GST Memoranda

G500-6-10 Gambling, Bets and Games of Chance (GST 500-6-10)

GST 500-6-10

ADMINISTRATION AND ENFORCEMENT
SPECIAL COMPLIANCE MEASURES
GAMBLING, BETS AND GAMES OF CHANCE
Ottawa, May 1, 1992

This memorandum does not replace the law found in the Excise Tax Act and its Regulations. It is provided for your reference. As it may not completely address your particular operation, you may wish to refer to the Act or appropriate Regulation or contact any Revenue Canada Excise/GST District office for additional information.

This memorandum may reflect amendments proposed to the Excise Tax Act by Notices of Ways and Means Motion tabled on December 18, 1990, March 27, 1991, November 5, 1991, and March 10, 1992. The federal government announced its intention to introduce certain amendments to the Excise Tax Act to effect these changes which were outlined by the Minister of Finance in press releases on the mentioned dates. [Where proposed changes affect information contained in this memorandum, the information is enclosed in square brackets.] At the time of publication, Parliament had not enacted these proposed amendments. Any commentary in this memorandum should not be taken as a statement by the Department that such amendments will in fact be enacted into law in their current form.

This memorandum explains the application of the Goods and Services Tax (GST) to gambling, bets and games of chance operated by a charity or non-profit organization (NPO) and by other registrants. It also explains how input tax credits (ITC) apply to such gambling, bets and games of chance under the Excise Tax Act.

LEGISLATIVE AND OTHER REFERENCES

Excise Tax Act - sections 148, 187 and 188, subsection 123(1), Schedule V, Part VI, sections 5, 5.1 and 5.2, Public Sector Bodies

Games of Chance (GST) Regulations

TABLE OF CONTENTS

Definitions and Interpretations. . . . . . . . . . . . . . 2
General. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Games of Chance and Betting Services . . . . . . . . . . . 4
Public Service Bodies . . . . . . . . . . . . . . . . 4
Prescribed Registrants and Games of Chance. . . . . . 5
Lotteries . . . . . . . . . . . . . . . . . . . . . . 6
Taxable Betting Services. . . . . . . . . . . . . . . 6
Admissions to Gambling Events Operated by Charities/NPOs . 7
Administrative Functions and Other Functions
Criteria . . . . . . . . . . . . . . . . . . . . . . 8
Volunteer Criterion . . . . . . . . . . . . . . . . . 8
Commercial and Non-commercial Bingo and Other Events . . . 9
ITCs. . . . . . . . . . . . . . . . . . . . . . . . . 9
Small Supplier Status . . . . . . . . . . . . . . . .10
Provincial Laws . . . . . . . . . . . . . . . . . . .10
Bingo Events Operated by a Charity or NPO . . . . . .11
Bingo Hall Operated Events. . . . . . . . . . . . . .11
Permanent Casino Establishments. . . . . . . . . . . . . .12
Pari-mutuel Betting. . . . . . . . . . . . . . . . . . . .14
Appendix

DEFINITIONS AND INTERPRETATIONS

The following are either definitions which have been taken from the Excise Tax Act as amended by S.C. 1990, c. 45 (Bill C-62), or departmental interpretations of terms relevant to the administration of that Act.

"Act" means the Excise Tax Act;

"admission", in respect of a place of amusement or a seminar, an activity or an event, means a right of entry or access to, or attendance at, the place of amusement or the seminar, activity or event;

"charity" means a registered charity or registered Canadian amateur athletic association, within the meaning of the Income Tax Act;

"commercial activity" means

(a) any business carried on by a person,

(b) any adventure or concern of a person in the nature of trade, and

(c) any activity engaged in by a person that involves the supply of real property or of a right or interest in respect of real property by that person,

but does not include

(d) any activity engaged in by a person to the extent that it involves the making of an exempt supply by the person,

(e) any activity engaged in by an individual without a reasonable expectation of profit, or

