SLDL and Commissioner of Taxation (Taxation)

[2024] AATA 912

SLDL and Commissioner of Taxation (Taxation) [2024] AATA 912 (30 April 2024)

Division:                  TAXATION AND COMMERCIAL DIVISION

File Number(s):      2022/5726

Re:  SLDL

APPLICANT

And  Commissioner of Taxation

RESPONDENT

DECISION

Tribunal:                  Deputy President Bernard J McCabe

Date:  30 April 2024

Place:  Sydney

The decision under review is affirmed.

.................................[SGD].......................................

Deputy President Bernard J McCabe

Catchwords

STATUTORY INTERPRETATION – GOODS AND SERVICES TAX – gambling supplies –

gambling events – where there is a calculation of global GST amounts – total amounts wagered – total monetary prizes

Legislation

A New Tax System (Goods and Services Tax) Act 1999 (Cth) Administrative Appeals Tribunal Act 1975 (Cth)

Casino Control Act 1982 (QLD) Casino Control Act 1992 (NSW) Taxation Administration Act 1953 (Cth)

Cases

AP Group Limited v Commissioner of Taxation [2013] FCAFC 105

Commissioner of Taxation v Burswood Nominees Limited as trustee for the Burswood Property Trust [2021] FCAFC 151

REASONS FOR DECISION

Deputy President Bernard J McCabe 30 April 2024

1.SLDL, the applicant company, operates gambling venues in Sydney, Brisbane and the Gold Coast. Patrons of its gambling venues are eligible to participate in a ‘rewards’ program. While there have been at least two different rewards programs over time, they operated along similar lines: patrons earned points through gambling and by consuming other services provided by the applicant at its properties. Those reward points had a dollar value (hence the names ‘Type 1 Dollars’, ‘Type 2 Dollars’ and ‘Type 3 Dollars’) that could be applied towards subsequent gambling activity, or which could be used to acquire other services from the applicant. The dispute in this case relates to the applicant’s liability to pay the Goods and Services Tax (GST) on the gambling activity in which patrons wagered Type 1 Dollars and Type 2 Dollars on electronic gaming

machines (also known as ‘slot’ machines or ‘poker’ machines) during the period under review. In these reasons, I will refer to those gaming machines as EGMs.

2.The supply of gambling attracts GST, but there are special rules for working out the net amount. The rules are contained in Division 126 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act). As s 126-1 of the GST Act explains:

Gambling is dealt with under the GST by using a global accounting system that provides for an alternative way of working out your net amounts by incorporating your net profits from taxable supplies involving gambling.

3.As the Full Court explained in Commissioner of Taxation v Burswood Nominees as Trustee for the Burswood Property Trust [2021] FCAFC 151 at [72], the effect of this alternative method of calculating the net amount is that “GST on gambling supplies is to be applied to the margin of the person providing the gambling supplies.” The approach requires the taxpayer to identify their global GST amount. Section 126-10 explains how one calculates the global GST amount for a particular tax period. It involves subtracting the total monetary prizes accruing in that period from the total amount wagered and then multiplying the product by 1/11.

4.The dispute in this case relates to the monthly tax periods from 1 October 2013 through 31 August 2017. The applicant originally calculated the global GST amount in respect of those periods on the basis that:

●the dollar value of the rewards points was not counted towards the total monetary prizes when those points were awarded, or subsequently; and

●the dollar value of those rewards was not included in the total amount wagered.

5.The applicant submitted returns and was assessed in respect of the relevant periods consistent with that methodology. After reconsidering its position, the applicant asked the Commissioner for an amendment of the assessments in question. SLDL now says:

●the dollar value of the reward points awarded through earlier gaming should be treated as monetary prizes when the points were subsequently used to make wagers on an EGM. The dollar value of the points would therefore be counted as part of the total monetary prizes in the period when they were redeemed or used to make bets on EGMs; and

●the dollar value of the reward points should not be included as part of the total amount wagered in the period when the reward points were redeemed while making bets on an EGM.

6.The effect of this approach to the treatment of the reward points would be to change the applicant’s global GST amount for the relevant period. If the applicant is right about that, it is entitled to a significant refund.

7.The Commissioner concedes there is an argument for counting the dollar value of the reward points towards the total monetary prizes because the award of points had the characteristics of a prize. (The amended assessments were issued on that basis.) But the Commissioner insists in that event the dollar value of those points should also be counted as part of the total amount wagered. The Commissioner argued that counting the amount towards one integer but not the other would be a form of double dipping which artificially reduced the global GST amount. In the alternative, the Commissioner says the reward points should not count towards the calculation of either amount.

8.This case ultimately turns on the unusual factual matrix that I will describe. In essence, the structure of the rewards programs and the way gambling occurred was influenced by regulatory requirements. A careful analysis of those facts suggests:

●an identified proportion of Type 2 Dollars should be included in the total monetary prizes, and

●the total amount wagered included the amount that was actually bet by players.

9.I will begin by describing the regulatory arrangements in New South Wales and Queensland which the applicant says helped shape its rewards programs. I will then describe the rewards programs and the way in which patrons who participated in a program (a) generated rewards points from gambling activity and (b) used those rewards points on EGMs. I will then turn to address the legal arguments in more detail.

The regulatory framework governing gambling venues in New South Wales and Queensland

10.The applicant has come to control three licensed gambling venues in Australia. Each gambling venue offers a mix of hospitality and gaming services. The gaming services include various species of table games but also EGMs.

