New South Wales Supreme Court CITATION : TAB Ltd v Commissioner of Taxation [2005] NSWSC 552 HEARING DATE(S) : 11/04/05, 03/06/05 JUDGMENT DATE : 14 June 2005 JUDGMENT OF : Gzell J DECISION : TAB entitled to declarations that refunds are excluded from total amounts wagered whether paid or not and dividends when declared are included in total monetary prizes whether paid or not. CATCHWORDS : TAXES AND DUTIES - Goods and Services Tax - Gambling supplies - Calculation of net profits from gambling - Total amounts wagered less total monetary prizes - Whether unpaid refunds excluded from total amounts wagered - Acceptance of a bet on outcome of gambling event is a gambling supply - Race, game or other event for which there is an outcome is a gambling event - Whether terminated totalizators, scratchings, abandonment, postponement, no-races, walkovers, or no backings mean no outcome or no relationship to an outcome - Whether a New Tax System (Goods and Services Tax) Act 1999 (Cth), Div 126 is an exclusive code for gambling supplies - Whether adjustments are limited to GST on non-gambling supplies - Whether payment of a refund in a subsequent tax period can constitute an adjustment - Whether dividends declared but unpaid are excluded from total monetary prizes - TAB Rules prevent payment of dividend or refund on cash bets without presentation of a betting ticket - Whether TAB is liable to pay a dividend on declaration or on presentation of a betting ticket - Refunds and dividends unpaid after 12 months become the property of TAB under the Totalizator Act 1997, s 75 - Does windfall arise without GST consequence A New Tax System (Goods and Services Tax) Act 1999 (Cth) LEGISLATION CITED : Totalizator Act 1997 TAB Totalizator Rules Elida Gibbs Ltd v Commissioners of Customs and Excise [1996] EUECJ C-317/94 CASES CITED : Industrial Equity Ltd v Blackburn (1977) 137 CLR 567 Roxborough v Rothmans of Pall Mall (2001) 208 CLR 516 TAB Ltd - Plaintiff PARTIES : Commissioner of Taxation - Defendant FILE NUMBER(S) : SC 4109/04 Mr D Russell QC/ Mr M Robertson - Plaintiff COUNSEL : Mr S Gibb SC/ Mr M Wigney - Defendant Ernest & Young Law SOLICITORS : Australian Government Solicitor LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J TUESDAY 14 JUNE 2005 4109/04 TAB LTD v COMMISSIONER OF TAXATION JUDGMENT 1 TAB Ltd sought declaratory relief against the Commissioner of Taxation with respect to its liability to tax under A New Tax System (Goods and Services Tax) Act 1999 (Cth) ("GST Act"). In issue were the treatment of refunds due to investors and the treatment of dividends declared, but unclaimed by investors. Rules as to refunds 2 TAB conducts a totalizator betting and a fixed odds betting business. With respect to its totalizator betting business, it is bound by the Totalizator Act 1997. Section 6 defines a totalizator as a system used to enable persons to invest money on events or contingencies with a view to successfully predicting specified outcomes of those events or contingencies, and to enable the money left after the deduction of commission, to be divided and distributed among those persons who successfully predict those outcomes. Section 53 required TAB to make rules for, or with respect to, the conduct of a totalizator. The TAB Totalizator Rules ("TAB Rules") answer that requirement. 3 Rule 4.2 of the TAB Rules provides that bets must be refunded to investors if a totalizator for a race event is terminated, a contestant on which money has been invested does not become a starter in a race, a race is abandoned, postponed, declared a no-race or a walkover, or if none of the contestants are backed. 4 Bets may be placed with TAB in different ways. Rule 2.6 of the TAB Rules specifies the way in which a cash bet may be placed. The TAB outlet at which the bet is placed must issue a betting ticket to the investor under r 2.6.2(a). 5 Telephone bets are the subject of r 2.7 of the TAB Rules. In the telephone call to the TAB outlet, the investor must clearly state the number of the betting account against which the bet is to be debited in terms of r 2.7.1(a)(i). Rule 2.9.1 provides that a person may make a telephone bet only against funds in a betting account established by the person and a bet will not be accepted if the amount of the bet is greater than the amount of the cleared funds in the account. 