(f) the performance of any duty or activity in relation to an office or employment;

"exempt supply" means a supply included in Schedule V to the Act;

"exclusive", in respect of the consumption, use or supply of property or a service, means all or substantially all of the consumption, use or supply of the property or service, and "all or substantially all", in respect of the consumption, use or supply of property or a service by a financial institution, means all of the consumption, use or supply of the property or service;

"game of chance" means a lottery or other scheme under which prizes or winnings are awarded by way of chance or by way of a mixture of chance and other factors where the result depends more on chance than on the other factors;

"input tax credit" means a credit claimable by a registrant for the Goods and Services Tax paid or payable by the registrant in respect of the acquisition or importation of any property or service for consumption, use or supply in the course of commercial activities of the registrant;

"individual" means a natural person; (version anglaise seulement)

"non-profit organization" means a person (other than an individual, an estate, a trust or a charity) that was organized and is operated solely for a purpose other than profit, no part of the income of which is payable to, or otherwise available for the personal benefit of, any proprietor, member or shareholder thereof unless the proprietor, member or shareholder is a club, a society or an association, the primary purpose and function of which is the promotion of amateur athletics in Canada;

"record" includes a book, an account, a statement, a voucher, an invoice, a letter, a telegram, an agreement and a memorandum, whether recorded in writing or in some other manner and whether or not some process must be applied to the record to make it readily intelligible;

"registrant" means a person who is registered under section 241 or who is required to apply to be registered under section 240 of the Act;

"small supplier", at any time, means a person who is at that time a small supplier under section 148 of the Act;

"tax" means the Goods and Services Tax payable under Part IX of the Act;

"taxable supply" means a supply that is made in the course of a commercial activity, but does not include an exempt supply;

"zero-rated supply" means a supply included in Schedule VI to the Act.

GENERAL

1. The operator of a game of chance is the person holding the licence to conduct the game of chance. Gaming activities are regulated across Canada by the respective provincial gaming authorities. Depending on the province, either a charity/NPO or some other person will be licensed to conduct a game of chance.

GAMES OF CHANCE AND BETTING SERVICES
Public Service Bodies

2. Section 5 of Part VI of Schedule V to the Act stipulates that supplies of admissions to gambling events are exempt when the event is carried out exclusively (exclusively means, for the purposes of this memorandum, at least 90 per cent) by volunteers and, in the case of a bingo session or casino event, the games are not held in a commercial hall or other place used principally for conducting gambling activities.

3. Section 5.1 of Part VI of Schedule V to the Act exempts the supply made by a charity/NPO (other than a prescribed person) of a right to play or participate in a game of chance (other than a prescribed game of chance).

4. Section 5.2 of Part VI of Schedule V to the Act exempts the supplies of gambling proceeds to a charity or NPO (other than a prescribed lottery corporation) that conducts a casino or like event. As well, all supplies of pari-mutuel betting on running, trotting and pacing horse races are also exempt under this section.

Prescribed Registrants and Games of Chance

5. Pursuant to the Games of Chance (GST) Regulations, the following persons are prescribed registrants for the purposes of subsection 188(5) of the Act, which deals with ITCs of a prescribed registrant:

(a) the Atlantic Lottery Corporation;

(b) the British Columbia Lottery Corporation;

(c) the Manitoba Lotteries Foundation;

(d) the Ontario Lottery Corporation;

(e) la Sociéte des loteries et courses du Québec, and

(f) the Western Canada Lottery Corporation.

6. A game of chance conducted by any of the following persons is a prescribed game of chance for the purposes of section 5.1 of Part VI of Schedule V to the Act:

(a) persons referred to in any of paragraphs 5(a) to (f) of this memorandum; and

(b) the Interprovincial Lottery Corporation.

Lotteries

7. The purchase of lottery tickets from provincial and inter- provincial lottery corporations is the purchase of a right to play or participate in a game of chance.

