Edited version of private advice

Authorisation Number: 1051821051851

Date of advice: 26 March 2021

Ruling

Subject: Am I in business - gambling

Question 1

Are proceeds received from your poker activities assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

Question 2

Can deductions be claimed for expenses relating to your poker activities under section 8-1 of the ITAA 1997?

Answer

No

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Until Month 20XX you worked as a XXXX for Company A Pty Ltd on a casual basis.

You are currently unemployed.

You participate in gambling activities both online and in live face-to-face environments.

You are principally engaged in this activity for the purpose of profit.

There is no set system to your activities.

You usually bet between $X and $X per game, occasionally slightly more. This equates to an average of $X to $X per week.

You do not like to put yourself in a position to lose more than $X at any one time.

Your largest win to date is $X however this was very uncommon.

In addition to winnings you are sometimes provided 'incentives' connected to your gambling activities.

As at X Month 20XX your accumulated profit from gambling activities and incentives over the last 12 months was $XX.

You do not have a business plan.

You do not prepare budgets or forward plan in relation to your gambling activity.

You do not hold a separate bank account for your poker activities but use your personal bank accounts.

You have not drawn any credit account or loan to fund your gambling activities.

Your gambling activities are funded by your own savings.

You do not keep a spreadsheet or use any accounting software to keep records of your wins and losses. However, you have an app that you use for face-to-face play that allows you to record the duration of play and win/loss results.

For online activities you record your results by hand.

You have no formal degrees or qualifications in relation to your gambling activities. However, you have completed two online training packages from websites which provide online poker study.

Aside from this training you rely on your previous gambling experience, intuition, discussions with other gamblers, and information available on the internet to guide your decisions.

You have advised you may recommence casual employment in the near future with a company providing gambling related commentary, analysis and coaching.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Subsection 6-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that assessable income is made up of both ordinary income and statutory income.

Ordinary income

Under subsection 6-5(2) of the ITAA 1997, the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources during the income year.

Ordinary income has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business.

Carrying on a business

Section 995-1 of the ITAA 1997 defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'.

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

Taxation Ruling IT 2655 Income tax: betting and gambling - whether taxpayer carrying on business of betting or gambling discusses the Commissioner's opinion on whether betting and 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. If a taxpayer is involved in other business activities in the racing industry, it will be more likely that betting activities are of a business nature.

There have been numerous Federal Court cases relating to the issue of whether a taxpayer was carrying on a business of betting or gambling. However the criteria in Brajkovich v. FC of T 89 ATC 5227; (1989) 20 ATR 1570 (Brajkovich) and the factors considered in Evans v. FC of T 89 ATC 4540; (1989) 20 ATR 922 (Evans' case), Babka v. FC of T 89 ATC 5227; (1989) 20 ATR 1570 (Babka's case) and Prince v. FC of T (1959) 7 AITR 505; 12 ATD 45 (Prince's case), should be used to determine if a taxpayer is carrying on a business of gambling.

In Brajkovich, the court identified the following principal 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;
2. its scale: i.e. the size of the wins and losses;
3. whether the betting is related to, or part of, other activities of a businesslike character, e.g. breeding horses;
4. whether the bettor appears to engage in his activity principally for profit or principally for pleasure;
5. whether the form of betting chosen is likely to reward skill and judgment or depends purely on chance;
6. whether the gambling activity in question is of a kind which is ordinarily thought of as a hobby or pastime.

No one factor is decisive, and they must be considered in combination and as a whole.

Statutory income

Statutory income includes amounts that are not ordinary income but are included as assessable income by provisions of the tax law.

There is no provision of tax law that includes income received from your gambling activities as statutory income.

Application to your situation

In your case, the gambling activities you engage in are not are conducted in a systematic or businesslike way. You do not have a business plan and you maintain minimal records of your activities. The scale on which you compete is relatively small as you ensure you are generally not able to lose more than $X at a time and while your largest win to date was $XX, this was quite unusual. While you are currently unemployed and participate in your gambling activity principally for profit, your gambling activities are not related to any other activities you are currently involved in and are unrelated to your previous employment. Even though you have gained experience in gambling activities completed two online training packages from websites which provide online study, it is still considered that your overall financial gains will generally be dependent on chance rather than skill. Further participation in gambling activities is ordinarily thought of as a hobby or played for fun.

Therefore, you are not considered to be carrying on a business and the winnings you receive in relation to this activity are not assessable under section 6-5 of the ITAA 1997. Furthermore, the expenses related to the activity are not deductible under section 8-1 of the ITAA 1997.

Future years

You should note that conducting an activity that has been described as a hobby is a 'status'. You can change from conducting an activity as a hobby to that of being in business and vice-versa over time as your level of activity changes. Therefore, you should evaluate your level of activity on a regular basis to see whether you are conducting a hobby or carrying on a business.

You had requested the Commissioner to provide you with a private ruling for a period from XXXX onwards, indefinitely. Due to the possibility of changes in your circumstances, the possibility of change to the law, and the risk that a subsequently issued public ruling might override a private ruling the Commissioner has issued, the Commissioner has provided a private ruling from 1 July 20XX until the 30 June 20XX only. You may request a further ruling after this time if you require further binding advice.

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