Edited version of private ruling

Authorisation Number: 1011770056680

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Am I in business-gambling

Question 1

Is the income you receive from betting and gambling assessable?

Answer: No

Question 2

Can you claim deductions for expenses relating to your betting and gambling activities?

Answer: No

Question 3

Are you, as a member of the syndicate, considered a partner in a partnership for tax purposes?

Answer: No

This ruling applies for the following period

Year ended 30 June 2009

Year ended 30 June 2010

Year ending 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commenced on

1 July 2008

Relevant facts

You are a member of a betting syndicate.

There is no formal agreement in place between you and other syndicate members, nor is a formal agreement contemplated.

You had undertaken little research or sought prior advice and assistance prior to entering into the syndicate.

The syndicate, of which you are a member, has no formal business plan in relation to its gambling activities.

You have not undertaken any research into the projected income in regards to the syndicate.

The syndicate intends to use a computer program to sort, compare and analyse the available data to gamble in an attempt to predict probable outcomes.

The primary focus of the syndicate will be betting and gambling on both local and overseas horse and dog racing, that is thoroughbred, harness and greyhound racing.

The syndicate also intends to bet on the outcome of other sporting events both in Australia and overseas such as soccer, rugby league and rugby union.

You, as a member of the syndicate, will bet primarily through totalisators and betting exchanges, although the use of traditional bookmakers may be considered in the future.

The syndicate will operate from premises owned by a member as it requires television screens and computer equipment to carry on its activities. This member will not charge rent from the syndicate for the use of the premises.

You and the other members of the syndicate will provide funding, operational and administrative support to the syndicate.

You are not an employee of the syndicate.

The syndicate does not have any employees although it is expected the syndicate may need to contract various people or companies for computer programming and operational resources on arm's length terms in the future, for example, internet provision and data providers.

The gambling activities of the syndicate of which you are a member will not be undertaken in association with any other related activities such as horse breeding or training.

You, as a member of the syndicate, do not have access to insider information such as information from jockeys or trainers. Information will only be sourced from form guides, race results and other information which is available to the general public.

You, as a member of the syndicate, intend to bet a number of days a week. A large amount of bets may occur each week as part of the syndicate's gambling activity.

The syndicate will monitor progress via an internal program using commercially available software.

You will operate your own bank account and any settling between other members will occur on a monthly basis or when deemed necessary.

You as a member of the syndicate may hold accounts with overseas totalisator or betting exchanges.

The syndicate expects a large amount of funds may be required to fund the cash flow of its activities.

You do not intend to seek bank finance to fund the gambling activity.

The software program will generate the recommended bets however, you as a syndicate member, can manually vary the amounts bet on any particular transaction.

The computerised setup of the syndicate will be able to be accessed by you via your home computer.

You spend a small amount of time per week on betting activities.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 6-5(2)

Income Tax Assessment Act 1997 section 6-10

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 paragraph 118-37(1)(c)

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1936 section 6(1)

Reasons for decision

Under subsection 6-5(2) of the Income Tax Assessment Act 1997 (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.

Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income but are included in assessable income by another provision, are called statutory income and are also included in assessable income.

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 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.

Three federal court cases known as Brajkovich v. Federal Commissioner of Taxation 89 ATC 5227; (1989) 20 ATR 1570 (Brajkovich's case), Evans v. Federal Commissioner of Taxation 89 ATC 4540; (1989) 20 ATR 922 (Evan's case) and Babka v. Federal Commissioner of Taxation 89 ATC 4963; (1989) 20 ATR 1251 (Babka's case) relate to the issue of whether a taxpayer was carrying on a business of betting or gambling

The court in Brajkovich's case, identified the following criteria for determining whether or not a person is in the business of gambling. These 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 gambling activities are conducted. For example, did the taxpayer rent an office, employ staff, use a database to calculate odds, take steps to lessen and exclude the element of chance and maintain adequate records?

2. The scale of the gambling activities

The volume and size of bets are significant in most forms of gambling. However, the Court in Evan's case found that scale itself is not determinative of the outcome.

The taxpayer in Brajkovich's case did not carry on a business of gambling. The taxpayer bet over $950,000 in three years and was involved in horse training.

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

Generally where 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). The taxpayer in that case conducted a business as a bookmaker and also had interests in a horse training business.

4. Whether the gambling activity is principally for profit or principally for pleasure?

In Brajkovich's case 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".

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

In Brajkovich's case 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…

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

Betting on horse racing and other sporting events is ordinarily thought of as a hobby or pastime rather than engaging in a business.

In 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.

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

Applying the criteria to your circumstances

We have determined in your circumstances that you are not in the business of gambling. We have based our decision on the indicators from IT 2655 and the court cases noted above. You are not employed by the syndicate; you don't rent an office or employ any staff in relation to this activity. While you, as a member of the syndicate, will use a computer program to analyse data, keep records using a commercially available software program, place bets for the syndicate through totalisation and online betting agencies and spend an amount of future time and effort in relation to the betting activity, these factors alone do not lend itself to the existence of a business. As in Babka's case your activities as a member of the syndicate can not be said to exceed that of a keen follower of sports.

The volume of the betting is considerable as the syndicate intends to place a large amount of bets per week. However, as noted in Evan's case this is not determinative as to whether a business is being carried on. Your betting activity is not related to, or part of, any other business activity.

Although the syndicate will have a computer program to assist in predicting probable outcomes of bets placed, there is still a high element of chance involved. By using your techniques to choose which horses and events to bet on, you may have reduced the odds on your gambling activities. However, it does not allow you to have any control over the way that other gamblers place their bets in the market to form the odds or how team changes in regards to sporting events and other information may affect the markets in which the betting activities are undertaken. Ultimately, your winnings or losses, as a syndicate member, in placing any one bet on any one race or sporting event are dependant on chance rather than a specific skill.

Therefore, any winnings you receive, as a member of the syndicate, in relation to the betting activity are not assessable under section 6-5 of the ITAA 1997 and any expenses related to the activity will not be deductible under section 8-1 of the ITAA 1997.

According to section 995-1 of the ITAA 1997 a partnership means:

(c) an association of persons (other than a company or a limited partnership) carrying on business as partners or in receipt of ordinary income or statutory income jointly; or

(d) a limited partnership.

As the syndicate will not be carrying on a business and will not be in receipt of ordinary or statutory income, will not be a limited partnership, there will not be a partnership for tax purposes. Therefore, you are not a partner in a partnership for tax purposes.

No other provision of the ITAA 1997 applies to your betting activities. As such, your winnings are not assessable and the associated losses are not allowable deductions