6 A device bet is defined in r 1.5 of the TAB Rules to mean a bet where the details are instructed by way of a device, or electronic data transfer means, or by any other technology means approved by TAB from time to time. Rule 2.8.1(a)(i) provides that a device bet may be made only to an approved TAB outlet. The person making the bet must give a clear instruction to TAB's system of the number of the betting account against which the bet is to be debited. Again, r 2.9.1 provides that a person may make a device bet only against funds in a betting account where the cleared funds are greater than the amount of the bet. 7 Rule 3.2.1(a) of the TAB Rules provides that a refund payable in respect of a bet will be available for collection or credited to the appropriate betting account as soon as is practicable after the race or sports betting event on which the bet was made. 8 Where a betting ticket is issued for a cash bet, r 3.5.1 of the TAB Rules provides that a refund must not be paid except on presentation of a ticket, unless otherwise approved by TAB. 9 Rule 3.9.1 of the TAB Rules provides for claims for refunds in respect of lost, destroyed or stolen betting tickets. If TAB is satisfied that the claimant is entitled to payment of a refund, the claim may be settled by the issue of a betting voucher or by way of cheque under r 3.9.2(a). 10 A refund to which a person is entitled in respect of a telephone bet or a device bet debited against a betting account, must be paid to the person in accordance with any reasonable written instruction or, in the absence of such instructions, by payment into the person's betting account under r 3.6.3 of the TAB Rules. Rules as to dividends 11 Under r 3.2.3 of the TAB Rules, TAB must not declare or pay a dividend until a declaration of correct weight by the stewards for a race, or until the announcement of official or podium positions at the conclusion of an event by the relevant controlling body or committee under whose authority the event is conducted. 12 Rule 3.4.1 of the TAB Rules provides for the calculation of a dividend. After commission deductions, a dividend is calculated on a single unit of investment for the relevant totalizator by dividing the relevant totalizator dividend pool by the number of units of investment on the successful winning contestant or combination, having regard to fractions and the rounding of any calculated amount of the dividend payable, and having regard to minimum dividend provisions. 13 As well as applying to refunds, r 3.2.1(a) of the TAB Rules also provides that a dividend payable in respect of a bet will be available for collection or credited to the appropriate betting account as soon as is practicable after the race or sports betting event on which the bet was made. 14 Rule 3.6.3 of the TAB Rules also provides that dividends on telephone or device bets, in the absence of written instructions, are to be paid into the person's betting account, and r 3.5.1 also provides that where a betting ticket has issued for a cash bet, a dividend must not be paid except on presentation of the ticket, unless otherwise approved by TAB. Unclaimed dividends and refunds 15 TAB is a licensee under the Totalizator Act 1997. Under s 75 it is entitled to dividends and refunds unclaimed by investors after the expiration of 12 months. The provision is as follows: "(1) This section applies to the following amounts: (a) any dividend declared, or other amount refundable to an investor in accordance with the regulations or rules, in respect of an event or contingency on which a licensee conducts a totalizator that is not claimed after the happening of the event or contingency, (b) roundings (a rounding being an amount that would ordinarily form part of a dividend but that is retained by the licensee as a result of the rounding down of an amount calculated as dividend). (2) The licensee is, subject to this section, entitled to all amounts to which this section applies. (3) An investor who is entitled to a dividend or other amount referred to in subsection (1) (a) can claim the dividend or amount from the licensee within 12 months after the happening of the event or contingency concerned." TAB's liability to GST 16 It was common ground that TAB's liability to GST arises under the GST Act, Div 126. TAB is the provider of gambling supplies. That term is defined in s 126-35(1)(b) to include the acceptance of a bet relating to the outcome of a gambling event: "A gambling supply is a *taxable supply involving: (a) … (b) the acceptance of a bet (however described) relating to the outcome of a *gambling event." Throughout the statute, an asterisk before a term indicates that it is defined in the dictionary at s 195-1. Relevantly, a gambling event is a race, game or similar event. The term is defined in s 126-35(2)(b) as follows: "A gambling event is: (a) … (b) a race, game, or sporting event, or any other event, for which there is an outcome." 17 Instead of applying GST to individual bets and allowing input tax credits in relation to prizes, GST is imposed on TAB on its margin in providing its gambling supplies to achieve the same result. The GST Act, s 126-10(1) is in the following terms: "Your global GST amount for a tax period is as follows: ( Total amount wagered – Total monetary prizes ) x where: total amounts wagered is the sum of the *consideration for all of your *gambling supplies that are attributable to that tax period. 