7 February 2006 GST/HST Ruling 62015 - Application of GST to a Game of Chance

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your supply of property and services in the operation of a game of chance at the XXXXX. XXXXX. We apologize for the delay in responding to your request.

XXXXX.

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

Statement of Facts

The following is our understanding of the facts based on the information in your letter and attachments; the Criminal Code of Canada; the Alcohol and Gaming XXXXX; and our telephone conversations:

1. You are registered for purposes of the GST/HST and operate as a sole proprietor under XXXXX.

2. One of the activities you supply is a service of XXXXX.

3. You also operate a crown and anchor wheel (Wheel of Fortune) at local fairs during the summer months including one at the annual XXXXX (the Exhibition) conducted by the XXXXX (the Association).

4. You own the equipment (i.e. wheel, booth) that you use to operate the Wheel of Fortune.

5. Pursuant to paragraph XXXXX of the Criminal Code of Canada XXXXX.

6. The XXXXX maintains a list of fairs and exhibitions that have been designated as a fair or exhibition at which a lottery scheme may be conducted. The Association was included in the listing in the XXXXX.

7. The boards of designated fairs or exhibitions or the operators of concessions leased from the boards may apply to the Alcohol and Gaming XXXXX to be licensed. You indicated the Association holds the licence to conduct and manage lottery events at the Exhibition, including the Wheel of Fortune.

8. The agreement you submitted entitled XXXXX (Agreement), is between the Association and yourself (Licensee). This is the only agreement you have with the Association.

9. According to the Agreement, the Association conducts the annual Exhibition.

10. XXXXX:

XXXXX.

11. The licence is valid for a specified period that coincides with the Exhibition XXXXX.

12. As stipulated in the Agreement XXXXX

XXXXX.

13. Pursuant to the Agreement XXXXX, the Association is not liable for any loss, damage or injury to the Licensee's property, goods or effects or for any loss of revenue should the gates be closed for any reason during the Exhibition.

14. XXXXX the Agreement outlines that the Licensee must carry third party legal liability insurance during the period of occupancy and any additional setup or removal periods.

15. Pursuant to XXXXX the Agreement, the Licensee must agree to indemnify the Association and the XXXXX from any and all claims with respect to injuries to patrons, exhibitors, contestants that may arise through the occupation of the premises and/or grounds by the Licensee, its agents, servants, or employees.

16. The Agreement XXXXX specifies that it is the Licensee's responsibility to obtain all government licences and permits necessary for the purpose of authorizing the Licensee to carry on business or to exhibit in or upon the said booth or stand. It is the Licensee's responsibility to pay the Employment Insurance and Worker's compensation levies and all similar levies by all appropriate authorities for its servants and employees.

17. The Agreement XXXXX stipulates that the Licensee charge customers prices for its goods and services as set forth in the Agreement and that such prices shall not be changed or varied without the consent of the Association. In addition, the operator of a XXXXX.

Ruling Requested

You would like to know whether the GST applies to your supplies of property and services in operating the Wheel of Fortune at the Exhibition XXXXX?

Ruling Given

Based on the facts set out above, we rule that your supplies of property and services in operating the Wheel of Fortune at the Exhibition XXXXX are subject to the GST.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

Subsection 123(1) defines a game of chance as "... 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;". The Wheel of Fortune is regarded as a game of chance for purposes of the ETA.

Under the terms of the Agreement submitted, you believe you are an agent of the Association and they may supply goods and services that qualify for exemption of the GST under the provisions of sections 5.1 and 5.2 of Part VI of Schedule V to the Act. As your operations are within the Exhibition, you believe your supplies should be exempt of the GST. Furthermore, you are questioning how the GST would apply to the amount bet by a participant in a game of chance.

It is the Canada Revenue Agency's position that for GST/HST purposes, a person is an agent with respect to a particular transaction if that person is an agent based on a determination of fact and an application of principles of law, some of which are outlined in the GST/HST Policy Statement P-182R, Agency.

The Agreement between the Association and yourself specifies that it is a licence for the use of space to carry on your undertaking, the Wheel of Fortune. Certain conditions are included in the Agreement, some as a result of regulations prescribed by the Alcohol and Gaming XXXXX for the operation of games of chance. However, the terms and conditions set out in the Agreement do not indicate that you are acting as an agent for the Association.

Sections 5.1 and 5.2 of Part VI of Schedule V provide exemption of the GST/HST for certain supplies or deemed supplies of goods and services made by public institutions and some non-profit organizations. As your company is neither a public institution nor a non-profit organization these provisions do not apply to your supplies of property and services.

In operating the Wheel of Fortune at the Exhibition, you are making taxable supplies to persons of the right to play or participate in a game of chance. As a GST/HST registrant, you are required to collect the GST/HST on your taxable supplies of property or services. However, section 187 sets out special rules to deal with bets and games of chance. Specifically, as the person with whom a bet is placed you are deemed to have made a supply of a service and you must account for tax equal to 7/107ths of the bet received (in XXXXX a non-participating province), after deducting provincial tax. Pursuant to subsection 188(1), where you pay money as a prize-winning to the bettor or participant in the game of chance, you would be eligible to claim a notional input tax credit, equal to the tax fraction (i.e. 7/107ths) of the total amount of money paid out as prizes or winnings. In summary, the GST is calculated on the amount of revenue collected (bets) less prizes paid out to bettors (i.e. your gross margin). As well, being engaged in a commercial activity, you may deduct the GST paid on purchases that are used in your operation of the Wheel of Fortune.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-0420.

Yours truly,

Debra Murphy
Charities, NPO & Educational Services Unit
PSB & Governments Division
Excise and GST/HST Rulings Directorate

2006/02/02 — RITS 63256 — Supplies of Tickets to an Event