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The Federal Court (Jessup J) has held that the taxpayers (who carried on bookmaking businesses making gambling supplies) were entitled, in calculating their liability to GST under s 126-10 of the GST Act, to deduct from their total gambling supplies the sum of all their monetary prizes, irrespective of whether the prizes had been paid to residents of Australia or to non-residents of Australia. The Federal Court also held that the taxpayers were entitled to a refund of GST overpaid by them.

In relation to the calculation of their GST liability, Jessup J rejected the Commissioner's argument that because the wagers made by non-residents of Australia were excluded from the "total amount wagered" (as defined) in the formula in s 126-10, so too should the prizes paid to non-residents of Australia be excluded from the "total monetary prizes" (as defined) in the same formula. Jessup J held that the taxpayers' "preferred construction is the one most naturally conveyed by the words which are central to the present controversy: 'the monetary prizes you are liable to pay...on the outcome of gambling events....'", namely, the definition of "total monetary prizes" is not limited to prizes paid out to Australian residents.

After extensive consideration, Jessup J concluded on this point, at para [52] as follows:

"For the foregoing reasons, I take the view that this is not a case in which the court would be justified in departing from the ordinary meaning conveyed by the text of the definition of 'total monetary prizes' in s 126-10 of the GST Act. That meaning corresponds with the position taken by the [taxpayers]."

The case arose because originally the taxpayers had excluded the prizes paid to non-residents of Australia in its calculations (based on advice from the Commissioner), with the result that it had paid more GST than was necessary. Accordingly, in addition to having the assessments to GST set aside, the taxpayers were also seeking a refund from the Commissioner of the GST overpaid. The Commissioner argued that notwithstanding the Court's findings on the first point, he was not obliged to give a refund to the taxpayers by reason of the provisions of s 105-65 of the GST Act. This too was rejected by Jessup J.

For s 105-65 to apply to deny the taxpayers a refund, a number of conditions had to be satisfied, one of which was contained in s 105-65(1)(a), namely, "you overpaid the amount, or the amount was not refunded to you, because a supply was treated as a taxable supply, or an arrangement was treated as giving rise to a taxable supply, to any extent".

In this regard, Jessup J said, at para 55:

"Despite the persistent endeavours of counsel for the Commissioner, I confess to a complete inability to appreciate how it might be said, on the assumed facts of the present case, that the overpayments made by the applicants arose because supplies were treated as taxable supplies, or arrangements were treated as giving rise to taxable supplies, to any extent. On the view which I have taken of s 126-10, the overpayments were made because the applicants took the view that it was only prizes paid to gamblers whose wagers had been by way of gambling supplies that were to be subtracted as “total monetary prizes” in the formula set out in s 126-10(1). It is common ground that those supplies were not taxable ones, and it is not suggested that the [taxpayers] ever treated them as taxable. In my view, therefore, s 105-65(1)(a) is quite irrelevant to the circumstances of the present case."

Accordingly, Jessup J ordered that the decisions under appeal, and the corresponding assessments, be set aside, and that the taxpayers were entitled to the refunds which they sought: International All Sports v FCT [2011] FCA 824 (26 July 2011).


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