Net proceeds

Net proceeds is the amount remaining from gaming machine proceeds, after various costs, levies and taxes have been deducted.

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Defining gross proceeds and net proceeds

The Act defines gross proceeds and net proceeds. Be aware of the differences, and when they apply.

Gross proceeds means:

  • total turnover from gaming machines (less prizes paid out to players)
  • plus any interest or other investment returns
  • plus any gains from selling or disposing of gambling assets.

Net proceeds means gross proceeds as defined above, less the sum of:

  • the actual, reasonable and necessary costs of conducting gambling
  • the actual, reasonable and necessary costs of complying with the regulatory regime
  • the amount by which any gambling asset is depreciated
  • any losses from the sale or disposal of gambling assets.

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Guidance on Working Capital Ratio and retaining net proceeds

This guidance expands upon the Gambling Regulator’s Policy for Working Capital Ratio and the retention of net proceeds which came into effect 1 July 2020 via Regulation 11A of the Gambling (Class 4 Net Proceeds) Regulations 2004.

The intention of the policy is to ensure that the class 4 sector has adequate reserves to sustain operations. Reporting requirements change from monthly to annually. This policy allows corporate societies to retain net proceeds in a bank account established to hold gaming machine profits, until that society reaches a maximum Working Capital Ratio of 1.5:1.

Who does the policy apply to?

This policy applies to non-club and club corporate societies. Working Capital Ratio (WCR) is calculated as current assets divided by current liabilities. Retained net proceeds are to be kept as a current asset. Strict compliance with requirements is expected.

If you are a corporate society that mainly distributes

If your organisation is a non-club corporate society that mainly distributes, the Gambling Regulator will check each your WCR as part of your annual licence renewal process. WCR serves as an indicator of your liquidity for the purposes of establishing financial viability.

Although reporting requirements for WCR have changed from monthly to annually, you are still required to hold internal 3-month WCR calculations.

If you are a corporate society that mainly applies

Following the Gambling Commission’s Youthtown decision, if your organisation is a corporate society that mainly applies (a club), you will need to apply to the Gambling Regulator to add an authorising condition to your operator’s licence.

To apply for the authorising condition to your operator’s licence, you must provide:

1. the reasons why the requested licence condition is necessary
2. audited financial statements for the last financial year
3. evidence of your society’s current WCR, and
4. indicate which financial year that the temporary relaxation of the 37.12% return to authorised purposes will apply.

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Applying or distributing net proceeds

Net proceeds can be:

  • distributed to the community as grants.
  • applied to the organisations’ own activities or operations.

In both cases the funds must be put towards the organisations’ statement of authorised purposes.

Organisations that usually apply funds to their own activities or operations may also choose to distribute some funds to community organisations. Where applicable this is defined in their authorised purpose statement.

Gross and net proceeds – specific requirements for distributing funds

There are extra requirements for Class 4 licence holders that mainly distribute grant money to the community.

These requirements were updated in the July 2020 amendment to the Class 4 Net Proceeds Regulations 2004.

Normally, organisations that mainly distribute funds must distribute no less than 40 % of gross proceeds each quarter (Regulation 10).

Any remainder must be distributed within 3 months of the end of their financial year (Regulation 11).

These regulations have been suspended until the end of each organisation’s financial year ending in 2021.

During this period organisations that mainly distribute funds may retain net proceeds up to a maximum working capital ratio of 1.5 : 1. Working capital ratio is calculated as current assets divided by current liabilities. (Regulation 11A).

The changes allow these organisations to retain net proceeds, solely for the purpose of meeting their financial viability requirements for licensing.

These reserves must be held as current assets, meaning they cannot be used to purchase fixed assets (for example gaming machines or gaming equipment). The current assets or cash reserves must be held in a bank account established to hold gaming machine profits as per section 104 of the Gambling Act.

These restrictions and changes do not affect organisations that mainly apply funds to their own activities and operations. (For example clubs operating in their own clubrooms and raising funds for the local community - which includes the club itself).

Monitoring net proceeds

Authorised purposes

Authorised purposes are specified in each societies’ licence. 

Authorised purposes are:

  • charitable purposes
  • non-commercial purposes that have community benefits
  • promoting, controlling and conducting race meetings

Authorised purposes

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Integrity of grant process

The Act and the Class 4 Net Proceeds Regulations 2004, contain safeguards to enhance the integrity of the grants process.  These include:

  • No key person at a class 4 venue may be involved in the grant application process.
  • Attaching conditions to the receipt of grants is prohibited.
  • Provisions preventing licence holders and key persons from seeking or receiving money, advantages or other kickbacks in return for grants.

The Department of Internal Affairs has additional powers in relation to auditing societies, their management services providers, businesses at class 4 venues and grant recipients.

Net proceeds committees

Licence holders must establish at least one committee to:

  • make decisions on the application or distribution of net proceeds
  • administer grant applications.

Committees are responsible for managing grants processes, as specified in the Class 4 Net Proceeds Regulations 2004.

Different committees may be established for specific reasons or districts, or for specific authorised purposes.

Committees must always comprise at least three persons who are key persons under the Act.

Key persons and suitability

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The Gambling (Class 4 Net Proceeds) Regulations 2004, set out requirements for the holders of class 4 operator’s licences (‘licence holders’) in relation to the net proceeds generated from gaming machines.

The regulations are divided into two parts:

  • Part 1 (regulations 4 to 8) sets out requirements for all licence holders.
  • Part 2 (regulations 9 to 17) sets out additional requirements for licence holders who conduct class 4 gambling mainly to distribute net proceeds to the community by way of grants (as opposed to clubs and dedicated charities that are raising money for their own authorised purposes.

There have been several amendments to the regulations, in 2011, 2014 and 2020.

Gambling (Class 4 Net Proceeds) Regulations 2004 (Legislation website)

Further information

Gambling Factsheets

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