8. The Games of Chance (GST) Regulations described in paragraphs 5 and 6 of this memorandum set out the prescribed registrants and games of chance. The provisions under sections 5.1 and 5.2 of Part VI of Schedule V to the Act exclude from the exemption for charities or NPOs supplies made in respect of games of chance operated by provincial lottery corporations.

9. For more information on the right to play or participate in a game of chance with respect to the purchase of these types of lottery tickets, refer to GST MEMORANDUM 600-3, SPECIAL RULES FOR PROVINCIAL LOTTERIES.

Taxable Betting Services

10. Section 187 of the Act deals with bets on games of chance such as casino games, a race or other similar events. Pursuant to section 187, the person with whom the bet is placed is treated as having supplied a service to the bettor for consideration equal to the formula:

A x (B - C)

where

A is the consideration amount;

B is the amount that is bet; and

C is the amount of any tax imposed under an Act of the legislature of a province on the particular person in respect of the amount that is bet.

11. For example, if the total bet placed on a casino game were $6.00 and a provincial tax of 10 per cent applied, the amount of the bet, net of provincial tax, would be $5.45. The consideration for the service of taking the bet would be $5.09 (that is, 100/107 of $5.45). If the gambling event were a taxable activity, the operator would be treated as having collected 36 cents tax on the bet. The formula only applies to bets placed on a game of chance and not the right to play or participate in a game of chance. Moreover, it only has practical applications when the operator is someone other than a charity/NPO.

12. Bingos, casinos and similar activities sponsored by a charity/NPO as well as pari-mutuel betting on horse races are exempt from the tax under sections 5.1 and 5.2 of Part VI of Schedule V to the Act.

13. Pursuant to subsection 188(1) of the Act, a registrant who operates a gambling event may claim an ITC of 7/107 on any cash prize paid or payable to a participant in the gambling event unless the registrant is a charity/NPO.

14. The net result of section 187 and subsection 188(1) of the Act is that the operator remits the tax on the gross margin (revenue received from bets placed less cash prizes paid to bettors).

ADMISSIONS TO GAMBLING EVENTS OPERATED BY CHARITIES/NPOS

15. Section 5, Part VI, Schedule V to the Act provides an exemption for the supply by a public sector body of an admission in respect of a place of amusement at which the principal activity is the placing of bets (e.g., casinos) or the playing of games of chance (e.g., bingo, raffles, break-open tickets and similar games), if the following criteria are met:

(a) the administrative functions, and other functions performed in operating the game and taking the bets, are performed exclusively by volunteers; and

(b) in the case of a bingo or casino, the game is not conducted in premises or at a place, including any temporary structure, that is used primarily for the purposes of conducting gambling activities.

16. For the purposes of section 5, Part VI, Schedule V to the Act:

(a) administrative functions are defined as the performance of executive duties of an institution, business or the like;

(b) other functions include all the day-to-day functions necessary to stage the event, such as supervising each booth and selling admission tickets; and

(c) a volunteer is an individual who provides services and is not remunerated or entitled to remuneration in return for providing those services. (Remuneration does not include payments made to reimburse that person for any out-of- pocket expenses incurred in providing services.)

Administrative Functions and Other Functions Criteria

17. Administrative functions and other functions include all the work involved in operating the event and the taking of bets, and performed immediately prior to, and during the event.

Volunteer Criterion

18. The volunteer criterion is met if 90 per cent of the administrative and other functions performed in operating the game and taking bets is being carried out by volunteers.

19. The focus should be on whether 90 per cent of the work is performed by volunteers rather than whether 90 per cent of the people performing the work are volunteers.

20. Accordingly, a comparison of the total number of volunteer staff to the total number of all staff should only be used if this would be a reasonable indication of the portion of actual work performed by volunteers. A more accurate and acceptable method would be to compare the total number of hours worked by volunteers compared to the total hours worked by all staff.

