Case K25

Judges: HP Stevens Ch

RE O'Neill M
CF Fairleigh QC

Court:
No. 1 Board of Review

Judgment date: 31 May 1978.

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R.E. O'Neill (Member): Insofar as Mr. Fairleigh has concluded that the taxpayer's betting did not constitute the carrying on of a business in any of the four years ended 30 June 1967-1970, I agree with him. However, I go further and decide that taxpayer's betting in either or both of the two succeeding years ended 30 June 1971 and 1972 was not the carrying on of a business.

2. The taxpayer began betting in about 1960 when he was 17 or 18 years old. Throughout the year ended 30 June 1967 he was a full-time employee. During that year his betting winnings were $14,301. He took leave without pay from August 1967 to look after his father who was seriously ill. Taxpayer resigned in January 1968. His winnings for the year ended 30 June 1968 were $24,787. In the two years ended 30 June 1969 and 1970 his winnings were $17,126 and $25,111 respectively. In those four years his winnings totalled $81,325. At 30 June 1970 his net assets were just under $85,000.

3. Against that background it does not seem to me that the four events dealt with by

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my colleague in paras. 13 to 26 of his reasons and which he categorizes as events of special significance do anything to tip the scales against the taxpayer either for 1971 or for 1972. The taxpayer's tenancy of office premises from December 1970 enabled him to clear from his residence, being one of two flats in a freehold property bought by him in 1967, piles of newspapers containing racing results and stock exchange news. At the same time it gave him somewhere to have the terminal installed for the CALL/360 computer service which he used, so it seems to me, more to while away time pursuing his long-standing interest in electronics than as a means of establishing and maintaining an organized system of knowledge of betting as some sort of science. The particulars summarized by Mr. Fairleigh in para. 47-52 deny any such system. Taxpayer was and still is a bachelor who, so far as evidence shows, had no responsibility to anyone but himself - I am assuming that his father died before taxpayer resigned in January 1968. His personal and financial position allowed him to indulge himself with an office and computer service.

4. The Commission account which he opened in February 1971 with Automatic Totalisators Ltd. with a deposit of $10,000 and the telephone T.A.B. betting accounts relieved him from carrying so much more cash on his person at the races, but his use of such accounts does not serve to stamp his betting with the methods of business. He still bet intuitively, ``purely on my own volition'', according to his reaction to the way the betting odds moved.

5. It is conceded that taxpayer's credibility is not in issue. His stated preference for betting on the tote rather than with bookmakers may be peculiar as punters go - there is no evidence that it is - but the evidence here strongly supports him. In any event, as was said in
Martin v. F.C. of T. (1953) 90 C.L.R. 470 at p. 479 , ``No question of onus appears to us really to arise. It is simply a question of the right conclusion to draw from the whole of the evidence.''

6. Adopting what the Court said in Martin (C.L.R. 479): Is the extent to which taxpayer indulged in betting in 1971 and 1972 so considerable and systematic and organized that it can be said to exceed the activities of a keen punter and amount to the carrying on of a business as opposed to being no more than pursuit of a pastime which, however vigorous the pursuit may be, does not amount to the carrying on of a business the gains or losses from which are assessable income or allowable deductions?

7. There can be no doubt that his betting was very considerable, but I cannot see that it was also so ``systematic and organized'' as to distinguish it from the betting of another punter so wealthy that he can afford to indulge in betting on the same scale as the taxpayer even without his success, or to distinguish it from the betting of another who like ``the taxpayer could afford this indulgence since he was, on the evidence, so successful'' ( Martin C.L.R. 479-480).

8. In truth I do not think that what the Court said in Martin can be rightly adapted to provide a test applicable to such a case as this. There the Court was concerned as to whether or not ``the extent to which he indulged in betting and racing and breeding race horses '' (my emphasis) was ``so considerable and systematic and organized'' that it amounted to the carrying on of a business.

9. Here the taxpayer simply bet on horses and dogs; he was a punter and nothing more. His bets were many, but each was an individual act; a business denotes a distinct entity which is separate from its parts. In
Graham v. Green (1925) 2 K.B. 37 at p. 40 Rowlatt J. described it: ``A different conception arises, a conception of a trade or vocation which differs in its nature... from the individual acts which go to build it up, just as a bundle differs from odd sticks. You may say, I think, without perhaps an abuse of language, there is something organic about the whole which does not exist in its separate parts.''

10. In Graham the taxpayer's sole means of livelihood was derived from backing horses from his residence at starting price; he did it on a large and sustained scale. The General Commissioners held that his winnings were taxable, but Rowlatt J. allowed his appeal. The case fell to be determined under Schedule D of the Income Tax Act 1918. As described by Rowlatt J. the question was whether the winnings resulting from the taxpayer's sustained and continued betting were ``profits or gains of a `vocation' or possibly, as it might have been put, of a trade or adventure within the meaning of the general words of Case I'' or whether his winnings were ``profits or gains'' within Case VI which is the sweeping up provision of Schedule D.

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11. His Honour held that the winnings were not ``profits or gains'' within Case VI at pp. 39-40 thus: -

``A bet is merely an irrational agreement that one person should pay another person something on the happening of an event. A agrees to pay B something if C's horse runs quicker than D's or if a coin comes one side up rather than the other side up. There is no relevance at all between the event and the acquisition of property. The event does not really produce it at all. It rests, as I say, on a mere irrational agreement. So much for Case 6.''

12. He went on to deal with Cases I and II at p. 42: ``I do not think he (a punter) could be said to organize his effort in the same way as a bookmaker organizes his, for I do not think the subject matter from his point of view is susceptible of it .... But it does not seem that one can find, in his case, any conception arising in which his individual operations can be said to be merged in the way that particular operations are merged in the conception of a trade.... It is extremely difficult to express, but it seems to me that people would say he is addicted to betting, and could not say that his vocation is betting.... I do not think `habitual' or even `systematic' fully describes what is essential in the phrase `trade, adventure, employment or vocation'.'' In the words I have emphasized Rowlatt J. was plainly saying that punting cannot amount to a business.

13. The case of Graham was cited with approval in Martin (C.L.R. 481). There is not really a difference between the concept of income and that of profit or of gain which is significant for the purpose of answering questions arising under the Australian Act: per Walsh J. in
J. Rowe & Son Pty. Ltd. v. F.C. of T. 71 ATC 4001 at p. 4008; (1970) 124 C.L.R. 421 at p. 433 and per Gibbs J. in
International Nickel Australia v. F.C. of T. 77 ATC 4383 at p. 4386 .

14. I would allow the taxpayer's objections for all six years and amend each assessment accordingly.