Edited version of private ruling

Authorisation Number: 1011638486313

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Ruling

Subject: Business v Hobby

1. Is the income you receive from gambling assessable?

No.

2. Can you claim deductions related to your gambling activities?

No.

This ruling applies for the following period

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commenced on

1 July 2008

Relevant facts

You engaged in gambling activities in your spare time. You are not employed in any other occupation apart from maintaining your household for your family.

You gamble on overseas and Australian sporting events (mostly on one particular sport of which you are a passionate fan).

You bet before and during games, mostly online.

Some weeks you bet everyday and some weeks you don't bet at all.

You are not an expert on the sport which you follow the most, you are merely a fan. You watch sports, day and night.

Your bets can be over $1,000 and if you are very confident, the amount is significantly more.

You estimate your winnings during the 2009-10 income year to be many thousands of dollars. However, you do not keep records of your gambling activities. You have no office or employees.

You describe your gambling as a hobby or recreational activity that enhances your enjoyment of the game.

You have gambled since it became legal for you to do so.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature.

Betting and gambling wins are not assessable and losses are not deductible unless you are carrying on a business of betting or gambling.

Taxation Ruling IT 2655 discusses the Commissioner's opinion on whether a taxpayer is considered to be carrying on a business of gambling.

At paragraph 7, IT 2655 states:

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(Babka's Case), 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 (Brajkovich), identified the following criteria for determining whether or not a person is in the business of gambling:

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 conducts their gambling activities, that is, whether they rent an office, employ staff, use a database to calculate the odds, take steps to lessen and exclude the element of chance and whether they maintain adequate records.

You do not rent an office or employ staff. You state that you do not keep records of your gambling activities and you have not provided any evidence of any strategies or sophisticated systems or techniques used.

2. The scale of the gambling activities

Your gambling activities, in terms of volume and size of bets, are conducted on a significant scale. However, the Court in Evans v. FC of T 89 ATC 4540; (1989) 20 ATR 922 said that scale of itself is not determinative of the outcome.

The Court did not consider Brajkovich, who bet over $950,000 over three years and who was involved in horse training, to be carrying on a business of gambling.

3. Whether betting is related to or part of other activities of a businesslike character, for example, 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 this case, the taxpayer conducted a business as a bookmaker and also had interests in horse training businesses.

You have not shown that your betting is related to or part of any other business.

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 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 conduct your activity in your spare time and you state that your gambling is a 'hobby'. This supports the view that you do not carry on a business of gambling even though you may endeavour to earn a profit from it.

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

In Brajkovich the Court said:

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 choose what sports to gamble on and how much to wager, however, any gains you make appear to be 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, that is, betting on sporting events, is ordinarily thought of as a hobby or pastime rather than engaging in a business.

In Babka's Case it was held that the taxpayer's activities were not so considerable, systematic and organised that they could be said to exceed those of a keen follower of the turf and that the element of chance as a dominant ingredient will usually preclude such a finding.

Similarly, we have determined that you are not carrying on a business of gambling. We have based our decision on the indicators from IT 2655 and the decision in Babka's Case.

Therefore, any winnings you receive in relation to your gambling activity are not assessable and the losses related to the activity are not deductible.

Other information

If you had no other receipts in an income year apart from your gambling winnings then it is unlikely that you would be required to lodge a tax return for that year. However, please utilise our tool 'Do I need to lodge a tax return' which is available on our website.

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