SkyCity cops big tax bill after losing loyalty program court case

Casino operator SkyCity will have to pay the South Australian state government as much as $33m after the Supreme Court ruled on the taxation of its loyalty program.

Casino operator SkyCity will have to pay the South Australian state government as much as $33m after the Supreme Court ruled against it in relation to the taxation of its loyalty program.

It continues a horror run for the gambling company, which last week revealed it was under investigation over allegations of money laundering breaches at its New Zealand venues.

This is in addition to the company. which operates Adelaide’s only casino, being under investigation by the Australian financial crimes regulator Austrac, for allegedly allowing customers it knew were facing money laundering and drug trafficking charges, to gamble at the casino.

SkyCity said late last year it was likely to admit to “serious breaches” of anti-money laundering laws and incur a “material fine” as part of that process.

Earlier this month the company said it had set aside $73m for penalties and costs relating to that investigation, with a hearing in relation to the civil penalty scheduled for June 7.

SkyCity said the actual amount of the civil penalty “remains uncertain’’.

The separate court matter which came to a head on Thursday involved the tax treatment of the casino’s rewards system, with SkyCity arguing that the value of rewards points should not be counted as part of its “net gambling revenue” on which the casino is taxed.

The State Government, following an investigation by the State Commissioner of Taxation in 2016, argued that given that loyalty points could be converted to gaming credits and then used for further gambling, they should be assessed as gambling revenue

SkyCity’s Adelaide casino has lost a major court case.

SkyCity sought to have the matter clarified buy the Supreme Court and was seeking declarations from the court that rewards credits don’t constitute gambling revenue and it should not have to pay duty on them.

SkyCity said in a statement on Thursday the court had ruled against its interpretation.

“The Court of Appeal has ruled in favour of the Treasurer of South Australia’s interpretation ... finding that credits on gaming machines arising from the conversion of loyalty points, when played by customers, are to be included in gaming revenue for the purpose of calculating casino duty ... and that loyalty points earned by customers for gaming machine play may not be deducted from gaming revenue,’’ the company said.

SkyCity estimates the cost of the duty it will have to repay, incurred from from January 2014-2024, at about $13m.

Another $20m in penalty interest may also be due, with a single judge to rule on that at a later date.

“SkyCity Adelaide is currently considering its position in relation to the Court of Appeal’s judgment and the impact on the current structure of its loyalty program,’’ the company said.

The company said the ruling would have an impact of about $2m on its full year earnings, with the rest of the amount of be incurred as a one off cost.

SkyCity reported its annual earnings on Thursday and also said that chief executive Michael Ahearne would step down next month, in line with an announcement made in October last year.

The group has named New Zealand chief operating officer Callum Mallett as interim CEO while the board finds a permanent leader.

SkyCity board chairman Julian Cook will provide executive support on a part-time fixed term basis with effect February 26.

The company reported total half-year revenues of $NZ445.2m, down 4 per cent on the prior corresponding period. Net profit declined 1.3 per cent $NZ22.5m.

On an underlying basis, revenue was up 0.6 per cent to $NZ490.2m and profit was down 8.5 per cent to $NZ66.5m The group will pay an interim dividend of NZ5.25c on March 21.

Mr Ahearne said the challenging economic climate had impacted its business in the first half particularly in electronic gaming machine revenues.

“Pleasingly, our hospitality businesses and table games in Auckland have performed well but we see ongoing cost inflation in addition to our further investment in compliance activities,” Mr Ahearne said.

Visitor numbers had been buoyant across SkyCity’s properties with 2.5 million people visiting the Auckland property, up 8 per cent on the same period last year and underpinned the improvement in revenue across the hospitality businesses, including the Sky Tower.

The recovery in Auckland table games has continued, reflecting higher opening hours as labour constraints have eased.

SkyCity Adelaide continued to be impacted by a challenging operating environment with revenues and profitability declining over the six-month period.

The Adelaide venue’s total revenue fell 8.9 per cent to $NZ115.7m and pre-tax earnings fell 37.2 per cent to $NZ2.2m.

Originally published as SkyCity cops big tax bill after losing loyalty program court case