11.Gambling venues are tightly regulated by state-based supervisory agencies. The Sydney gambling venue is licensed under the Casino Control Act 1992 (NSW) (the NSWCC Act). The NSWCC Act is now administered by the NSW Independent Casino Commission (the NICC), but the Independent Liquor and Gaming Authority (ILGA) was the regulator during the periods in question. The two Queensland gambling venues are licensed under the Casino Control Act 1982 (Qld) (the QCC Act). The regulator in Queensland is the Office of Liquor and Gaming Regulation, which forms part of the Department of Justice and Attorney-General.

12.The regulatory regime in each state must be understood in light of its objectives. Section 3 of the QCC Act explains the object of that state’s legislation as follows:

(1)    The object of this Act is to ensure that, on balance, the State and the community as a whole benefit from casino gambling.

(2)    The balance is achieved by allowing casino gambling subject to a system of regulation and control designed to protect players and the community through—

(a)ensuring the integrity and fairness of games; and

(b)ensuring the probity of those involved in the conduct of casino gambling; and

(c)minimising the potential for harm from casino gambling.

13.Section 4A of the NSWCC Act is cast in slightly different terms, but the objectives identified there are ultimately to the same effect as in Queensland.

14.Section 70 of the NSWCC Act establishes general rules which regulate the conduct of gaming by a licensee at its casino. But the regulatory regime makes clear the regulator does not just administer a set of rules in the legislation. It has an ongoing say over the operation of the casino. It can give directions to the casino operator under s 29 relating to the conduct, supervision or control of casino operations. Section 124 of the Act provides for the regulator to approve “a system of internal controls and administrative and accounting procedures for the casino” that are proposed by the operator. The operator is required to comply with those

directions, controls and procedures as a condition of its licence. Section s 125 authorises the regulator to have “complete and full access to the casino operator’s systems” to:

●        monitor the conduct of gaming and the operation and performance of machines;

●        monitor the conduct of any ‘rebate’ program; and

●        facilitate the calculation and collection of taxes and duties.

15.Section 74 prohibits casino operators from giving credit to patrons in connection with any gaming. The prohibition extends to “accept[ing] a wager made otherwise than by means of money or chips (or by means of a complimentary chip purchase voucher)”.1

16.The prohibition on giving credit also appears in s 66 of the QCC Act.2 The QCC Act features detailed requirements in Part 6 that regulate aspects of the casino operation. Part 7 of the Act includes requirements that the licence holder implement an ‘approved control system’ for the casino (at s 73). The Queensland legislation contemplates the Minister giving directions relating to the management, control or supervision of any aspect of the casino’s operations – although the Minister’s powers are mostly delegated to the Chief Executive Officer of the Office of Liquor and Gaming Regulation (OLGR).

17.Both statutes permit a casino operator to establish player accounts (s 75 of the NSWCC Act, and s 67 of the QCC Act). In Queensland, patrons are permitted to make cash deposits into their own accounts but there are limits on the use of credit cards,3 and on deposits made by third parties. In New South Wales, s 75 of the NSWCC Act does not expressly prevent a third party from making deposits into a patron’s account but nor does it authorise deposits using credit cards. In each state, the casino operator may charge the cost of chips issued to the patron against the account but only to the extent the account is in credit: s 75(3) of the NSWCC Act and s 67(8) of the QCC Act. That limitation is consistent with the general prohibition on casinos providing credit to patrons.

¹ Interestingly, the prohibition does not extend non-Australian residents who participate in premium player arrangements: see s 74(5) NSWCC Act.

² Even more interestingly, the prohibition on giving credit does not apply to non-residents of Queensland who visit a casino under a junket agreement.

³ Non-residents of Queensland who are visiting a casino as part of a junket agreement are able to use credit cards to make deposits into their player accounts: see s 67(6) QCC Act.

18.Much of the discussion of the regulators’ role at the hearing in this case focused on the interactions with the ILGA in New South Wales. I was provided with samples of detailed Regulator Approved Protocols (RAPs) and Internal Approved Protocols (IAPs) dealing with various aspects of the operations of the Sydney gambling venue. The RAPs and IAPs were approved by the regulator pursuant to s 124 of the NSWCC Act. A good deal of the evidence focused on the RAPs and IAPs that dealt with the operation of the rewards programs. I understand the equivalent documentation was also produced for the Queensland regulator in relation to the two Queensland gambling venues however the New South Wales documents were said to be indicative for present purposes.

The rewards programs

19.Rewards (or ‘loyalty’) programs are a common marketing tool in business. They attempt to bind patrons to a supplier and incentivize further consumption. They have become an important part of the marketing toolkit for gambling venues. The programs in question here operate pursuant to an agreement between the individual patron and the gambling venue operator. As the Full Court explained in Burswood (at [23]-[24]), gambling venues are in the business of making gambling supplies.4 The odds in each gambling event – whether at a table game or on an EGM – generally favour the gambling venue. If the gambling venue is likely to win more often than it loses, it makes sense for the gambling venue to promote turnover over time. Rewards programs help sustain turnover.

20.Designing and operating a rewards program in a gambling venue presents special challenges. SLDL wishes to encourage “patron participation at the Applicant’s properties, including gaming play, hotel stays, restaurants and bars”5 but it must also be alive to the danger of encouraging what is euphemistically described as ‘problem gambling’. The need to strike a balance is a consequence of the regulatory regime in each state.

