Edited version of private ruling

Authorisation Number: 1011579280066

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Ruling

Subject: Business Vs Hobby

1. Is the money received by the taxpayer from gambling on horse races assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No.

2. Is the money received by the taxpayer for the supply of betting tips to friends and make a profit. assessable income under section 6-5 of the ITAA 1997?

No.

The scheme commenced on:

1 July 2003

Relevant facts

You do not have a business plan.

You do not have specialised skills.

You have not invested any capital for betting.

You have not done any market research.

You spend about four hours per week on betting.

You do not give quotes or invoices.

You do not advertise.

You do not have a website.

You do not have an ABN and not registered for GST.

You have some prior experience.

You use your computer for selections.

We have issued you a ruling for the periods 2003, 2004 and 2005.

You have now requested a ruling from 1 July 2009 to 30 June 2015.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Reason for Decision

Betting and gambling wins are not assessable under section 6-5 (and losses are not deductible under section 8-1) of the ITAA 1997 unless you are carrying on a business of betting or gambling.

Income Tax Ruling IT2655 discusses the Commissioner's opinion on whether gambling can be considered to be carrying on a business. This ruling states at paragraph 7:

Ultimately each case will depend on its own facts. There is no Australian case in which the winnings of a mere punter have been held to be assessable (or the losses deductible). As Hill J stated in Babka v FC of T 89 ATC 4963; (1989) 20 ATR 1251, although mere punting may constitute a business, "the intrusion of chance into the activity as a predominant ingredient" will generally preclude such a finding.

The court in Brajkovich v. FC of T 89 ATC 5227; (1989) 20 ATR 1570, have identified "principal criteria" for determining whether or not a person is in the business of gambling. These criteria are:

1. Whether the betting is conducted in a systematic, organised and businesslike way.

Courts have held that to determine this issue it is necessary to examine the manner in which the taxpayer conducted his gambling activities, that is, did they rent an office, employ staff, use a database for form guides or to calculate the odds, did they take steps to lessen and exclude the element of chance, did they maintain adequate records or their position from day to day and week to week.

In your case, from the information supplied, you do not rent an office or employ staff. You do not use a computer for form guides or to calculate the odds. You also:

· have no business plan

· have no specialised skills

· have no prior experience in this field

· have no capital invested

· have not done any market research

· spend two hours per week on the activity

· do not advertise nor gives quotes

· are not a registered business

· do not have website

· do not actively look for more people to give selections to

· do not have an ABN, and

· are not registered for GST.

Your activities do not appear to be systematic or organised and therefore not businesslike.

2. The scale of the gambling activities, that is, the size of wins and losses

The taxpayer's activities in terms of volume and size of bets are significant in most forms of gambling. However, the court in Evans v FC of T 89 ATC 4540; (1989) 20 ATR 922, has said that scale of itself is not determinative of the outcome.

You have not stated the size of your wins and/or losses.

3. Whether betting is related to or part of other activities of a businesslike character, eg. breeding horses

In most cases where there is a finding that a taxpayer is carrying on a business of betting or gambling, the betting transactions are connected with some other activity which itself constitutes a business carried on by the taxpayer, for example, breeding or training horses: Prince v FC of T (1959) 12 ATD 45; (1959) 7 AITR 505. In that case, the taxpayer conducted a business as a bookmaker and also had interests in horse training businesses, and so on.

In your case, you have stated you are a full time employee and have been employed at the same place for nine years and have no intention of leaving for quite a number of years. From the information supplied, the betting is not related to another activity which has a businesslike character.

4. Whether the punter appears to engage in his activity principally for profit or principally for pleasure.

The courts have found that such issues as attendance at the race meeting, a passion for gambling, and so on, need to be considered when concluding whether the activities are conducted for profit or pleasure.

In Brajkovich the court said "…the gambler who seeks to demonstrate that he is … a businessman has more to show than those who engage in more conventionally 'commercial' activities".

You have stated you like to have an investment on horses on Saturday afternoons. You also spend a lot of time on the internet chatting to other good horse racing friends in chat rooms. You also consider your activity to be a hobby or a recreational pastime.

5. Whether the form of betting chosen is likely to reward skill and judgement or depends purely on chance.

In Brajkovich the court said, when addressing this issue on page 5233:

Gambling which involves a significant element of skill, for example a professional golfer's betting on himself, is more likely to have tax consequences than gambling on merely random events. It is difficult to imagine how people in the latter category could be regarded as in a gambling business. Particularly this is so where the house takes a percentage, so that the overall result is necessarily a continual diminution of the collective funds of the customers. Although many roulette players sometimes earn substantial sums by their efforts, it is hard to see how one could characterise as a business playing a game in which the results are (or should be) purely random and in which there is a high probability that each player will lose in the long run.

You have not stated what skill or judgement is used for your activity. However, given the nature of the horse racing industry (random events) it appears that even if you possessed a vast knowledge of the industry it would not alter the fact that you are still gambling on a random event, therefore your overall gains are dependant on chance rather than skill.

6. Whether the gambling activity in question is of a kind which is ordinarily thought of as a hobby or pastime.

The type of activity undertaken, for example card games, roulette, attendance at races and betting on sporting events, are ordinarily thought of as a hobby or pastime rather than engaging in a business.

Betting on racehorses is considered to be a very popular pastime for the vast majority of punters. (Bookmakers excluded).

Conclusion

In Babka it was held:

· a taxpayer who did no more than bet could never be regarded as carrying on a business, regardless of the frequency, scale or system-based nature of betting. A pastime does not turn into a business merely because a person devotes considerable time to it and has retired from a previous full time profession

· although mere punting, especially with the aid of computers, can now be so systematic and dedicated to profit making that it may constitute a business, the intrusion of chance into the activity as a dominant ingredient will usually preclude such a finding.

On the basis of all the indicators above, and in light of the decision in Babka's case, you are not currently carrying on a business of gambling, and as such, your income from gambling gains is not assessable.

You have also asked whether the proposed income from passing on your horse racing tips to good horse racing friends and possibly receiving reward is assessable. As stated earlier, your gambling activity is considered a hobby and not a business and therefore any income is not assessable. As your horse racing friends receive tips which are based on chance, it is considered any income received in this manner is not considered assessable.

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