Edited version of private ruling

Authorisation Number: 1011753640895

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Ruling

Subject: assessable income from gambling activities

Question 1

Were you in a business of professional gambling?

Answer

No.

Question 2

Are the amounts you received from your gambling activities assessable?

Answer

No.

This ruling applies for the following periods:

The year ended 30 June 2008

The scheme commences on:

1 January 2008

Relevant facts and circumstances

In 2008 you started paying poker again. For X months you played nearly every day as you were on the pension and did not have much else to do. During this time you were able to make money but would lose it again at the higher stakes tables.

During mid 2008 you played almost every day for one month. You made some money and won a trip through an online tournament.

You then left Australia for the Country A. During the trip to the Country A you lost minor monetary amounts.

You arrived home from the Country A and quit poker.

You kept daily records of your online games during 2008. These records have now been discarded. Over the period you played you made minor amounts of money.

You called yourself a professional poker player to others; however you felt that it was more of a hobby

Your aim was to make money and partly be successful at the game. In 2008 you had realised that you could be successful at the game and then quit.

During 2008 you were living on the pension and continued on the pension during your winnings months.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1997 Section 6-5

Reasons for decision

Assessable income

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

Under section 6-10 of the ITAA 1997 assessable income also includes statutory income. Statutory income includes amounts that are not ordinary income but are included as assessable income by provisions of the tax law.

Gambling income

Generally betting and gambling wins are not assessable under section 6-5 of the ITAA 1997. However if it can be determined that you are carrying on a business of betting or gambling then the amounts would be assessable.

Income Tax Ruling IT 2655 discusses the Commissioner's opinion on whether 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."(emphasis added).

The court in Brajkovich v FC of T 89 ATC 5227;(1989) 20 ATR 1570, identified "principal criteria" for determining whether or not a person is in the business of gambling. These criteria are as follows:

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

· The scale of the gambling activities, ie, the size of wins and losses.

· Whether betting is related to or part of other activities of a businesslike character, eg. breeding horses.

· Whether the punter appears to engage in his 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 in question is of a kind which is ordinarily thought of as a hobby or pastime.

These criteria have been discussed individually below.

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 his gambling activities, ie did he rent an office, employ staff, use a database or form guides to calculate the odds, did he take steps to lessen and exclude the element of chance, did he maintain adequate records or his position from day to day and week to week.

The following factors indicate that your activities were not being carried our in a systematic, organised and businesslike way:

· You did not rent an office or employ staff,

· You did not take steps to lessen and exclude the element of chance.

· You have now discarded of any records you had for this period.

It can therefore be established that you did not conduct your gambling activity in a systematic, organised and business like way.

2. The scale of the gambling activities, ie, 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, has said that scale of itself is not determinative of the outcome.

The Full Federal 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 seems to support the fact that you are not carrying on a business as your gambling activities are not on a large scale.

You have indicated that you made a total of minor amount of income from your activities. This amount is not of a large scale. Given the minor scale of your activities it can be concluded that you were not carrying on a business.

3. Whether betting is related to or part of other activities of a businesslike character, eg. 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) 7 AITR 505; 12 ATD 45; 33 ALJR 172). In this case, the taxpayer conducted a business as a bookmaker and also had interests in horse training businesses, etc.

Besides your gambling your only other form of income was from a disability support pension. Further your gambling activity was not related to any other forms of income earning you were undertaking. Specifically you did not have any related business that you were carrying on. As a result it does not appear that you were carrying on a business of professional 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 stated that you intended to undertake the gambling activity to make money in addition to being successful at the game. You have also indicated that your activity was more of a hobby. As a result it can be established that you engaged the activity for pleasure as you undertook it as a hobby.

As such this indicator adds weight to the conclusion that you were not carrying on a business.

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

In Brajkovich the court said, when addressing this issue on page 5233:

"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 were undertaking an activity where 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. It is possible to establish that your overall gains were 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.

In Babka v. FC of T 89 ATC 4963; (1989) 20 ATR 1251 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 type of activity you undertook was poker. Poker is ordinarily thought of as a hobby or pastime rather than engaging in a business. You undertook poker and it does not appear that this was carried out in a business like way. Consequently given your circumstances the gambling activities you undertook can be better described as a hobby or past time.

Conclusion on whether you carried on a business

Your activity was not very sophisticated. You do not rent an office, employ staff, or take steps to minimise the element of chance.

You regard your activity as a hobby even though you are trying to gain a profit from it.

Your gambling involves playing poker. Your overall gains are largely dependent on chance rather than skill.

Therefore you are not carrying on a business of gambling, and the winnings you received in relation to this activity are not assessable.