⁴ In this case, we are focused on the gambling supplies to individuals. Burswood was concerned with another sort of marketing arrangement that is common in gambling venues: the junket. In a junket, the gambling venue would strike an agreement with a third-party promoter who would attract gamblers and deliver them to the gambling venue where they would enjoy special privileges. The junket agreement was struck with the promoter rather than with individual gamblers, who would strike their own deal with the promoter as a condition of their participation. Burswood focused on how various payments and benefits under the junket agreement should be treated.

⁵ Applicant’s written opening submissions at [12].

21.The emphasis in both state regulatory regimes on protecting patrons (and indirectly their families and the wider community) from the adverse effects of gambling contextualises the prohibitions that exist in each state on providing any sort of credit for gambling by in-state patrons. The objectives – and the prohibition on extending credit – also help explain the shape and operation of the rewards programs. In particular, those objectives help explain the precise sequence of events in which a patron accesses and consumes rewards when gambling on an EGM. As we shall see, a careful analysis of the steps in the redemption process is important to the outcome of these proceedings.

22.That said, I should explain the history of the rewards programs operating at the relevant time. The first of these was the Previous Rewards Program which operated at all three gambling venues. That program was replaced by the Current Rewards Program in November 2016.

23.The operation of the Previous Rewards Program and the Current Rewards Program were described in the statements of Witness A (exhibit 2) and Witness B (exhibit 3). I note the Commissioner initially objected to the admission of both statements because they contained expressions of opinion, amongst other things. I agreed I would only have regard to the statements insofar as they made assertions of fact, and that I would take into account the fact the witnesses were (at least in some instances) referring to events which predated their employment with the applicant. (Similar objections were made in relation to the witness statements of other employed witnesses called by SLDL, and they were all admitted on the same limited basis.) Importantly, Witness A (who was the marketing division manager) commenced employment in 2017 while Witness B was not employed by the applicant’s group until March 2018 – that is, after the period in question in these proceedings, and after the Previous Rewards Program had been replaced by the Current Rewards Program. Witness B said in their statement that their observations about the operation of the rewards program before they were employed by the applicant was based on information provided by others within the organisation and on documents they were able to identify from various databases through their own research. Witness A said much the same thing in cross-examination when questioned about the extent of their personal knowledge of the events spoken about in Witness B’s  statement. Having said that, the substance of the evidence given by each witness about the operation of the rewards programs and the redemption process was uncontroversial and uncontested.

24.Witness B’s statement explained the Previous Rewards Program covered all three gambling venues while it was in operation. Patrons could join for free by completing an application form and verifying their identity. The application form referred to terms and conditions of the program that were included on websites and in promotional materials and brochures. A number of those (historical) documents were annexed to Witness B's statement. Patrons who joined the program were provided with a membership card that could be inserted into EGMs and swiped when participating in eligible activities, such as dining at the gambling venue. This activity generated loyalty points called Type 3 Points that could be applied towards the cost of various services supplied throughout the gambling venue. The patrons who were members also earned Type 1 Dollars when engaging in some activities, and ‘Type 3 dollars’ that could be redeemed towards merchandise rewards but not gaming.

25.The Type 1 Dollars are of particular relevance here. While Type 1 Dollars might be earned from a variety of activities, the Type 1 Dollars earned from using EGMs could also be redeemed when subsequently using EGMs. Witness B also referred to Type 2 Dollars. Type 2 Dollars were another form of reward points that translated into dollars. As I understand the evidence, a significant proportion of Type 2 Dollars were allocated by the gambling venue in connection with marketing initiatives; those points were not generated directly in connection with gambling. But some Type 2 Dollars were generated in the ordinary course of gambling and consumption, and they might be available for use on EGMs. Under the terms of the program, the Type 2 Dollars would be used or redeemed by the EGM in priority to a member’s Type 1 Dollars.

26.The Current Rewards Program operated along the same lines as the Previous Rewards Program. The Current Rewards Program application form was annexed to exhibit 3. It also referred to terms and conditions which bound the participants. Patrons who joined the program were issued a membership card which they would swipe in connection with various activities and accrue points. They would also accrue Type 1 Dollars which could be redeemed while using an EGM at any of the three gambling venues. The program extended the concept of Type 2 Dollars to all three gambling venues. Type 2 Dollars were subsequently phased out at the Sydney gambling venue  after changes to the regulations in New South Wales.

27.The rules of these programs were contained in the various terms and conditions that were included in the application form and referred to on the website from time to time. As I understand the evidence, the programs were structured so they operated in accordance

with the Gaming Machine Rules, RAPs and IAPs (or their Queensland equivalents) that were issued or approved by the relevant regulator. The rewards program processes were then implemented or operationalised through the gaming software system used by SLDL.

Redeeming Type 1 Dollars and Type 2 Dollars

28.Witness B described their understanding of the process by which a member of the Previous Rewards and Current Rewards programs could ‘redeem’ or use Type 1 Dollars and Type 2 Dollars to make bets on an EGM. They referred to brochures titled ‘Type 1 Dollars, Your Guide’ published for the Sydney and Queensland gambling venues. The brochure that dealt with the Current Rewards Program as it pertained to the Sydney gambling venue referred to this process as ‘wager redemption,’ a term that was also used by other witnesses.

29.The ‘Brochure 1’ brochure issued in relation to the Previous Rewards Program (exhibit 3, annexure Witness B at pp 11ff) explained the redemption process as follows:

Compatible electronic gaming machine play

1     To redeem Type 1 Dollars or Type 2 Dollars on a compatible slots or electronic table games, you will need to have credit on the compatible electronic gaming machine.

