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QUESTION 1
FACTS:
A new lottery system ‘Set for Life’ was started by the lottery commission. The winner in this system is paid $50000 annually for 20 years. The date of payment is the date when the first payment was made and also the Commission is responsible in case of death of the individual to the executor of the deceased.
ISSUE:
Whether the amount of $50000 paid annually is assessable as income.
LAW AND APPLICABILITY:
Taxes levied on the Gambling constitute an important source of revenue for the State governments. As the gambling is taxed differently in different states the competition between States may limit their capacity to raise revenue from gambling. The applicability of taxes on gambling in different States are complex and the same differs from the regular taxation guidelines which makes its interpretation difficult for common man. At per the Australian taxation system GST is payable at a rate of one eleventh on the player loss of a gambling business and the same is applicable for all types of gambling. The four main types of gambling dealt in Australia are wagering which is betting on horses, sport etc., gaming machines like poker machines, casino gambling and lotteries. Each of the four game is taxed by State governments on a different basis which means that there exists different laws and bye laws regulating gambling organisations and taxation for such organisations for each states, territories and local governments.
There exists different approaches for the purpose of measuring the overall tax rate because of the different definitions of the tax base. The following are some of the approaches in this regard:
• In one of the approach for measuring the overall tax rate the tax revenues are compared with expenditures made or turnover which is the gross payments made by the customers.
• In this approach which is generally used by the economists for measuring the overall tax rate the tax revenues are compared with net gambling expenditures which is expressed as the government revenue share of the amount paid to the winners.
• In one of the approach tax revenues are measured against gross turnover less gambling tax levied for the purpose of measuring of the overall tax rate.
Lotteries are taxed more heavily than other forms of gambling at the tax rates ranging from 45 to 90 per cent of player loss. Average tax rates for other forms of gambling range from 20 to 35 per cent of player loss and goods and services tax of 10 per cent on all sales made during the year.
These types of taxes levied by the government in the form of direct taxes levied on the gambling enterprises, any other sum of money charged as license fees or in any other form payable at the initial stage or on the periodic basis on the basis of the relevant rules and regulations in this regard and any other form of taxes and fees levied on the gambling enterprises by the government authorities form a large source of income for state, territory or local governments.
Gambling taxes levied have political impact as well as economic impact. Politically it helps the government to establish its image by way of generating revenue as the same constitute a major portion of the government revenue and also the same is regarded as contributory to public revenues. The manner and the extent of taxing are different on the basis of different types of services provided and the area of operation in respect to the relevant state, territory and respective laws and bye laws. There have been several changes made to the gambling taxation till today. As per the recent change made in the Legislation on the state level there have been an imposition of further taxes in addition to the already levied on gambling operators. In July 2016 in South Australia a ‘place of consumption’ tax (PoC Tax) of 15 per cent of net income as derived from the customers was charged.
In case of individual tax liability the individuals are required to pay the amount of taxes on the amount won as prize in a draw or lottery if the same conducted by the unapproved authority or institution or bank. Whereas in case the lotteries are conducted by commission or government approved authorities then the individual in this case is not taxable. The main reason for not taxing such income is that as the playing of such games cannot be termed as business in the normal course or in general terms. Also as cited in the case of Trautwein v FCT (1936) and Evans v FCT playing such games have a high...