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 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). For the basic rules on what is attributable to a particular period, see Division 29." TAB's calculation of its global GST amount 18 TAB includes unclaimed dividends in total monetary prizes and excludes refunds from total amounts wagered. 19 For each tax period, TAB ascertains the gambling events that occurred in the period. It then calculates the total amount wagered by investors excluding any amounts held where a refund is due on each such gambling event irrespective of whether the bet was placed in that tax period or in an earlier tax period. From this amount TAB subtracts the total amount of dividends declared on the gambling events that occurred in the tax period, irrespective of whether some dividends have not been collected. The resulting figure is multiplied by 1/11th. The Commissioner's position 20 The Commissioner maintains that unpaid refunds should be included in total amounts wagered and total monetary prizes should be limited to dividends paid. 21 For each tax period, it is the Commissioner's view that TAB should ascertain the gambling events that occurred in the tax period in question. It should then calculate the total amount wagered by investors on those events, irrespective of whether the bets were placed in the tax period in question or in an earlier one, excluding only refunds paid in the same tax period. TAB should determine the total amount it is liable to pay to investors as winning dividends on the gambling events in question but subtract from that figure such dividends as were not paid to investors by the end of the period. Gambling events or gambling supplies and dividends? 22 I would have thought that neither method of calculation complies with the statute. It is not the gambling event that governs total amounts wagered, but rather the gambling supply and that means the acceptance of bets. Hence total amounts wagered should be the total bets accepted in the relevant tax period irrespective of whether the events to which they relate occur in the relevant tax period or a subsequent one. 23 Likewise, it not the dividends on gambling events in the tax period that govern total monetary prizes, but rather the dividends themselves. Thus total monetary prizes should be the total dividends for the relevant tax period irrespective of whether the events to which they relate occurred in that tax period or an earlier one. 24 However, as this aspect was not argued before me, I make no determination on the topic. The refund argument 25 TAB submits that the definition of a gambling event in the GST Act, s 126-35(2)(b) requires an outcome. A gambling supply does not exist with respect to a race, game, sporting event or other event that does not have an outcome because s 126-35(1)(b) is to be read as referring to the acceptance of a bet relating to the outcome of a race, game, sporting or other event for which there is an outcome. If a race is abandoned, postponed or declared a no-race there is no outcome. 26 Further, if a totalizator for a race event is terminated, a contestant on which money has been invested does not become a starter, there is a walkover, or if none of the contestants or combinations are backed, there are no bets that can be said to relate to the outcome of a gambling event, because the relationship between the bet and an outcome no longer exists. 27 In consequence, TAB argues that bets placed with respect to races, games, sporting events or other events during a tax period that are the subject of refund do not constitute consideration for gambling supplies in terms of the expression total amounts wagered in s 126-10(1) of the GST Act, whether or not refunds have been paid by the end of that tax period. 28 TAB raises an alternative argument. There is no gambling supply in terms of the GST Act, s 126-35(1) unless there be a taxable supply. That term is defined in s 9-5(a) to require the making of a supply for consideration. TAB argues that the events giving rise to an entitlement to refund deny the existence of a supply in relation to the bet. Or, put another way, there is a total failure of consideration for the bet. 29 Failure of consideration is not limited to non-performance of a contractual obligation, although it may include that. The concept embraces payment for a purpose that has failed as, for example, where a condition has not been fulfilled, or a contemplated state of affairs has disappeared (Roxborough v Rothmans of Pall Mall (2001) 208 CLR 516 at 525). 30 The GST Act, s 126-35(2)(b) uses the word "for" in relation to an outcome and not the word "of". The Commissioner argues that use of the word "for" means that the race, game, sporting or other event must have the object or purpose of an outcome or be appropriate or adapted to an outcome, rather than requiring an outcome. If that were the intention, the Commissioner submits that the word "of" would have been used, perhaps in combination with the expression "actual result". 