2     Insert your Previous Rewards card into the compatible slots or electronic table games.

3     Your Type 1 Dollars are displayed as Type 1 Cents in the top right corner of the screen.

4     Select the green dollar ($) symbol and press the arrow for Type 1 Dollars or Type 2 Dollars and enter your PIN.

5     If you have Type 2 Dollars available, they must be redeemed before Type 1 Dollars can be used for compatible slots or electronic table games play. To activate your Type 2 Dollars, select the arrow next to your Type 2 Dollars balance.

6     To redeem your Type 1 Dollars, enter the amount of Type 1 Dollars you wish to activate, which must be at least $1 Type 1 Dollar, and select the green tick symbol to confirm or the red cross to cancel.

7     Once activated, your Type 1 Dollars or Type 2 Dollars will remain active until you remove your Previous Rewards card from the slots or electronic table game. If you have not used the amount of Type 1 Dollars or Type 2 Dollars you initially activated, they will return to your balance.

30.The other iterations of this brochure annexed to Witness B’s statement describe the redemption process in similar terms, although at least one difference in the text is worth noting: for example, in the ‘Type 1 Dollars, Your Guide’ documents which related to the

Previous Rewards Program at one of the Queensland gambling venues (reproduced at p 1842 of the Hearing Book), the explanation of ‘How to use your Type 1 Dollars’ describes the steps in similar terms to the process above, but explains at the final step: “You can now start playing with your Type 1 Dollars” [emphasis added]. The brochures that describe wager redemptions under the Current Rewards Program which were also annexed to the statement (e.g., annexure Witness B at pp 68ff) are not materially different to the documents that described the Previous Rewards Program.

31.There are differences in the wording used in the promotional material and the internal documentation used by the systems managers. There are also differences in the language used in the documents prepared to ensure compliance with the regulatory regime. The statement of Witness B annexes two iterations of a set of RAPs  that deal with ‘Player Rewards and Promotional Prizes’ at the Sydney gambling venue. The first iteration of the protocols operated from December 2014, with the second iteration operating from August 2016. Those documents provide general information about member rewards and the accrual of points. The more useful documents for present purposes are the RAPs and IAPs that deal with the operation of the EGMs because they describe the sequence of the wagering and redemption process. RAP 14 is annexed to the statement of Witness C, an ‘infrastructure implementation manager’ engaged by the applicant. The RAP was originally issued in 2001 and updated in 2003. Section 7.11.2 deals with the use of Bonus Points on EGMs. Clause 7.11.2. refers to ‘Point Play’. That clause provides:

1. Point Play is activated by the player at a gaming machine by:

(a)pressing the bonus button on the gaming machine, and

(b)inputting their PIN number at the keypad attached to each gaming machine and pressing the enter key.

2     Once point play is activated, the gaming machine’s VFD will display the value of points available to be played during the current session.

3     The available point play is configurable via the Configuration Workstation.

4     The credits played by a patron are refunded by a CCCE transfer from the available point balance to the credit meter.

5     When the available point play balance is exhausted or is less than the denomination of the gaming machine, point play mode is de-activated.

6     A player may de-activate point play mode at any time by pressing the bonus button or removing their card from the card reader.

7     Point play which fails to credit the gaming machine’s credit meter will be refunded to the player’s bonus point balance in the EMS by a Gambling Services Supervisor.

8     The EMS provides an audit trail which logs each bonus point adjustment against the staff member who authorised the adjustment.

9     The Slot Systems Manager or designee will audit and verify the integrity of all bonus point adjustments.

32.Witness D, the applicant’s gaming machines and cashier services manager, said (during re-examination) that the format and content of RAPs and IAPs changed over time. They said the earlier RAPs in evidence tended to be more detailed relative to the IAPs. From around 2015-2016 the RAPs became less prescriptive, with the relevant detail being shifted into the IAPs. That appears to have occurred when one has regard to IAP 7/13, which deals with Player Reward Bonuses (annexed to Witness C’s statement at pp 118ff). Section 2 deals with Type 1 Dollars (as opposed to ‘Point Play’) although it also refers to Type 2 Dollars. Clause 2.1 deals with point redemption. Clause 2.1 reads:

1     Point Redemption is activated by the player at a gaming machine by:

(a)accessing the gaming machine’s NAMB once the patron card is inserted, and

(b)inputting their PIN number at the keypad attached to each gaming machine and pressing the enter key.

2     Once point redemption is activated, the gaming machine’s NAMB will display the value of points available to be played during the current session.

3     The available point redemption is configurable via the NAMB.

4     The credits played by a patron are refunded by a CCCE transfer from the available point balance to the credit meter.

5     When the available point redemption balance is exhausted or is less than the denomination of the gaming machine, point play mode is de-activated.

6     A player may de-activate point play mode at any time by removing their card from the card reader.

7     Point redemption which fails to credit the gaming machine’s credit meter will be refunded to the player’s TYPE 1 / TYPE 2 Dollars balance in the CMS.

8     The CMS provides an audit trail which logs each reward point adjustment against the staff member who authorised the adjustment.

33.The descriptions of these processes are also generally consistent with the Gaming Machine Rules approved by the New South Wales regulator that were effective from 19 May 2017 (that is, from towards the end of the periods under review). A copy of those rules was annexed to the statement of Witness C (at p 1561 of the Hearing Book). Clause 2 of those rules addresses how EGMs are meant to be played. The clause explains:

The instructions on how to play each gaming machine game are displayed on the gaming machine artwork or screen.

Play options shall be in accordance with the instruction as displayed on the gaming machine's artwork or screen. Such options shall be initiated by the player activating the relevant function(s) of the gaming machine.

