement (which was really about what the Junket Operator was going to do). [para 91]
- It disagreed with the 2nd of the reasons given, at first instance, that “one integrated and indivisible transaction, of which the commission and rebates … are inseverable components”. It did this, on the basis that the additional receipts and payments were paid to the Junket Operator, and that the Promotion Agreement said that this was for its promotional services. It also distinguished a case Her Honour took into account (Lend Lease  HCA 51) because it was about property development, rather than the construction of a quite detailed tax definition, involving a characterisation of a different kind, for different purposes. [para 92]
- It referred to Her Honour’s reliance on the Qantas case, by saying “In our view, having regard to the contractual framework, it is not correct to treat the commissions and rebates as mere adjustments to the gambling winnings and losses. [para 93] I my opinion, though, this was really engaging with the reason, for which Her Honour cited the case. She cited it, because the definition of ‘amounts wagered’ involves ‘consideration for‘ gambling supplies. For that purpose, it is relevant to cite Qantas, as establishing that one does not adopt contractual principles, to assess whether something was ‘consideration for’ a supply, but rather, you look for “a connection or relationship between the supply and the consideration”. A thing could still be ‘for’ one thing, despite also being ‘for’ another thing too (viz: ‘for’ gambling supplies as well as being ‘for’ promotional supplies’).
The Full Court is right, to say that there is still a an issue of whether the Casino’s payments to, and receipts from, the Junket Operator, are characterised as ‘adjustments’, which fit within the definitions of ‘total amounts wagered’ and ‘total monetary prizes’. The following might explain my point:
- A commission paid to a real estate buyers’ agent, based on the purchase price, does not make it a land transaction. Thy fee to the buyer’s agent, is not, for instance, part of the value of the price paid, for the land, for duty purposes. It is still ‘for’ the services of the buyers advocate.
- But the fact that a payment was for securing a purchase agent’s services, does not prevent the amount being a ‘cost’ (for instance, for CGT ‘cost base’ purposes).
I am of the opinion, though, this Casino case, is more like the CGT ‘cost base’ issue. The fact that the payments and receipts are (at least to some extent) for promotional services, does not prevent them being part of the ‘total amounts wagered’ or ‘total monetary prizes’ when assessing its gross gaming profit or loss (‘total GST amount’). They knit so closely into the Casion’s other payments and receipts, in its gambling business, that it seems irrelevant, whether they were also, partly for promotional services. When the purpose of the calculation is to determine the gross gambling profit, for GST taxing purposes, the payments need to be ‘for’ gambling supplies (in the Qantas sense) and it does not matter that it was also ‘for’ promotional services. Then, the fact that the payments and receipts behave, i the same way as other ‘gambling’ payments and receipts, becomes highly relevant, to this task – just like a ‘cost’ is relevant to determine a CGT ‘cost base’ and ‘gain’.
I mean no disrespect to the Full Federal Court, or undue deference to the Court at first instance. I am merely assessing the merit of both decisions – not just for its own sake, but in assessing whether there would be merit in applying to the High Court, for leave to appeal.