21. No matter which method is chosen to calculate the percentage of work done by volunteers, the organization must keep records to substantiate that it is entitled to the exemption and that the method chosen to measure the volunteer contribution is appropriate in the circumstances.

COMMERCIAL AND NON-COMMERCIAL BINGO AND OTHER EVENTS

22. The term commercial bingo hall is used to describe a facility that is operated for the purpose of realizing a profit. Depending on the province in which the bingo hall is located, the owner either receives revenue from renting the facility to a charity/NPO, or conducts the event and gives a portion of the "take" to the designated charity/NPO.

23. Section 187 of the Act provides that the amount bet on a game of chance is to be treated as a GST-included amount. However, this section of the Act does not apply to the purchase of a bingo card.

24. The operator of a bingo hall can either charge the seven-per- cent GST as a tax-extra amount on the price of a bingo card, or treat the price of a bingo card as a tax-included amount.

ITCS

25. Pursuant to subsection 188(1) of the Act, when the operator of a game of chance pays a cash prize to a participant, the operator is considered to have paid 7/107 of the prize amount as tax. The operator can claim that amount as a notional ITC. More information on notional ITCs is available in GST MEMORANDUM 400,

INPUT TAX CREDITS.

26. In the case of casino operators, the effect of sections 187 and 188 of the Act is that the operator calculates the tax on the net margin (revenue less cash prizes paid to bettors). The operator collects the tax on each transaction and is considered to have paid the tax on each cash prize awarded.

27. Please refer to the Appendix of this memorandum for sample calculations of how ITCs apply to bets and games of chance.

Small Supplier Status

28. Section 148 of the Act sets out the rules for determining the status of a person as a small supplier for GST purposes. Pursuant to subsection 148(1) of the Act, a person qualifies as a small supplier throughout any calendar quarter and the following month if the total consideration for worldwide taxable supplies made by the person or an associate of the person, other than supplies by way of sale of capital property of the person or an associate of the person, in the preceding four calendar quarters did not exceed $30,000.

29. To determine whether an operator of a bingo hall can qualify as a small supplier, the amount of cash prizes paid to bettors is deducted from the total revenue received from the games of chance (gross margin), and the revenue received from other taxable (including zero-rated) supplies of goods and services is added to that amount.

30. GST MEMORANDUM 200-3, CALCULATION OF THE SMALL SUPPLIERS' THRESHOLD, provides more information on the formulae and what isto be included in the $30,000 threshold.

Provincial Laws

31. Bingo halls across Canada are regulated by provincial laws. In some provinces, a charity/NPO is the organization operating the bingo, and therefore supplying the right to play or participate in a game of chance. The charity/NPO is responsible for selling tickets and distributing prizes. The owner of the bingo hall rents the hall and required furnishings (e.g., bingo cards, markers, tables, chairs). In these provinces, the charity/NPO is the operator of the event for GST purposes. In other provinces, the reverse situation exists: the owner of the bingo hall is the person operating the event and remitting a portion of the "take" to the designated charity.

Bingo Events Operated by a Charity or NPO

32. Some transactions taking place at the event where operated by a charity/NPO are not subject to the tax. The sale of bingo cards to participants is exempt. This means that the charity is not required to collect the tax on these supplies and, therefore, is not able to claim notional ITCs.

33. Other transactions remain taxable. Supplies at the bingo hall, such as parking, food and beverages, remain subject to the tax unless the overriding exemptions apply.

34. Although the rental of a bingo hall is taxable, the charity/NPO cannot claim an ITC on the rental because it is a purchase toward an exempt supply. The charity or qualifying NPO can, however, claim a rebate of 50 per cent of the tax paid for the rental. For more information on ITCs, refer to GST MEMORANDUM 400-4, PUBLIC SECTOR BODIES, and for detailed information on rebates, refer to GST MEMORANDUM 500-4-8, NON-PROFIT ORGANIZATIONS, and GST MEMORANDUM 500-4-9, CHARITABLE ORGANIZATIONS.