The credit meter can be incremented by:

2..1   Australian legal tender (notes of acceptable denomination as indicated on each individual machine);

2..2   winnings from gaming machine play;

2..3   winnings from a linked jackpot;

2..4   the electronic monitoring system (EMS) transferring credits to the gaming machine.

Gaming machine play shall be initiated by the player wagering credits from the credit meter by activating the appropriate commencement function.

A player’s winnings/prizes shall be displayed on:

2..1   the gaming machine;

2..2   jackpot display meter;

2..3   associated prize display; or

2..4   a combination of the above.

Winnings from gaming machine play may increment the credit meter (as per 2.3), otherwise the winnings will be paid by a redeemable ticket or payout voucher.

Credits displayed on the credit meter may be collected at the end of any game play.

Credits may be paid by:

2..1   issuance of a redeemable ticket or payout voucher and the credits so paid cancelled from the credit meter

34.Ms Hirschhorn, counsel for the Commissioner, explored some of the inconsistencies in the use of language during her cross-examination of Witness D, amongst others. Ms Hirschhorn cautioned that the applicant’s witnesses did not all have first-hand knowledge of the way the programs operated in the past before those employees were engaged. I acknowledge some of the evidence provided by current employees was not based on first-hand knowledge; it was based (at least partly) on research into archived materials. As it happens there was no reason to reject the records that were provided, most of which speak for themselves.

35.The rewards program documentation and the regulatory documents all describe what was supposed to happen with the redemption process. What actually happened was determined by the gambling venue’s gaming software.

36.The redemption process was embedded in the gaming software used in the gambling venue. Witness C explained in their statement that all the applicant’s gambling venues had come to use proprietary software known as Synkros (formerly known as the Konami Casino Management System, or KCMS) on the EGMs by 2013. That software included what they described as the ‘Wager Redemption’ feature (or ‘wager refund’, as it was also known internally). They explained (exhibit 1 at [15]):

The Wager Redemption mechanism is operated by the KCMS/Synkros systems and works in the following way:

a.     The member places a bet on an EGM and earns Type 1 Dollars.

b.     The member later returns to the gambling venue to bet on an EGM and has Type 1 Dollars that were accrued from their previous bet and/or Type 2 Dollars that had been awarded, that they can now redeem on their next bet.

c.     The member inserts cash into the EGM they wish to play on, so that there is credit in the credit meter on the EGM.

d.     The member inserts their membership card to access the Type 2/Type 1 Dollars balance which is displayed on the credit meter. This step can be interchanged with the previous step, but both steps must occur before step (e).

e.     Prior to placing a bet, the member elects to redeem their Type 2/Type 1 Dollars on their wager and select the amount they wish to redeem. The member then places the bet. The amount of the bet placed is deducted from the cash balance in the credit meter.

f.     Regardless of whether the member wins or loses on that bet, the Synkros system automatically applies the amount of Type 2 Dollars and/or Type 1 Dollars that the member elected as a credit to the credit meter on the EGM. The member therefore has the same cash balance in the credit meter as they did before placing the bet.

g.     After the bet has been placed, the member is free to withdraw the cash balance in the credit meter or to use those funds to place a further bet on the EGM.

37.This process was graphically described in the following flowchart incorporated into Witness C’s statement at [39]:

38.Witness D’s statement (exhibit 4) described the practical effect of the operation of the software on the member’s experience. Witness D recalled how they had hosted a ‘walk through’ for the Commissioner’s staff who were trying to understand the detail of the redemptions process in 2018. Witness D explained how on that occasion they inserted a rewards card that was pre-loaded with $50 in Type 1 Dollars and demonstrated what happened next. When questioned about this in cross-examination, I paused to confirm my understanding of what occurred. The following exchange ensued (transcript at p 138):

Deputy President: …Just so we understand, Witness D, if I have a gambling venue rewards card with $50 of type 1 – $50 type 1 dollars on it, and I walk up to a poker machine in SLDL and just stick the card in, it’s not going to do anything on the credit meter is it?

Witness D: No.

Deputy President: No. So, what I have to do is put in an amount into the machine. Let’s say I put in $50 – put a $50 note in. At that point it’s going to ask me, ‘do you want to activate your rewards because these things are available’. And there will be a display there which will show that you’ve got $50 on the credit meter because

that’s the cash you just put in. And there’s $50 type 1 dollars. Let’s just focus on those for the moment?

Witness D: Yes.

Deputy President: So, right, I want to gamble $1. And I line that up and press the button to gamble the $1. The credit meter will go down from 50 to 49?

Witness D: Correct.

Deputy President: And the type 1 dollars will also go down from 50 to 49 as one of those is transferred across. But that will make the credit meter go back up from 49 to 50. Is that right?

Witness D: Correct. That’s correct, sir.

Deputy President: Does that actually – does that happen? I mean, can you see it go 50, 49, 5[0]?

Witness D: Yes.

Deputy President: Right. Okay. And that’s – so it’s on an entirely seamless process. It goes bing, bing, bing, bing, right?

Witness D: Yes.

Deputy President: If I gamble another dollar the credit meter goes 50, 49, back to 50, whereas the type 1 dollars goes 49 down to 48?

Witness D: Correct.

Deputy President: And if I don’t win anything or I don’t put any more money in, if I keep gambling $1 I’ll press that button 50 times which will exhaust the type 1 dollars but the credit meter will stay at 50, 49, 50, [4]9, 50, 49 until I’ve exhausted the 50 [Type 1 Dollars and the credit meter will thereafter] go 49, 48, 47, 46?