31 The Commissioner argues that the repetition of the word "outcome" in the GST Act, s 126-35(1)(b) suggests that the outcome in question is associated with or connected to a race, game, sporting, or other event, from the conduct of which a result can be produced. If a gambling event had been intended to mean an event from the conduct of which there was an actual result, it would have been simple to define a gambling supply as the acceptance of a bet on a race, game, or sporting event, or any other event, of which there is an outcome or, instead of outcome, the expression "actual result" might have been used. 32 I have difficulty with these submissions of the Commissioner. In my view, it does no violence to the language of the GST Act to interpolate the definition of a gambling event in s 126-35(2)(b) into the definition of a gambling supply in s 126-35(1)(b). It would then read: "A gambling supply is a *taxable supply involving: … (b) the acceptance of a bet (however described) relating to the outcome of a race, game, or sporting event, or any other event, for which there is an outcome." 33 Furthermore, the whole purpose of a bet is that there be an outcome of the race, game, sporting event, or other event, on which the bet was placed. If there is no result, the bet is ineffective. Thus, it seems to me, that the definition of gambling event in the GST Act, s 126-35(2)(b) requires an outcome of the race, game, sporting or other event and that purpose is achieved as much by the use of the word "for" as it might have been by use of the word "of". 34 The Commissioner draws attention to the fact that refunds are required to be made under r 4.2 of the TAB Rules where there is an outcome. A scratching of a contestant is an obvious example. 35 A bet on a horse that is scratched from a race is, however, ineffective. If it is ineffective it no longer relates to the outcome of a gambling event or the consideration for the bet wholly fails, there is no supply for which the bet is consideration and, in consequence, there is no taxable supply in terms of the requirement in the GST Act, s 9-5(a). 36 The Commissioner submits that at the time a bet is placed, there is consideration for it as TAB is obliged to act in accordance with the Totalizator Act 1997 and the TAB Rules to create a pool of money to which the investor becomes and remains a contributor and against which he or she has rights. Thus, it is argued, there is at that time a taxable supply and a gambling supply. 37 The supply is, however, conditional upon the bet relating to an outcome of a gambling event. If there is no outcome, or the bet ceases to relate to an outcome, the gambling supply and the taxable supply cease to exist. 38 In my opinion, a bet with respect to which TAB is obligated to make a refund is properly excluded from total amounts wagered in the computation of the global GST amount in the GST Act, s 126-10(1) as the bets are not consideration for gambling supplies. 39 That finding is sufficient to dispose of the first issue. But in deference to the other submissions made by the parties, I indicate my views. Refunds paid in the tax period in which bets are placed 40 The Commissioner accepts that if TAB pays out a refund in the tax period in which a bet is placed and the refund event occurs, those bets should not be included in total amounts wagered in the GST Act, s 126-10(1). 41 Initially, the Commissioner argued that the making of the refund constituted an adjustment for the purpose of the GST Act, s 126-5(2) to which reference will be made later. In subsequent submissions, the Commissioner accepted that an adjustment can arise only in a subsequent tax period. Section 19-40, that defines an adjustment, so provides. It is as follows: "You have an adjustment for a supply for which you are liable to pay GST (or would be liable to pay GST if it were a *taxable supply) if: (a) in relation to the supply, one or more*adjustment events occur during a tax period; and (b) GST on the supply was attributable to an earlier tax period (or, if the supply was not a taxable supply, would have been attributable to an earlier tax period had the supply been a taxable supply); and (c) as a result of those adjustment events, the *previously attributed GST amount for the supply (if any) no longer correctly reflects the amount of GST (if any) on the supply (the corrected GST amount ), taking into account any change of circumstances that has given rise to an adjustment for the supply under this Subdivision or Division 21." 42 The Commissioner argues that the occurrence of an event in the same tax period as the placing of the bet obliging TAB to make a refund, changes the consideration for the supply by reducing it to nil or, alternatively, causes the supply to cease to be a taxable supply and, in consequence, refunded bets are not to be included in total amounts wagered. 43 This analysis is similar to the analysis of the conditional nature of a bet discussed above. That analysis focused on the failure of the condition. The Commissioner focuses on payment of the refund. 