There are numerous rules specifically dealing with the GST treatment of gambling in New Zealand.
Whether it’s a raffle, lottery (including Lotto), TAB betting, casino, pokie machine or some other game of chance there will be rules about when GST has to be accounted for by the operator and how to calculate the GST amount to be paid to the Inland Revenue Department (“IRD”).
Take the example of a GST registered charity which is organising a raffle to be drawn later in the year. Let’s assume the following:
– Raffle tickets are $10 each and the charity sells 10,000 tickets.
– Total cash prizes to be paid are $46,000.
– The raffle goes on sale in July 2010 and is drawn on 30 September 2010.
Total proceeds from ticket sales are $100,000. GST is calculated on net proceeds after deducting cash prizes. In this case the net proceeds are $54,000 ($100,000 – $46,000).
The GST payable to the IRD is calculated on the date when the raffle is drawn, 30 September. On 30 September 2010 the GST rate will be 12.5% which means the amount the charity has to pay to the IRD is 1/9th of $54,000 = $6,000.
Now, what happens if instead of being drawn on 30 September the raffle is drawn on 1 October 2010?
The charity loses $1,043 of its profit because the GST rate on 1 October will be 15% not 12.5%.
Instead of taking 1/9th of $54,000 as its GST liability the charity has to multiply the net proceeds by 3/23 (the new “tax fraction” under the 15% rate) to work out how much it owes the IRD. That comes to $7,043.48, an extra $1,043.48!
This applies even though the tickets were sold before 1 October because of the special rules for gambling in the GST legislation.
Just another potential GST trap for the unwary.
Choose those draw dates carefully!