Witness D: That’s correct.

Deputy President: Because I can’t gamble type 1 dollars that I don’t have?
Witness Ds: That’s correct.

Deputy President: At which point I start gambling ‘my own money’? Witness D: Yes.

Deputy President: So, I’ve got that right? Witness D: Correct.

39.The transcriber of that exchange put the expression ‘my own money’ in inverted commas to reflect my tone of voice when I asked the question. That is because the question of whose money was being gambled was an important consideration for the purposes of these proceedings.

40.My review of the evidence referred to above suggests the various descriptions (in the rewards program documentation and the related regulatory documents) of the process by which Type 1 Dollars and Type 2 Dollars (however they might be described) were redeemed

are generally consistent with what happened as a result of the operation of the gambling venue management software, at least in effect. I should add that while the focus was on the operation of the rewards program having regard to the regulatory documents pertaining in New South Wales, there was no evidence (and no reason to suppose) the arrangements in Queensland were materially different.

41.It is therefore possible to make some findings as to how the redemption process worked at the relevant time having regard to the documents recording the terms and conditions of the rewards programs, the regulatory documents which underlay the programs (using the New South Wales documents as a proxy for the Queensland arrangements), the witness statements and the information about the operation of the software package which implemented the process. (I should add that, to the extent of any inconsistency, the evidence regarding the operation of the software must prevail because that process is the one that was actually followed – but I do not think there is any inconsistency of substance.) The core facts are not really the matter of serious controversy; the real issue is how those facts ought to be characterised for the purposes of the GST Act. That said, I make the following findings.

42.First, a patron who is also a member of the rewards program that was in operation at the time was able to earn Type 1 Dollars and Type 2 Dollars in the course of gambling activities that could later be redeemed when wagering on EGMs. (The ability to redeem Type 2 Dollars at the Sydney gambling venue was affected at some point because of regulatory changes, but nothing turns on that for present purposes. I should add there is no dispute for the purposes of this exercise over the apportionment process that identified the quantum of the Type 1 Dollars and Type 2 Dollars that were relevant to the calculations required.)

43.Second, the redemption process required a valid rewards card connected to the member’s account and some funds deposited by the member. A member was unable to access and use the Type 2 Dollars and Type 1 Dollars in his account unless he first inserted the rewards card and PIN into the EGM and deposited funds. It follows the insertion of sufficient funds to cover the wagers to be made was a pre-condition for accessing the rewards. The member must also press the correct buttons on the machine to initiate the redemption process. Once all those steps were taken, the rewards function was activated and the amount of Type 2 Dollars and Type 1 Dollars standing to the member’s credit as part of the rewards program was displayed on the screen of the EGM. Another credit meter recorded the amount which

had been deposited (together with any amounts the member won on that machine as a result of fresh wagers).

44.Third, the member would then elect to wager an amount on the EGM. The amount selected could not exceed the amount of Type 2 Dollars and Type 1 Dollars available, or the amount of funds deposited.

45.Fourth, when the nominated amount was wagered, it would immediately be deducted from the credit meter which recorded how much the member had on hand after deposit (and after any winnings that accrued in that game were added). Immediately after making the bet, the software would deduct the equivalent amount from the meter which recorded the Type 2 Dollars on hand (if any). If there were no Type 2 Dollars or the Type 2 Dollars had been exhausted, the amount was deducted from the available Type 1 Dollars that were separately recorded. In either event, the same amount that was deducted through the redemption process would then be added to the member’s credit meter to restore it to its pre-wager balance. If the wager was successful, the amount won would be added to the credit meter (but not the Type 2 Dollars or Type 1 Dollars meter).

46.To be clear: the rewards program made clear that where Type 2 Dollars were available for redemption, they were used up first before the Type 1 Dollars were deducted.

47.There was some discussion during the hearing over whether there was an actual transfer of funds from a central account to the EGM that was being used when the Type 2 Dollars and Type 1 Dollars were redeemed, or whether it was simply an accounting exercise carried out digitally through the operation of the gaming software. As it happens, I do not think anything turns on that distinction. The important point is that there was a sequence of events in which the wager was debited against the credit meter, and thereafter the amount of the wager was debited against the Type 2 Dollars and Type 1 Dollars meter and then added to the credit meter. The funds in the credit meter were thereafter available to be gambled or cashed out.

48.Fifth, the member could keep wagering amounts (and amounts would continue to be decremented from the Type 2 Dollars then the Type 1 Dollars meter and apparently applied to offset the amount that had been deducted from the credit meter) until the member exhausted the amount of Type 2 Dollars and Type 1 Dollars in their account. Thereafter, wagers would simply be debited against the amount deposited (and won) in the ordinary

way until it was all gone (unless, of course, the member ended the game before exhausting the amount standing to their credit).

49.Having made findings about the precise sequence of events which occur once a member activates the redemption process on an EGM, the following additional findings of fact must be made.

50.When a member made a wager after activating the redemption process, that wager was made from the amount of funds that were deposited and recorded on the credit meter on the machine. That meant it was effectively the member’s money which was being wagered notwithstanding the reference in at least one of the promotional documents to “playing with your Type 1 Dollars” (Hearing Book at p 1843). The fact an amount equal to the value of the wager was immediately thereafter credited to the member’s credit meter through the operation of the gambling venue’s gaming software in fulfilment of the gambling venue’s obligations under the rewards program does not change the essential character of the wager or the fact the member wagered funds that already stood to their credit (and which could be cashed out) after making a deposit. The wager was not made on credit. It was, by design, made out of the member’s own funds - albeit that those funds were immediately replenished by the gambling venue from the Type 2 Dollars and Type 1 Dollars available for redemption. Equally, it cannot be said the wager was made using funds supplied by the gambling venue: the sequence of events described above makes clear the wager occurred from the member’s own funds recorded on the credit meter of the machine before they were reimbursed.

