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Edited version of private ruling
Authorisation Number: 1011494971062
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Ruling
Subject: Assessable income
Question
Is the income you receive from your gambling activities assessable?
Answer: No.
This ruling applies for the following period:
Year ended 30 June 2010
The scheme commences on:
Relevant facts and circumstances
You have established a sports trading system.
You purchase odds at a certain rate and aim to sell the odds at a higher rate. You have chosen to purchase and sell odds relating to a specified sport.
You use an on-line betting exchange to place bets on the specified sport around the world. You have no interest in the outcome of the sport. You use the specified sport as a means to buy and sell odds.
In determining which trades to make you use historical charts from the on-line betting exchange. These charts show the movements in odds over the last 5 to 10 minutes.
You commenced the activity with less than $1,000 capital from your savings. You have purchased a computer and software to assist you. You do your trades from home.
You will keep a basic profit and loss statement and records of expenses such as internet fees.
You do not have a separate bank account for this activity.
You have researched this activity through the internet and have joined on-line communities for advice and education.
Each day you research market histories and improve your skill base before the markets open.
You do not research the specific sport as you believe the outcome of the sport is irrelevant to your activity.
You do not have any other form of income. You have commenced this activity for the purpose of making a profit.
Relevant legislative rrovisions
Income Tax Assessment Act 1997 Section 6-5.
Reasons for decision
Summary
The income you receive from your gambling activities is not assessable. Conversely, any expenses you incur which relate to your gambling activities are not deductible.
Detailed reasons for decision
Profits from gambling wins are not assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) unless you carry on a business of betting or gambling.
Taxation Ruling IT 2655 discusses the Commissioner's opinion regarding carrying on a business of gambling.
Ultimately each case will depend on its own facts.
No decided Australian court case has found that the winnings of a mere punter are assessable (or that the losses are deductible).
Mere punting may constitute a business, however the element of chance 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:
- Whether the betting is conducted in a systematic, organised and businesslike way
- The scale of the gambling activities. In Brajkovich the taxpayer bet over $950,000 in three years and was involved in horse racing but was found not to be carrying on a business of gambling.
- Whether betting is related to or part of other activities of a businesslike character
- Is the gambling activity principally for profit or principally for pleasure?
- Whether the form of betting chosen is likely to reward skill and judgement or depends purely on chance
- Whether the gambling activity is of a kind ordinarily thought of as a hobby or pastime.
Application to your circumstances
We have determined that you do not carry on a business of gambling. We have based our decision on the indicators in IT 2655 after considering the following factors:
- you have described your activity as a trading system and not gambling. This is because your focus is on the odds available and their movement and not the outcome of the sport
- you have undertaken the activity with the purpose of making a profit. You do not bet on the sport for pleasure
- you make a bet that there will be a win or a lose. A bet is made at certain odds. When those odds move you then make an opposing bet.
- whilst this strategy minimises the element of chance, your overall gains are dependent on chance rather than skill. It is the combined abilities of those involved in the sport that determines the outcome and whether you profit or gain from your bets
- you do not rent an office or employ staff. You use a computer program to assist in determining which bets to make. You intend to keep basic profit and loss records and details of expenses incurred
- the scale of your gambling activities is relatively small
- you do not have any other business activity related to your betting activity.
The winnings you receive in relation to this activity are not assessable under section 6-5 of the ITAA 1997.