44 If an obligation to pay a refund arises before payment of it, there is no reason for the Commissioner to restrict the change in consideration to the fact of payment. The Commissioner argues that there is no obligation in TAB to make a refund of a cash bet until the production of a betting ticket whereupon, the refund is made. I deal with this argument in relation to the issue of unclaimed dividends. Refunds paid in subsequent tax periods 45 The Commissioner argues that in a subsequent tax period in which a refund is paid, TAB is entitled to an adjustment. 46 For each tax period, a person liable to GST must ascertain a net amount. That term is defined in the GST Act, s 17-5(1) to mean the sum of all GST for which a person is liable for taxable supplies attributable to the tax period, less the sum of all the input tax credits to which the person is entitled on creditable acquisitions and creditable importations attributable to the tax period. Section 17-5(2) notes that the net amount may be increased or decreased by adjustments. If the net amount for a tax period is greater than zero, it must be paid to the Commissioner under s 33-5. 47 The net amount for a supplier of gambling supplies is defined in the GST Act, s 126-5 as the global GST amount under s 126-10, plus the sum of all other GST for which the person is liable on taxable supplies other than gambling supplies, less the sum of all input tax credits to which the person is entitled. That net amount may be increased or decreased if there is any adjustment for the tax period. The provision is as follows: "(1) If you are liable for the GST on a *gambling supply, your net amount for the tax period to which the GST on the supply is attributable is as follows: Global GST amount + Other GST – Input tax credits where: g lobal GST amount is your *global GST amount for the tax period. input tax credits is the sum of all of the input tax credits to which you are entitled on the *creditable acquisitions and *creditable importations that are attributable to the tax period. Note: Any supplies under the global accounting system will not have attracted input tax credits. other GST is the sum of all of the GST for which you are liable on the *taxable supplies that are attributable to the tax period, other than *gambling supplies. For the basic rules on what is attributable to a particular period, see Division 29. (2) However, the *net amount for the tax period may be increased or decreased if you have any *adjustments for the tax period. For the basic rules on adjustments, see Part 2-4. (3) This section has effect despite section 17-5 (which is about net amounts). Note: If you are a *GST instalment payer your net amount is reduced by GST instalments you have paid: see section 162-105." 48 The adjustment events referred to in the GST Act, s 19-40(a), quoted above, are defined in s 19-10(1) and s 19-10(2). They relate to cancellations, changes in consideration, cessation of taxable supply or creditable acquisition and partial returns, discounts and the like. The provisions are as follows: "(1) An adjustment event is any event which has the effect of: (a) cancelling a supply or acquisition; or (b) changing the *consideration for a supply or acquisition; or (c) causing a supply or acquisition to become, or stop being, a *taxable supply or *creditable acquisition. Example: If goods that are supplied for export are not exported within the time provided in section 38-185, the supply is likely to become a taxable supply after originally being a supply that was GST-free. (2) Without limiting subsection (1), these are *adjustment events: (a) the return to a supplier of a thing, or part of a thing, supplied (whether or not the return involves a change of ownership of the thing); (b) a change to the previously agreed *consideration for a supply or acquisition, whether due to the offer of a discount or otherwise; (c) a change in the extent to which an entity that makes an acquisition provides, or is liable to provide, consideration for the acquisition (unless the entity *accounts on a cash basis)." 49 The Commissioner argues that if TAB makes a refund in a tax period subsequent to that in which the gambling event was to take place, there is a change in the consideration for the gambling supply, the bet, by reducing it to nil or, alternatively, the gambling supply ceases to be a taxable supply. 50 I have difficulty with that analysis. First, it should be noted that since TAB brings to account all bets in relation to gambling events attributable to a tax period, it is unlikely that an obligation to refund a bet will occur in a tax period subsequent to that in which the event was due to take place. 