51.As I shall subsequently explain, it is also clear the transfer of funds from the member’s Type 2 Dollars and Type 1 Dollars entitlement in the instant following the wager of his or her own funds was properly regarded as the delivery and realisation of a prize. The entitlement to claim the prize arose under the terms of the rewards program as a consequence of earlier activity – but the prize was not awarded until it was accessed and exploited through the redemption process.

The legislation

52.I have already set out the terms of s 126-1 of the GST Act, and I have mentioned s 126-10 which sets out the method of calculating the global GST amount. I noted the formula in

s 126-10(1) includes two integers: total amount wagered and total monetary prizes. I will deal with total monetary prizes first.

What is meant by ‘total monetary prizes’?

53.The expression is defined in s 126-10(1) of the GST Act as follows:

"total monetary prizes" is the sum of:

(a)the * monetary prizes you are liable to pay, during the tax period, on the outcome of gambling events (whether or not any of those gambling events, or the * gambling supplies to which the monetary prizes relate, take place during the tax period); and

(b)any amounts of * money or * digital currency you are liable to pay, during the tax period, under agreements between you and * recipients of your gambling supplies, to repay to them a proportion of their losses relating to those supplies (whether or not the supplies take place during the tax period).

54.The expression ‘monetary prize’ is itself defined in s 195.1 to mean:

(a)   any prize, or part of a prize, in the form of * money or * digital currency; or

(b)   if the prize is given at a casino--any prize, or part of a prize, in the form of:

(i)money or digital currency; or

(ii)gambling chips that may be redeemed for money or digital currency.

The reference to ‘digital currency’ was inserted in 2017 and applied from 1 July 2017.

55.There can be little doubt that the award of Type 1 Dollars in connection with earlier gambling events satisfies the statutory definition of a ‘monetary prize’. (Not all Type 1 Dollars were generated in this way: some of them were awarded for non-gaming activities but the applicant’s claim in these proceedings only relates to gaming-related Type 1 Dollars and there is no dispute about the apportionment process which occurred in making that calculation. Similarly, Type 2 Dollars that were allocated by the gambling venue as part of a marketing exercise or gratuity independent of any actual gambling are not included in the analysis.) The gaming-related points which translated into Type 1 Dollars or Type 2 Dollars were most likely ‘money’ in that they had a monetary value and were able to be used in the EGMs as if they were cash. The word ‘prize’ is not defined in the statute and must therefore take its ordinary meaning: see Burswood Nominees at [80] per Jagot, Moshinsky and Colvin JJ. That being so, I am satisfied the Type 1 Dollars were a ‘prize’ in the relevant sense because they were won or awarded as an outcome of the initial gambling event, and they were a

‘monetary prize’ because they had a monetary value. (The same analysis and conclusion applies in relation to Type 2 Dollars that were generated in connection with a gambling event, as opposed to those which were allocated separately for marketing purposes.) The ‘total monetary prizes’ included the amount of Type 1 Dollars (and Type 2 Dollars, to the extent that occurred) that were redeemed at the subsequent gambling event. The point of redemption is the relevant time for this purpose because the gambling venue was not liable to pay the Type 2 Dollars or Type 1 Dollars unless and until the rewards were accessed through the redemption process pursuant to the terms and conditions of the rewards program. That redemption occurred after the initial gambling event which generated the prize.

56.It follows I am satisfied the amount of Type 1 Dollars and Type 2 Dollars that the applicant has identified as being redeemed on the EGMs during each of the periods falling within the period under review should be counted towards the ‘total monetary prizes’ for the purposes of the calculation required under s 126-10.

What is meant by ‘total amounts wagered’?

57.The more difficult question at the heart of these proceedings arises out of the expression ‘total amounts wagered’. Section 126-10(1) defines that amount as “the sum of the consideration for all of your gambling supplies that are attributable to that tax period”. The word ‘consideration’ is ultimately defined in s 9-15. It is a broad concept, but there are limits. As the Full Court noted in Burswood and in the earlier Full Court decision in AP Group Ltd v Federal Commissioner of Taxation [2013] FCAFC 105, the consideration must be “in connection with the supply [of the gambling service]” and the supply must be “for” the consideration: see AP Group at [33] per Edmonds and Jagot JJ, cited in Burswood at [73].

58.Mr Hmelnitsky SC, for the applicant, explained in his oral submissions that the gambling venue did not earn any consideration when a patron made a wager funded with Type 1 Dollars or Type 2 Dollars because “Whether it’s a contractual refund or anything else, the actual position the parties are in following gaming event 2 is that…the gambling venue is left with nothing” (transcript at p 214).

59.I cannot accept that argument because of the factual findings I have made. It seems to me the member does wager an amount of their own monies (the monies they deposited as the redemption process was activated) in the course of a ‘gambling supply’ that relates to a

‘gambling event’. The ‘gambling supply’ involves the placement and acceptance of a wager and the ‘gambling event’ in question is concluded as soon as the virtual wheels on the machine stop spinning to determine the outcome: see s 126.35. I acknowledge the amount wagered is immediately thereafter replenished or refunded by the gambling venue pursuant to the terms of the rewards program. I also acknowledge the gambling venue is no better off in net terms once this sequence of transactions occurs. None of that changes the essential character of the wager that forms the heart of the gambling supply: the member makes a bet that is deducted from the amount standing to their credit (and reflected on the credit meter) after they deposited funds. They become entitled to any winnings that may accrue on that gambling event. The gambling venue will be worse off to the extent it is liable to credit any fresh winnings to the member. It makes no sense to focus on the net effect on the gambling venue’s financial position in those circumstances. The focus should instead be on the structure and sequence of the gambling supply which is defined in s 126-35(1) as “the acceptance of a bet (however described) relating to the outcome of a gambling event”.