Bingo Hall Operated Events

35. Where the owner of the bingo hall is the person operating the event and remitting a portion of the "take" to the designated charity, the supply of bingo cards is taxable and the operator is eligible to claim notional ITCs on the cash prizes paid out.

36. The payment to the charity/NPO will either be taxable or exempt, depending on the nature of the organization involved in the bingo event. If the bingo hall operator is working jointly with a registered charity, the payment to the charity will be exempt.

37. Section 2, Part VI, Schedule V to the Act exempts all supplies of personal property and services by a charity except those listed in this section. Where the charity supplies the right to the bingo hall owner to operate the bingo event, the supply is exempt. As the supply is exempt, the charity is not required to collect the tax, and therefore the operator is not entitled to claim ITCs on the payment.

38. If the bingo hall operator is working jointly with an NPO, the payment to the NPO will be taxable, if the payment is for the right for the bingo hall operator to hold the event or if the payment is for the services of the NPO volunteers.

39. Section 2, Part VI, Schedule V to the Act applies only to charities; there are no other provisions in the Schedule to exempt the supply of the right to operate a bingo event by an NPO, unless the operator is acting as an agent of the NPO. Therefore, the NPO, if it is a GST registrant, is required to collect the tax on the payment. However, the bingo hall operator is entitled to claim an ITC for the tax paid on the supply.

PERMANENT CASINO ESTABLISHMENTS

40. The term commercial casino is used to describe the activity of a person who operates a casino for the purpose of realizing a profit.

41. The operator is the person who conducts the event and receives the bet.

42. The Manitoba Lotteries Foundation operates the only permanent casino in Canada. Although it is not run for commercial purposes, lottery sales by the Manitoba Lotteries Foundation, since it is a prescribed person under section 5.1 of Part VI of Schedule V to the Act, will be subject to the tax. However, it will be entitled to claim notional ITCs of 7/107. Refer to GST MEMORANDUM 600-3, SPECIAL RULES FOR PROVINCIAL LOTTERIES, for detailed information.

43. Section 187 of the Act provides that the operator of a casino is deemed to have provided a service for consideration equal to the amount of the bet. To determine the value of the bet for GST purposes, all provincial taxes imposed on the bet are removed from the amount bet. The net amount is deemed to be a tax-included amount. Therefore, the operator is considered to have collected 7/107 of the net amount bet for GST purposes, and pursuant to subsection 188(1) of the Act, can claim a notional ITC of 7/107 on the cash prizes paid to the bettors.

44. The combined effect of sections 187 and 188 of the Act is that the operator calculates the tax on the net margin (revenue less prizes paid to bettors). The operator collects the tax on each bet placed, and is considered to have paid the tax on each prize awarded.

45. In practice, however, a casino operator cannot keep a record of each bet placed. Therefore, the operator is only required to calculate the tax on the take (i.e., the gross margin) at the end of the day. The operator, being engaged in a commercial activity, can deduct the tax paid on purchases that are used in that activity.

46. The purchase of casino chips by a bettor is not subject to the tax. The purpose of buying casino chips is to use them to place bets. The supply of placing bets and playing a game of chance takes place at the time the patron places his/her bet, not at the time the chips are purchased.

47. All other supplies at the casino are generally subject to the tax. These include items such as admission (if there is one and subject to section 5 of Part VI of Schedule V to the Act), parking, food and beverages.

48. Where charities/NPOs operate their own casino events (e.g., "Monte Carlo nights") to raise money for their organization, paragraph 5.2(a), Part VI, Schedule V to the Act exempts the supply of games of chance operated by a charity/NPO.

PARI-MUTUEL BETTING

49. Race tracks are currently operated by private and public corporations under the authority of Agriculture Canada and the Criminal Code of Canada.

