Edited version of private ruling

Authorisation Number: 1011849395394

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Ruling

Subject: gambling income

Question 1

Are winnings received from betting and gambling on horse racing assessable income?

Answer:

No.

Question 2

Are losses incurred in connection with betting and gambling allowable deductions?

Answer:

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 are retired and betting is your main interest.

You have no involvement in the horse industry nor have you developed an interest in the training or welfare of horses.

You have studied reports of results of many races and developed an intuition for picking winners, over a long period of time.

You considered your betting activities to be a hobby which you purse in your leisure time.

You bet online and have accounts with various bookmakers.

You use different online bookmakers so as to spread your wagers around so as to not attract attention from any one bookmaker.

You can spend eight hours or more daily on your betting, and will sometimes stay up sixteen hours straight if you feel you are on a winning streak.

You do not maintain an office (apart from at home) nor employ any staff.

You do not subscribe to any tipping or information services.

You have a personal computer to access your various betting accounts and use a home landline as required to place bets.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Betting and gambling wins are not assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), unless you are carrying on a business of betting or gambling. 

Betting and gambling losses are not deductible under section 8-1 of the ITAA 1997 unless you carry on a business of betting or gambling.

Taxation Ruling IT 2655 discusses the Commissioner's opinion on whether you are 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, 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 principal criteria for determining whether or not a person is in the business of gambling.

The 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 their 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.

You do not rent an office or employ staff nor do you subscribe to any tipping or information services.

2. The scale of the gambling activities, i.e., 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 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.

This supports the view that you are not carrying on a business of gambling.

3. Whether betting is related to or part of other activities of a businesslike character

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) 7 AITR 505; 12 ATD 45). In this case, the taxpayer conducted a business as a bookmaker and also had interests in horse training businesses.

You have no involvement in the horse industry besides the betting activities. This supports the view that you are not carrying on a business of gambling.

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, etc., 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 regard your activity as a hobby which you pursue in your leisure time. This supports the view that you do not carry on a business of gambling even though you are endeavouring 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 races to gamble on and how much to wager, however, 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, that is, betting on sporting events, is ordinarily thought of as a hobby or pastime rather than engaging in a business.

In Babka v. FC of T 89 ATC 4963; (1989) 20 ATR 1251 (Babka's Case) 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 the 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;

· The taxpayer's activities fell short of carrying on a business. They were not so considerable and systematic and organised that they could be said to exceed those of a keen follower of the turf; and

· 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.

Application to your circumstances

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.

The winnings you receive in relation to this activity are not assessable under section 6-5 or section 6-10 of the ITAA 1997. The expenses related to the activity are not deductible under section 8-1 of the ITAA 1997.

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