Posted by: LYF | December 14, 2008

GST and Horse Racing

Last week I was preparing a notice to reader for a client who owns a horse racing company.  When I handed in the file, my partner asked whether the winnings attracted GST.  I hadn’t included “GST collected” on the return so it was an appropriate question.  They weren’t included in the “winnings statements” so I assumed winnings didn’t attract GST.  I wasn’t completely sure, so I went back to my desk and called CRA.  They told me they weren’t, so I went back to my partner and relayed the information.  He wasn’t very pleased with my level of “research.”

CRA is good for asking simple questions like locating a form on their website, or when to remit certain taxes.  When things are more complicated, they’re not the best resource.  Learning from my mistake, I went back and researched the difference between zero-rated and GST exempt supplies, called the race track and went through the excise tax act.

Turns out in section 188 paragraph 2 subsection a, “the giving of [a] prize shall be deemed, for the purposes of this Part, not to be a supply.”  So if it’s not a supply it can be assumed not to incur GST.  It’s a weird logic and I still have trouble wrapping my head around it.  What’s more confusing is that,

“Exempt supplies are not subject to the GST/HST. Persons making only exempt supplies are not entitled to claim ITCs for the GST/HST paid or payable on purchases, importations or other acquisitions relating to the making of exempt supplies. More information on ITCs will be available in Chapter 8, Input Tax Credits: Eligible ITCs.”

So if the supply of a prize was considered exempt I’m assuming the company would not be allowed to claim ITC’s.  However, as the act deems prizes “not to be a supply”  it side-steps this problem.

It might sound lame, but I considered that a “cool” day at work.

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Responses

  1. The first time I read that my brain blew up…but it made sense the second time.
    This seems like a good example of why rule based accounting fails…you can use the wording to find loopholes.

  2. I just need to understand whether you’re dealing with a racetrack or a horse breeder, or some third category…? 🙂

  3. I think it’s a third category. The guy incorporated a company and then bought two horses through it. So he races the horses through the company – so to speak.

  4. DK – if you want your head to explode, read about flow through shares. I’m in the middle of trying to figure them out.

  5. WHAT HAPPENS WITH THE GST IF YOU SELL HORSES ETC. THROUGH A CORPORATION?

    • Is the purpose of the corporation to sell horses? Or does this corporation own horses, which it races and has decided to sell one of it’s racing horses?

  6. I would hate to break to you all but you’re way off. See ATO guide ” GST for the racing industry”.

    • Am I way off because you’re assuming I’m in Australia instead of Canada?


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