60.A forensic analysis of the gambling supplies which occurred during the redemption process reveals a gambling event in which the member made a wager out of their own deposited funds. The wager was the price paid – that is, the consideration – for the gambling supply by the gambling venue, and the supply was made for that wager even as the parties knew the amount of the wager would be subsequently restored to the member’s credit meter in fulfilment of the terms of the rewards program.

61.While Mr Hmelnitsky warned that such an approach risked making an artificial distinction between two interrelated transactions (transcript at p 257), it seems to me that is what the statute requires in the circumstances. Consistent with the Full Court’s observations in Burswood (albeit in the context of a different sort of arrangement than the one under consideration here), it is important to focus on losses and winnings in connection with the gambling supply and not be distracted by payments or liabilities of a different character: at [92]. I would add I do not regard the redemption process to be an “integrated and indivisible” part of the gambling supply, much less the gambling event: the redemption transaction occurred after the member and the gambling venue conduct what is in substance a stand- alone transaction at the heart of the gambling supply. The gambling event has an outcome, and the replenishment process follows thereafter – but that restoration or replenishment of credits does not change the essential character of the wagering transaction lying at the heart of the gambling supply, nor does it change or reduce the consideration for that supply.

62.The rewards programs under consideration here differ to other rewards programs where consumers can ‘use points’ as a substitute for their own funds in subsequent transactions with the supplier. For reasons arising out the regulatory regime that I have already explained, patrons are not able to wager ‘reward points’ of any kind because that would likely offend the legislative prohibition of gambling on credit. Patrons have to bet their own funds.

63.The act of wagering is complete when the member makes the bet and the (virtual) wheels on the machine spin and generate an outcome which might include a win or a loss. The fact that points are thereafter redeemed to put the member back into the position they were in before the wager was made does not change the fact the wager was made – and it was made out of funds standing to the credit of the member at the time the wager was made. The fact the member’s credit meter is subsequently replenished pursuant to the terms of the rewards program does not change the essential analysis of the gambling transaction. It seems to me all the amounts wagered through this process in the period under review must form part of the ‘total amounts wagered’ within the meaning of s 126-10(1).

64.It would be a mistake to be distracted by the fact the member’s election to access redemption points occurs at the start of the gambling event when they insert their rewards card and push the appropriate button on the machine. That election simply triggers a function in the software which enables the redemption to occur once a wager has been placed. While the software (and the redemption rules) limit the size of the wager relative to the amount of reward points that are available, that does not change the essential character of what the member is doing when they place a bet. As far as members are concerned – and, for that matter, as far as the gambling venue is concerned – the substance of the wagering transaction is otherwise no different to the wager placed by a patron using an EGM without accessing the rewards facility.

Other matters

65.The Commissioner made other arguments in support of his position which I do not need to address in detail given the conclusions I have reached. One of those arguments related to the way the gambling venue accounted for the rewards program in its internal accounts and when calculating its liability for an industry-specific state based duty. I agree with the applicant that the gambling venue’s approach to preparing its accounts – particularly accounts prepared for other purposes – is

not the issue. The question before me turns on questions of fact and statutory construction. I also do not need to reach a view on the Commissioner’s argument that I should have regard to the fact the applicant’s preferred interpretation would allow the applicant to ‘double dip’. The applicant is, once again, correct in the observation that the clear words of the statute are what is important, and questions about double dipping are beside the point. As it happens, the clear words of the statute when applied to the facts I have found produce an outcome which is clear, albeit it is not the conclusion for which the applicant contends.

Conclusion

66.I will invite the parties to make submissions as to the final orders which give effect to these reasons and which address the question of publication to a wider audience beyond the parties. The proceedings were heard in private at the request of the applicant pursuant to s 14ZZE(1) of the Taxation Administration Act 1953 (Cth) (the Administration Act). Under s 43 of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act) as modified by s 14ZZJ of the Administration Act, I am required to:

…ensure, as far as practicable, that [the Tribunal’s] reasons for the decision are framed so as not to be likely to enable the identification of the person who applied for the review.

67.It is almost impossible to properly anonymise these reasons given they relate to the affairs of a gambling venue business. It may be that a carefully crafted summary might be published to the wider public in due course, but even that may be problematic. I note the provision makes clear the obligation to anonymise is not absolute, and the obligation to anonymise appears to lapse if the decision is appealed in any event. I will leave the parties to confer on appropriate orders and make any submissions in writing as to how I should proceed within 28 days of these reasons being published to the parties.

I certify that the preceding 67 (sixty-seven) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe

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Associate

Dated: 30 April 2024

Date(s) of hearing:	27-29 November 2023, 5 December 2023
Date final submissions received:	5 December 2023
Counsel for the Applicant:	James Hmelnitsky SC, Chris Sievers
Solicitors for the Applicant:	PriceWaterhouseCoopers
Counsel for the Respondent:	Michelle Hirschhorn, Fiona McNeil
Solicitors for the Respondent:	Kurt Bragg