Edited version of private advice

Authorisation Number: 1052393749301

Date of advice: 08 May 2025

Ruling

Subject: Assessable income

Question 1

Will receipts from your personal gambling activities be taxable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

After becoming chronically unwell, you have been unable to work for several years. You have not applied for a disability pension as you have been actively managing your investments since becoming unwell and have received substantial income.

You recently commenced undertaking gambling activities. This was on an online gambling website which allows gambling on the outcomes of events using a United States dollar pegged cryptocurrency known as USDC.

You undertake gambling activities regarding numerous events, particularly geopolitical issues. You have a parallel interest in these issues and have decided to undertake gambling activities regarding these matters as they continue to appear in the media. You decide the specific events to undertake your gambling activities by keeping yourself informed with the relevant subject matter. You refrain from undertaking gambling activities regarding events which you deem to be overly sensitive.

You initially decided to undertake gambling activities for recreational purposes. You expected to lose your deposit and would then cease the activities. You instead found the activities to be extremely and consistently profitable. At the time of preparing your application for this private ruling, the amount of capital you have invested was $X USDC and you had incurred $X USDC in gains.

You spend 1 to 2 hours each day conducting research and placing bets. You have minimal systems in place. You have some risk management rules. You occasionally use a spreadsheet to carry out your activities. Your gambling activities are not related to any other activities of a businesslike character.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Reasons for decision

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 3 categories, namely, income from rendering personal services, income from property and income from carrying on a business.

The Commissioner has published their views in relation to whether a taxpayer is carrying on a business of gambling in Taxation Ruling IT 2655 Income tax: betting and gambling - whether taxpayer carrying on business of betting or gambling (IT 2655).

IT 2655 privileges the 6 principal criteria for determining whether a person is in the business of betting as identified in Brajkovich v. F.C. of T. 89 ATC 5227; (1989) 20 ATR 1570 (Brajkovich). These are:

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

2.            The scale of the betting activities;

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

4.            Whether the activity is 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; and

6.            Whether the activity is of a kind ordinarily thought of as a hobby or pastime.

In Babka v F.C. of T. 89 ATC 4963; (1989) 20 ATR 1251 (Babka), Hill J used the examples of the activities of bookmakers and futures traders. Although both bookmakers' and futures traders' activities involve a degree of chance, they can reduce the odds to the point where there is sufficient skill to see the activity as being directed to profit in a systematic and businesslike way. Both bookmakers and futures traders have some impact on the profit to be derived. Their Honour discussed the possibility of the existence of 'professional punters':

In ordinary usage we recognise the possibility of mere punting being a business when we speak of the "professional punter" meaning thereby one of whom it could be said that placing bets is his vocation and I am inclined, particularly with the growth of modern technology such as computers, to think that there may be cases today, even if there were not at the time when Rowlatt J. decided Graham v. Green, where the activity of betting has become so organised, systematic and businesslike and is carried on with such dedication to potential profit that the man in the street would recognise that activity to be a business. That being so, I propose to proceed on the assumption that mere punting may constitute a business although the intrusion of chance into the activity as a predominant ingredient at least in the outcome of the race itself does suggest to me that it will be a rare case where a court will conclude that the activity is a business.

Application to your circumstances

The facts applicable to your gambling activities are reviewed below by reference to the criteria identified.

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

You have minimal systems in place. You only have some risk management rules. You occasionally use a spreadsheet to assist in determining the bets to place. You have found your activities to be profitable; however, your behaviours are indistinguishable from the typical gambler. You do not have any other occupation or business activities that are complementary to this activity.

(2) The scale of the betting activities

You place bets on the outcomes of numerous events, but you particularly place bets regarding geopolitical issues. The amount of capital you have engaged in your gambling activities is $X USDC. The winnings you have incurred are $X USDC.

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

You do not conduct any other business activities that are similar in nature. You have also been unable to work but have received substantial income from actively managing other investments.

(4) Whether the activity is principally for profit or principally for pleasure

You use a spreadsheet to assist with your gambling activity. Despite this, you have an interest and are informed about the issues in which you undertake your gambling activities. You have minimal systems in place and your behaviours are indistinguishable from the typical gambler. Your activities are essentially being conducted as a single person operation. You have also received substantial income from other investments.

(5) Whether the form of betting chosen is likely to reward skill and judgment or depends purely on chance

Your methodology requires that you use your skill and judgement to determine the outcomes which you gamble over. The use of spreadsheets assists you with deciding on potential outcomes but does not obviate that the outcome is dependent on chance. There is no automatic or constant guaranteed return from the betting activities. While the element of chance may have been mitigated to some degree by the methodology you employ, the degree of chance, as described by Hill J in Babka, has not been reduced to the level that would be expected when conducting a business of gambling.

(6) Whether the activity is of a kind ordinarily thought of as a hobby or pastime

Betting is ordinarily thought of as a hobby or pastime rather than engaging in a business.

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 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.

In Babka, the taxpayer's activities were not so considerable, systematic and organised 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.

Based on the circumstances of your gambling activities, for the period in question, whilst balancing the scale of the betting volumes with the small scale of the operational aspects of the betting activity, the Commissioner's view is that the betting or gambling activities in your case are indicative of a hobby or pastime.

The lack of systemic businesslike organisation and/or syndicate like activity indicate that there is a significant element of chance in placing your bets. Accordingly, your activities are not considered to constitute the carrying on of a business of betting or gambling. Any winnings received from your betting activities are therefore not assessable income under ordinary concepts.

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