50. Currently, in Canada, legalized pari-mutuel betting is only allowed on running, trotting or pacing horse races. Pari-mutuel betting is exempt of tax under paragraph 5.2(b), Part VI, Schedule V, which states a supply of a service that is deemed under section 187 of the Act to have been supplied:

(a) "... where the service is in respect of a bet made through the agency of a pari-mutuel system on a running, trotting or pacing horse race."

51. As a result, the race track, whether non-profit or not, does not charge the tax in respect of the bet. However, the tax applies to all other taxable supplies made by the race track. This includes parking fees, admissions, sale of program racing forms and TIP sheets. Supplies of food and beverages from the dining rooms and concession stands are also subject to the tax.

APPENDIX
SAMPLE CALCULATIONS

The following are sample calculations of how ITCs apply to bets and games of chance.

Example No. 1:

A registrant, other than a charity/NPO, operates a casino.

Amount received in bets $1,000,000
(Tax collected = 7/107 x 1,000,000 = 65,420.56)

Amount paid out in cash prizes $400,000
(Notional ITC = 7/107 x 400,000 = 26,168.22)

Gross margin (1,000,000 - 400,000) $600,000
(Tax remitted on bets = 7/107 x 600,000 = 39,252.34 or
65,420.56 - 26,168.22 = $39,252.34)

Taxable supplies purchased $50,000
(Tax paid on taxable purchases = $3,500)

Taxable supplies (other than bets) $100,000>br> (Tax collected = $7,000)

Net tax remittable =

Tax collected from bets $65,420.56
Taxable supplies other than bets $7,000.00
Total tax collected = $72,420.56

Notional ITCS $26,168.22
Tax paid on purchases $3,500.00
Total ITCs = $29,668.22
Total tax collected $72,420.56
Total ITCs - $29,668.22

Net tax remittable = $42,752.34

Example No. 2:

A charity/qualifying NPO operates a casino event; owner of facility provides other supplies.

Amount received in bets $1,000,000
(Tax collected = 0)

Amount paid out in prizes $400,000
(Notional ITC = 0)

Taxable supplies purchased NIL
(Tax paid on taxable purchases = 0)

Taxable supplies NIL
(Tax collected = 0)

Rental of hall $10,000
(Tax paid = $700)

Rebate from federal government = $700 x 50% = $350

Example No. 3:

A registrant, other than a charity/NPO, operates a bingo.

Amount received in sales of bingo cards $1,000,000
(Tax collected = 7% x 1,000,000 = 70,000)

Amount paid out in cash prizes $400,000 (Notional ITC = 7/107 x 400,000 = 26,168.22)

Tax remitted on bets = 70,000 - 26,168.22 = $43,831.78

Taxable supplies purchased $50,000 (Tax paid on taxable purchases = $3,500)

Taxable supplies (other than bets) $100,000 (Tax collected = $7,000)

Net tax remittable =

Tax collected from sales of bingo cards $70,000.00 Tax from other supplies $7,000.00 Total tax collected $77,000.00

Notional ITCs on cash prizes $26,168.22 Tax paid on purchases $3,500.00 Total ITCs = $29,668.22

Total tax collected $77,000.00 Total ITCs - $29,668.22

Net tax remittable = $47,331.78

Example No. 4:

A charity/qualifying NPO operates a bingo event; owner of facility provides other supplies.

Same result as Example No. 2.

REFERENCES
OFFICE OF RESPONSIBILITY:

Policy and Legislation

LEGISLATIVE REFERENCES:

Excise Tax Act

HEADQUARTERS FILE:

N/A

SUPERSEDES GST MEMORANDUM:

N/A

OTHER REFERENCES:

N/A

SERVICES PROVIDED BY THE DEPARTMENT ARE AVAILABLE IN BOTH OFFICIAL LANGUAGES.

THIS MEMORANDUM IS ISSUED BY TECHNICAL INFORMATION, EXCISE/GST BRANCH UNDER THE AUTHORITY OF THE DEPUTY MINISTER OF NATIONAL REVENUE, CUSTOMS AND EXCISE.