GST and prize competitions

Sections 2, 5(10), 9(2)(e) and 10(14) of the Goods and Services Tax Act 1985

Minor amendments have been made to the GST Act to enable cash prizes to be deducted when calculating the consideration for the supply of prize competitions.

Before 1 July 2004, when determining the consideration of a supply, organisers of prize competitions were able to deduct cash prizes from the total proceeds collected for that supply.

The wording in the GST Act which allows cash prizes to be deducted was amended, effective from 1 July 2004, to use wording contained in the Gambling Act 2003. The wording in the GST Act had previously been based on terms contained in the Gaming and Lotteries Act 1977, which the Gambling Act replaced.

The phrase which has been used in the relevant GST Act provisions since 1 July 2004 is "gambling (including a New Zealand lottery)". This is a narrower term than the collection of terms that was used before 1 July 2004, and does not include prize competitions.

Key features

Four amendments have been made to the GST Act to give "prize competitions" the same treatment afforded to gambling (including a New Zealand lottery). These amendments are:

• A definition of "prize competition" has been included in section 2 of the GST Act.
• Section 5(10) has been amended so that money paid to participate in prize competitions is treated as a payment for a supply.
• Section 10(14) has been amended so that the consideration for a prize competition will now be calculated using the following formula: the amounts received minus any prizes (including cash prizes)
• Section 9(2)(e) has been amended to set out that the time of supply for a prize competition is the date on which the first drawing or determination of the prize competition begins.

Detailed analysis

The GST Act does not allow deductions for cash prizes unless this is set out in a specific provision.

These amendments to the GST Act mean that cash prizes may now be deducted when determining the consideration for some amateur sporting competitions, or creative activities, which might not have fallen within the ambit of "gambling" or a "New Zealand lottery".

Application date

The amendments apply from the date of Royal assent, being 17 July 2013.