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Ruling

Subject: Am I in the business of gambling

Question 1

Are the winnings you receive from betting and gambling assessable?

Answer

No.

Question 2

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

Answer

No.

This ruling applies for the following period

Year ending 30 June 2012

Year ending 40 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

The scheme commenced on

1 July 2011

Relevant facts

You have invested a substantial amount of funds with a betting agency and work on picking horses on a Wednesday and Saturday.

You have been able over a while of trials, to work out a routine to determine which horse to pick.

You have enclosed a spreadsheet laying out the progress of events and amounts.

You make your living through a business unrelated to your betting activities.

This is a long term project for your self managed retirement.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 6-10

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

Reasons for decision

Summary

Your activities do not constitute the carrying on of a business for taxation purposes. Therefore, any money earned from the activity is not assessable income and you are not entitled to deduct expenses incurred relating to your betting and gambling activities.

Detailed reasoning

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.

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent that they are incurred in gaining or producing assessable income, or necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt 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 regarding carrying on a business of gambling. It states:

· 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's case) identified the 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. The scale of the gambling activities. In Brajkovich's case 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. 

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

4. Is the gambling 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 is of a kind ordinarily thought of as a hobby or pastime. In Babka v. FC of T 89 ATC 4963; (1989) 20 ATR 1251 (Babka's case) it was held:

…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, court held that 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 a finding that punting constitutes a business.

In your case, the information provided indicates the activity is not carried on in a systematic, organised and businesslike way. The scale of your betting activity is small when compared to Brajkovich's case. In addition, you do not have any other business activity related to your betting and gambling activity. While you use your own judgement and carry out research as to which horse may win a certain race, your overall gains remain highly dependent on chance.

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