TAX NEWS - June 2010

Australia Tax: Court's tax rule rocks racing industry

Prizemoney might have to drop and small bookies could go to the wall after the NSW racing industry was rocked by landmark Federal Court rulings on the way it taxes bookmakers.

While Racing NSW said it was delighted the court had confirmed its right to charge bookmakers a fee based on a percentage of their turnover, the court also found Racing NSW's arrangements with bookmakers were unlawful and it might have to pay back millions of dollars.

Racing NSW will also have to review its relationship with Tabcorp, which has an exclusive retail licence to run the NSW TAB.

It had been hoped the long-awaited judgments would bring certainty to the struggling racing industry, but yesterday all sides were claiming victory and observers fear the issue of making bookmakers pay a fair price for the racing product they use will drag on through the courts for years to racing's detriment.

The chief executive of Racing NSW, Peter V'landys, said the end of the small bookmaker was a "possibility".

On the subject of prizemoney, Mr V'landys said: "[The judgment] certainly puts pressure on our financial model. We have to now look at how long it's going to take for an appeal.

"There's no doubt we are going to have to review all prizemoney levels throughout NSW and there may be a reduction."

Ruling in favour of the Northern Territory-based bookmaker Sportsbet, the Federal Court declared that fees charged by Racing NSW discriminated against big interstate bookies and in favour of NSW operators, including Tabcorp. Bookies with a turnover of less than $5 million pay a tax on turnover of 0.33 per cent to Racing NSW and Harness Racing NSW, while those with a turnover of more than $5 million pay 1.5 per cent.

Sportsbet claimed its fees were invalid because Racing NSW refunded the fee collected from the TAB and because the $5 million threshold meant "almost no NSW bookmaker was economically affected by the fee", while interstate bookies were unlawfully discriminated against.

Justice Nye Perram agreed and ordered that Sportingbet be refunded more than $2 million it had wrongly been taxed until June 30 last year. His ruling opens up the prospect of other bookies demanding payback from the NSW racing industry.

Matthew Tripp, the chief executive officer of Sportsbet, said there would be a level playing field for bookmakers in the future and wanted to meet industry leaders to work out what "fair and equitable" tax they should pay.

The judge dismissed the case brought by the Tasmanian-based betting exchange Betfair, which wants to pay a fee based on gross revenue rather than turnover, arguing the 1.5 per cent turnover tax unfairly discriminated against its high-turnover, low-margin business model.

Betfair, however, trumpeted the fact that the judge had found it was discriminated against. It did not rule out legal action.

Phillip Deluca, a small bookmaker, has been at Canterbury for more than 40 years but said he would quit his outer-ring stand if forced to pay the 1.5 per cent turnover tax.

Wayne McDonald, a bookie at Canterbury with turnover of more than $5 million a year, said the tax should be 1 per cent.

Peter McGauran, head of the Thoroughbred Breeders Association, which backs a 1.5 per cent turnover tax, said: "These are tough times … prizemoney has been stagnant for several years, we need more money into the industry. This court case doesn't give anything like that."