51 I have expressed the view, however, that under the statute, bets for events in subsequent tax periods may be brought to account in an earlier tax period. Rule 4.2 of the TAB Rules may then operate in a tax period subsequent to the one in which the bet was included in total amounts wagered. In that case, the event giving rise to the obligation to refund could constitute an adjustment event by causing the supply to cease to be a taxable supply, as on the abandonment of a race, or by changing the consideration for a supply, as on the scratching of a contestant. 52 But it is straining the language of the provision, in my view, to treat the payment of a refund in a subsequent tax period as effecting a change in taxable supply or effecting a change in consideration. If the Commissioner is correct, and the placing of a bet gives rise to an obligation in TAB to make a gambling supply, the payment of a refund does not alter that position. It is the prior scratching of a horse or abandonment of a race that alters the nature of the supply or the consideration for the gambling supply. Those events give rise to an obligation to refund. Subsequent payment of the refund discharges TAB's liability, but it has nothing to do with an adjustment event. Div 126 as an exclusive code 53 Furthermore, there is a lot to be said for the view that the adjustments to which reference is made in the GST Act, s 126-5(2) are limited to those arising with respect to other taxable supplies and that Div 126 forms an exclusive code for determining the margin with respect to the provision of gambling supplies. 54 Section 126-1 of the GST Act provides that the global accounting system for GST on gambling is an alternative to the usual system. The provision is as follows: "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." 55 Consistent with the notion that the GST Act, Div 126 is an exclusive code, are the exclusions of key provisions in the ordinary way in which GST is calculated. Thus s 126-5(3) provides that that section has effect despite s 17-5 relating to net amounts. Section 126-20(1) and s 126-20(4) exclude the operation of Div 21 dealing with bad debts and s 126-20(2) and s 126-20(3) contain specific provisions with respect to bad debts of consideration for gambling supplies. Section 126-25 excludes the operation of Subdiv 9-C. It deals with the amount of GST payable on taxable supplies. Section 126-30 provides that gambling supplies do not give rise to creditable acquisitions despite s 11-5 that deals with creditable acquisitions. Section 126-32 provides that repayments of gambling losses do not constitute consideration despite s 9-15 that defines the concept of consideration. Section 126-33 provides that a tax invoice for a gambling supply is unnecessary, despite s 29-70 that deals with the requirement to issue a tax invoice. 56 There is no provision for adjustments to the global GST amount under the GST Act, Div 126. This is reinforced by the definitions of increasing adjustment and decreasing adjustment in s 195(1). The definitions specify the provisions of the statute under which such adjustments arise. They contain no reference to Div 126. 57 The addition of other GST to the global GST amount in the GST Act, s 126-5(1) is specifically limited to activities other than the provision of gambling supplies. 58 The same applies to the subtraction of input tax credits. While there is no overt limitation in the definition of input tax credits, the note explains why such a limitation was unnecessary: input tax credits cannot arise with respect to gambling supplies. That, as already mentioned, is provided in the GST Act, s 126-30(1). 59 Since adjustments do not arise with respect to gambling supplies, there was also no need to exclude adjustments with respect to gambling supplies from the reference to adjustments in the GST Act, s 126-5(2) to limit those adjustments to activities other than gambling supplies. 60 Since the legislature was at pains to remove the operation of other key provisions of the GST system from the GST Act, Div 126, it would be an odd result if adjustments with respect to gambling supplies were brought back into the calculation of net amount under s 126-5(2). 61 The better view, in my judgment, is that the GST Act, Div 126 constitutes an exclusive code for the determination of net profits from gambling and the reference to adjustments in s 126-5(2) is limited to adjustments with respect to activities other than gambling supplies. 62 In my judgment, total amounts wagered should be calculated under the GST Act, s 126-10(1) by excluding bets the subject of refund under r 4.2 of the Tab Rules in the tax period in which the event giving rise to the obligation to refund occurs and irrespective of whether the refunds are paid in that tax period, a later tax period, or at all. Unpaid dividends 63 As previously indicated, TAB is not to declare a dividend until formal determination of result under r 3.2.3 of the TAB Rules, and then the dividend is to be available as soon as possible after the event under r 3.2.1(a). 64 The Commissioner points to the circumstance that TAB is obliged to credit a betting account in the absence of an instruction for payment under r 3.6.3 of the TAB Rules and submits that dividends with respect to telephone and device bets will be paid in the tax period in which the dividend is declared. 65 It is the fact, however, that dividends and refunds on cash bets are not always claimed and they become the property of TAB at the expiration of 12 months under the Totalizator Act 1997, s 75, as already indicated. 66 The Commissioner refers to r 3.5.1 of the TAB Rules. With respect to a cash bet, it requires the production of a betting ticket or other approval from TAB before a dividend or refund with respect to that bet is paid. The Commissioner argues that for the purpose of the GST Act, s 126-10(1), monetary prizes that TAB is liable to pay are limited to dividends actually paid because TAB is under no obligation to pay a dividend on a cash bet unless and until a betting ticket is produced, or TAB otherwise approves the payment, and payment occurs immediately thereafter. For the purpose of total amounts wagered in s 126-10(1), the Commissioner argues that, for the same reason, TAB is not obliged to pay a refund until the betting ticket is produced, or TAB otherwise approves the refund, and the refund occurs immediately thereafter. 67 The word "liable" is ambiguous as the Privy Council acknowledged in R v Hughes [2002] 2 AC 259 at 273. The Oxford English Dictionary has its first meaning in law as: "bound or obliged by law or equity, or in accordance with a rule or convention; answerable for; legally subject or amenable to". The Macquarie Dictionary has as its first meaning: "subject, exposed, or open to something possible or likely, especially something undesirable", and as its second meaning: "under legal obligation; responsible or answerable." 68 It was common ground that the word "liable" in the GST Act, s 126-10(1) has the meaning of a legal obligation to pay, rather than the more general exposure to liability. 69 TAB contends that it is obliged to pay dividends so soon as the dividend is declared. The position, it is submitted, is analogous to a company declaring a dividend. As Mason J said in Industrial Equity Ltd v Blackburn (1977) 137 CLR 567 at 578: "… upon the declaration of a dividend by the directors or the company in general meeting there immediately springs into existence, fully armed so to speak, a debt owing by the company to each shareholder ( In re Severn and Wye and Severn Bridge Railway Co [1896] 1 Ch 559; Bond v Barrow and Haematite Steel Co [1902] 1 Ch 353 at 362; Potel v Inland Revenue Commissioners (1971) 2 All ER 504, (1970) 46 TC 658)." 70 TAB argues that so soon as it declares a dividend, there arises a debt immediately due but payable in the future, a situation recognised in that well-known Latin phrase, debitum in praesenti, solvendum in futuro. 71 The Commissioner's approach would have the net profits to which reference is made in the GST Act, s 126-1 calculated on a cash basis. Under the Commissioner's argument total amounts wagered are recorded on a cash basis because only refunds paid in cash are to be deducted. And total monetary prizes are to be calculated on a cash basis because only dividends paid are to be included. 72 The Commissioner seeks support for this view by the reference to the payment of prizes in a booklet published by the Commonwealth Government in August 1998, Tax Reform: Not a New Tax, A New Tax System, in which the Government stated that: "GST will apply to the operator's margin… the tax will apply to the difference between total 'ticket sales' or 'bets taken' by the operator… and the value of the prizes or winnings paid out." 73 There are a number of problems with the approach taken by the Commissioner. One would not normally regard the reference to net profits in the GST Act, s 126-1 as a reference to a cash accounting concept. One would normally regard it as a reference to a figure determined by accrual accounting methods. 74 That is the approach to liability to GST taken under the legislation. Unless a person is entitled to account on a cash basis because of a low turnover business or the approval of the Commissioner under the GST Act, s 29-40, GST payable on a taxable supply is determined on an accruals basis when an invoice issues. Section 29-5(1) is in the following terms: "The GST payable by you on a *taxable supply is attributable to: (a) the tax period in which any of the *consideration is received for the supply; or (b) if, before any of the consideration is received, an *invoice is issued relating to the supply – the tax period in which the invoice is issued." 75 The Commissioner accepts that his approach may seem at odds with the usual treatment of accrual accounting under the legislation, but he submits that the GST Act, Div 126 contains specific provisions that override the usual rule. 76 There are, however, indications to the contrary within the GST Act, Div 126. Section 126-20(2) provides relief for bad debts: "If, in a tax period, you write off as bad the whole or part of the *consideration for a *gambling supply that is due as a debt, but has not been received, the amount written off is to be added to your total monetary prizes, referred to in subsection 126-10(1), for that tax period." 77 That provision presupposes that a bet has been included in total amounts wagered in a previous tax period as consideration for a gambling supply. But that could not happen if total amounts wagered are to be determined on a cash rather than an accruals basis. 78 The Commissioner argues that the GST Act, s 126-20(2) has no operation with respect to TAB because r 2.9.1 of the TAB Rules provides that a telephone bet or a device bet will not be accepted if the bet cannot be charged against cleared funds in an account. TAB will not be in the position where it writes off a bet as bad. 79 But the point is not whether the provision has application with respect to TAB. The point is that it is an internal recognition of the accrual method of accounting within the GST Act, Div 126. 80 The word "liable" is used elsewhere in the GST Act, Div 126. Section 126-5(1) speaks of a person liable for GST on a gambling supply. In that context, the reference must be to an accrued liability and not to one already discharged by payment. 81 The Explanatory Memorandum which accompanied the introduction of the GST Act contained a reference to accrual accounting for total monetary prizes, contrary to the reference to prizes paid in the passage in the booklet on which the Commissioner places reliance. Paragraph 6.204 stated: "GST on gambling is 1/11th of the GST inclusive margin. The GST inclusive margin is the total wagers less the total amount paid or payable in money (including casino chips) as prizes. This is your global gambling GST amount . Division 126 . Effectively this adds all the wagers together and all the prizes together and applies GST to the difference between these totals. Section 126-10." 82 The reference to prizes payable as well as to prizes paid in the Explanatory Memorandum is of but slight assistance because neither it nor the booklet can supplant the language of the legislation. 83 It would be an odd result if total amounts wagered were to be determined on an accruals basis, while total monetary prizes were to be determined on a cash basis. That would create a disunity or, would offend what has been called the principle of neutrality in jurisdictions that have a developed value added tax jurisprudence (Elida Gibbs Ltd v Commissioners of Customs and Excise [1996] EUECJ C-317/94, 24 October 1996 at [20]). 84 Finally, the Commissioner's position with respect to telephone bets and device bets is at odds with his position with respect to cash bets. So far as telephone and device bets are concerned, the Commissioner concedes that TAB becomes liable to pay them, for the purpose of the definition of total monetary prizes in the GST Act, s 126-10(1), when the dividend is declared. Yet the dividend has no effect with respect to cash bets, in the Commissioner's submission. 85 But if the dividend creates a liability that springs into existence fully armed, so to speak, with respect to telephone and device bets, why should not an immediate lability arise with respect to cash bets as well, the discharge of which is to take place in the future upon the production of a betting ticket? 86 In my view, the approach taken by the Commissioner is flawed and TAB is entitled to include in total monetary prizes for the purposes of the GST Act, s 126-10(1), dividends declared whether paid or not. 87 The consequence is that dividends and refunds unclaimed for 12 months will constitute a windfall gain of TAB without GST consequence. There was some argument addressed to this issue, the history of privatization that led to the establishment of TAB and the comparative treatment between the States of unclaimed dividends and refunds. I do not regard those matters as of assistance in determining the construction of the legislation. Conclusion 88 In my judgment, TAB is entitled to declaratory relief both with respect to its treatment of refunds and its treatment of dividends payable. 89 In my judgment, total amounts wagered should be calculated under the GST Act, s 126-10(1) by excluding bets the subject of refund under r 4.2 of the Tab Rules in the tax period in which the event giving rise to the obligation to refund occurs and irrespective of whether the refunds are paid in that tax period, a later tax period, or at all. 90 In my judgment, total monetary prizes should be calculated under the GST Act, s 126-10(1) by including dividends in the tax period in which they are declared and irrespective of whether they are paid in that tax period, in a later tax period, or at all. 91 I will hear the parties on the terms of appropriate declarations and orders. I will hear the parties on costs. I direct the parties to bring in short minutes of orders reflecting these reasons. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.