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GST on lotteries, raffles, sweepstakes and prize competitions

The IRD has just released for consultation a “Questions we’ve been asked” draft paper on the GST treatment of lotteries, raffles, sweepstakes and prize competitions.

You can find it here: http://www.ird.govt.nz/resources/a/1/a1b5b4ef-32bc-4315-9c80-09d5b70712f1/qwb0121.pdf

Submissions are due by 24 October.

I recommend all not for profit organisations and others running raffles, lotteries or prize competitions have a read and make sure they understand the implications.

If the entity on whose behalf the raffle, sweepstake or lottery is being run is registered for GST, or required to be registered for GST, then that entity is required to account for GST on the proceeds.

GST is calculated based on net revenue after deducting cash prizes payable. Where prizes are purchased GST incurred on those purchases can be claimed as an input tax deduction. Obviously GST cannot be claimed on donated prizes.

Even if the prizes were donated GST will still apply to the raffle/sweepstake/lottery proceeds.

According to IRD someone conducting a raffle which will have revenue exceeding the GST registration threshold of $60,000 will be liable to register for GST and account for GST.

Much of what is in this document won’t come as a surprise to most raffle/lottery organisers and they will already be complying.

However, a point needing more clarity in my view is when a one-off raffle organised by someone which takes place over a short period of time will be considered a “taxable activity” for GST purposes, thus requiring the organiser to register and account for GST on the raffle (assuming the proceeds are over $60,000.

Cheers

Iain

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GST for schools – consultation

Inland Revenue has released a draft Public Ruling on the GST treatment of payments by parents to state schools.

This is a re-issue of previous rulings with just a few changes to reflect recent developments in GST law.

If you want to comment on the draft ruling you have until 8 August.

The draft is pretty much in line with what you’d expect. It essentially distinguishes between payments which are true “donations” (not subject to GST) and payments for extra goods and services not covered by compulsory State funded education (subject to GST).

Schools won’t always find it easy to work out exactly where the line is drawn so caution is required particularly if changes to payment structures are being considered. There are some subtle complexities to come to grips with.

You need to read it yourselves but here’s a taste:

1. Not subject to GST:
– General donations intended to be used for general school costs i.e. not earmarked for a particular purpose.
– Payments for materials necessary for delivering the statutory curriculum (eg materials in a clothing class) unless the payment is for ownership of the completed item which the student can then take home.
– Photocopying charges for material which is necessary for teaching the statutory curriculum unless the payment is for the purchase of an additional item such as a school magazine.
– School camp payments where the camp is a compulsory part of the statutory curriculum.
– Charges for reading recovery programmes and special education services mandated as part of the school’s charter.

2. Subject to GST
– Stationery packs and optional workbooks students are entitled to keep.
– A fee to attend a performance by a visiting group for which attendance is optional.
– Goods supplied where there is a clear (and optional) take home component.
– Charges to attend or participate in activities which are optional.

There is a lot of detail in the ruling which anyone handling GST for a school should study.

And, in case you thought you had it all covered, Labour has just announced that if elected they will end “voluntary” school donations. That could mean schools account for GST on a much greater propoertion of the payments they receive from parents, and potentially all payments depending on how exactly the policy is implemented.

Cheers

Iain

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Grant versus fee!

The Woking Museum and Arts and Crafts Centre is a charity set up to “advance the education of the public in local national and international history and arts and crafts”. In 2003 it entered into an agreement with the Woking Borough Council [In the UK] to “provide arts museum and cultural services and a public information service within the Borough of Woking”. The Council agreed to make annual payments to the Centre in return.

The UK Customs and Excise decided the payments made by the Council should not be subject to VAT. They argued the Centre was not a business and the payments were grants rather than “consideration” for supplies of services.

On 10 February 2014 the First Tier Tribunal hearing the case between the Council and the Centre decided the payments are subject to VAT for a number of reasons. Key to the Tribunal’s decision were the following conclusions:

1. The agreement entered into by the parties was a contract for the provision of services by the Centre to the Council and not a grant because there are mutual obligations characteristic of a contract.

2. The services delivered by the Centre provided a direct benefit to the Council in that artefacts of the Council were preserved in the museum by the Centre under an obligation to make space available for them.

3. The arrangements were commercial in nature and the fact the Centre is a charity does not render the relationship un-economic. The purpose and results of an activity are immaterial in determining whether that activity is “economic”.

This sort of analysis is as relevant in NZ as it was to this decision.

There are many organisations providing public benefit services under contracts with local authorities and government bodies. It is not always clear whether those arrangements are subject to GST and in fact we’ve had case law of our own on these sorts of issues.

The crux is how the payment should be treated. Is it a grant or a payment for services? In the end the arrangements and circumstances of each case will determine the outcome but the analysis above should provide some insights into what factors are important.

cheers

Iain