19 December 2002 GST/HST Interpretation 36020 - Description of B1 in Subsection 7(7) of the Games of Chance (GST/HST) Regulations Written Pursuant to Subsection 188(5) of the Excise Tax Act

Dear XXXXX:

Thank you for your letter of XXXXX (with attachments) concerning the interpretation of the description of B1 in subsection 7(7) of the Games of Chance (GST/HST) Regulations (Regulations) written pursuant to subsection 188(5) of the Excise Tax Act (Act).

Interpretation Given

B1 captures only the consideration relating to gaming activities in circumstances where a single supply of a casino operating service, which includes both gaming and non-gaming components, is provided by a casino operator.

In order to fully explain the way in which a provincial gaming authority accounts for tax on a single supply of a casino operating service, which includes both gaming and non-gaming components, it is first necessary to discuss section 188.1 of the Act. I will also discuss both the single supply and multiple supply scenarios.

Single Supply

For purposes of subsection 188.1(4) if all of the activities that a distributor operates for a provincial gaming authority were considered to form a single supply, that supply would most likely be deemed not a supply under paragraph 188.1(4)(a.1). The operation of the non-gaming activities would be considered elements forming part of that single supply. Accordingly, the distributor would not be required to collect tax on these amount paid for the single supply of operating the casino.

The gaming authority would then turn to the Regulations to determine its net tax.

Subsection 7(7) of the Regulations describes the calculation of the imputed tax payable by a provincial gaming authority on gaming expenses. Element B of subsection 7(7) of the Regulations describes the imputed tax payable in respect of the consideration for a casino operating service, if subsection 188.1(4) of the Act did not apply.

Both B and B1 refer to the consideration for a "casino operating service". For purposes of the Regulation, pursuant to subsection 5(1) of the Regulations:

"casino operating service" means a service of managing, administering and carrying on the day-to-day operations of a provincial gaming authority's gaming activities that are connected with a casino of the authority. (emphasis added)

A casino operating service includes only the "gaming activities" of the provincial gaming authority. According to subsection 5(1) of the Regulations:

"gaming activity" of a provincial gaming authority means a commercial activity of the authority except to the extent to which the activity involves the making of non-gaming supplies by the authority ... (emphasis added)

Therefore any non-gaming supplies are excluded from gaming activity. According to subsection 5(1) of the Regulations:

"non-gaming supply" means a supply other than

(a) a supply of a service of accepting a bet on a game of chance, race or other event or occurrence;

(b) a supply of a right to play or participate in a game of chance, or a ticket, card or other printed evidence of such a right, made to a distributor of a provincial gaming authority;

(c) a supply referred to in paragraph 188.1(4)(b) of the Act that, but for that paragraph, would be a supply by a provincial gaming authority to a distributor of the authority;

(d) a supply of a prize in kind; and

(e) a promotional supply.

Since non-gaming supplies are not part of a provincial gaming authority's gaming activities, they cannot be included in the definition of casino operating service. Therefore, amounts to be included in B1 as consideration for a casino operating service would exclude amounts related to non-gaming supplies provided by the provincial gaming authority, through its agent, the distributor.

I will use the example provided in your letter of a fee of XXXXX dollars charged to a provincial gaming authority for the single supply of a casino operating service which includes both gaming and non-gaming components. The fee is XXXXX for gaming activities and XXXXX for non-gaming activities. To expand your example, I will assume that the gaming portion was a gaming facility and the non-gaming component included a restaurant and a gift shop (with the assumption that no promotional supplies were provided from these activities). The tax collectible by the restaurant and gift shop from their patrons is XXXXX.

Since the service provided by the distributor to the provincial gaming authority was deemed not to be a supply, no tax is collectible on that transaction.

Under the net tax calculation set out in the Regulations, only those activities that are considered gaming are included in the definition of a casino operating service. Since I have assumed that the provincial gaming authority's restaurant and gift shop provided no promotional supplies, these activities would be excluded from the casino operating service, as they would result in the making of non-gaming supplies exclusively. Therefore, only the activities of the gaming facility would be included in the casino operating service. As a result, only the amounts related to the operation of the gaming facility XXXXX would be included in B1. As no tax was payable on the original transaction (it was deemed not to be a supply), no amount is included under A of subsection 7(7). The XXXXX of tax collectible from patrons for these non-gaming activities would be captured under A(a) of the non-gaming calculation set out in section 8 of the Regulations. No ITCs are allowed under B(a)(i) of section 8 as no tax was paid on the original transaction.

The total tax remitted on the provincial gaming authority's activities is XXXXX, made up of the single tax of XXXXX (7% of XXXXX) on the gaming activity and XXXXX tax collected on non-gaming activities.

Multiple supplies

If all of the activities listed in the example were found to be multiple supplies, only the operation of the gaming facility would be deemed not a supply by subsection 188.1(4). The distributor would be required to collect tax of XXXXX (7% of XXXXX) on the operation of the restaurant and the gift shop.

Under the Regulations, the amount related to the operation of the casino (XXXXX would fall under B1 and the tax of XXXXX on the amounts related to the other operations would fall under A1(a) with a corresponding ITC of XXXXX taken under A5(a) of subsection 7(7) of the Regulations. The tax collectible of XXXXX for the activities other than the operation of the games would be included under A(a) and an ITC of XXXXX taken under B(a)(i) of the net tax attributable to non-gaming under section 8 of the Regulations.

The total tax remitted on the provincial gaming authority's activities is XXXXX 0, consisting of XXXXX paid by the PGA to, and remitted by the distributor as well as XXXXX (XXXXX on gaming and XXXXX on non-gaming) remitted by the provincial gaming authority.

Conclusion

Whether the components of a casino operating service are considered to be a single supply or multiple supplies, the amount of tax collected by CCRA remains the same.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-7947.

Yours truly,

Darlene Wladyka
Governments Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate