16 May 2003 GST/HST Interpretation 43530 - Games of Chance (GST/HST) Regulations

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Excise Tax Act (ETA) to the fees paid to an operator of a casino by a provincial gaming authority. Specifically, you wish to know the tax treatment of the consideration paid by the authority in respect of the gaming activities provided by the operator on the authority's behalf.

You have provided the following background information:

A provincial gaming authority has several casinos. It contracts with service providers (operators) who will act to operate the casinos on behalf of the gaming authority.

The fees paid to each operator are based on a percentage of the net win. The operator will pay all of the operating expenses on its own behalf. This includes the salaries of its employees.

Interpretation Requested

1. The operator of a casino is not required to charge a provincial gaming authority GST/HST on the consideration it charges for its services.

2. A provincial gaming authority would be required to remit GST/HST on the gaming component of the operator's fee after deducting salaries and taxable benefits paid to the employees of the operator that relate to the casino operating service.

Interpretation Given

Paragraph 188.1(4)(a.1) of the Excise Tax Act (ETA) provides that "supplies made to an issuer by a distributor of the issuer of a service in respect of the acceptance, on behalf of the issuer, of bets on games of chance conducted by the issuer, including supplies of a service of managing, administering and carrying on the day-to-day operations of the issuer's gaming activities that are connected with a casino of the issuer" are deemed not to be supplies. An "issuer" is a registrant who is prescribed for the purposes of subsection 188(5) of the ETA and includes all "provincial gaming authorities" as per the definition of this term in section 5 of the Games of Chance (GST/HST) Regulations (Regulations). A "distributor" is defined in subsection 188.1(1) of the ETA and includes a person who "accepts, on behalf of the issuer, a bet on a game of chance conducted by the issuer" and would include a person who operates a casino on behalf of a provincial gaming authority.

Pursuant to the Regulations, a "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." This definition would fall within the description of the services that are deemed not to be supplies under paragraph 188.1(4)(a.1) of the ETA when made by a distributor to an issuer. As such, subsection 165(1) of the ETA does not apply to the operator's supply of a "casino operating service" made to a provincial gaming authority. Therefore, GST/HST will not apply to the consideration paid to the operator for the provision of this service.

Subsection 188(5) of the ETA states that a prescribed registrant is required to calculate its net tax in a prescribed manner. The net tax attributable to gaming activities is determined in accordance with section 7 of the Regulations. Under subsection 7(7) of the Regulations, the gaming authority is required to include an amount in respect of consideration paid for a casino operating service. Specifically, variable B of this subsection is the total of amounts each of which is an amount of tax that would have become payable in respect of the consideration paid for a casino operating service if subsection 188.1(4) of the ETA did not apply and the consideration was equal to an amount determined by the formula:

B1 - (B2 + B3), where

B1 is the consideration paid for the casino operating service without reference to subsection 188.1(4);

B2 is an amount determined by multiplying a particular amount of salaries, wages and other remuneration paid by the operator to its employees by the extent to which the particular amount was a cost to the operator of providing the casino operating service; and

B3 is the total of all amounts determined by multiplying an amount that is in respect of a supply of property or a service made by the distributor, or an amount paid by a distributor, to an employee or person related to an employee that the employee is required to include in his income for the year under section 6 of the Income Tax Act (i.e., taxable benefits), by the extent that this amount is a cost to the distributor of supplying the casino operating service.

Therefore, a provincial gaming authority is required to include in its net tax calculation an amount equal to 7% or 15% of the gaming component of the operator's fee after deducting the operator's salary, wages, other remuneration and taxable benefits, paid to its employees, that were a cost to the operator of providing the authority's gaming activities related to the casino.

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) 952-0370.

Yours truly,

Brent Fleming
Government Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate