Edited version of your private ruling

Authorisation Number: 1012526734332

Ruling

Subject: Personal gambling activities - Am I in business

Question:

Do your personal gambling activities constitute a business which requires the net gambling proceeds to be returned as assessable income (or deductible loss)?

Answer:

No.

This ruling applies for the following period(s)

Year ended 30 June 2013.

Year ended 30 June 2014.

Year ended 30 June 2015.

Year ended 30 June 2016.

The scheme commences on

1 July 2012.

Relevant facts and circumstances

You undertake personal betting and gambling on a regular basis. You have a passion for gambling. You have stated that your betting is primarily on sports betting, however your range of betting activities include:

· Blackjack (at Casinos in Australia and overseas);

· Poker (at Casinos in Australia, overseas and online);

· Roulette (at Casinos);

· Sports betting (almost all sports) - online (agencies and bookmakers);

· Keno (at Casinos);

· Outcomes of political / social events (wherever / whenever);

· Baccarat;

· Weight loss bets; and

· Board games.

You have not maintained betting records in relation to your personal gambling activity; however records are maintained by bookmakers and the online betting agencies. Your personal betting turnover varies wildly from year to year, however a peak turnover exceeding a significant amount in a single year has previously been achieved.

You have an interest in a wide range of sporting and other events. Most of these are covered by Australian and overseas bookmakers and betting sites. Once you have made a decision to bet, you make access to a bookmaking site, or telephone a bookmaker and place your wager. You personally place all the wagers and personally make the telephone calls to the bookmaker.

You have online access to gambling sites, all of which are freely available to the public at large. You do not use any special software to research, determine or place your bets. You watch television programmes and read published articles to form your view as to what, when and how much to bet. You do not have a subscription to any betting / gambling research services of any kind. All of your bets are based on your own experience and judgement and not software or technology.

You incur costs in relation to your personal gambling activity in the following areas:

· Internet;

· Telephone;

· Travel and accommodation;

· Depreciation on equipment;

· Pay TV (sport channels); and

· Poker buy-ins.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5,

Income Tax Assessment Act 1997 Section 6-10,

Income Tax Assessment Act 1997 Section 8-1,

Income Tax Assessment Act 1997 Section 118-37,

Income Tax Assessment Act 1997 Section 995-1,

Taxation Administration Act 1953 Section 359-5,

Taxation Administration Act 1953 Section 359-10,

Taxation Administration Act 1953 Section 359-15,

Taxation Administration Act 1953 Section 359-25 and

Taxation Administration Act 1953 Section 359-35.

Reasons for decision

Summary

We have determined that your participation in betting and gambling undertaken by you personally is not considered to be the carrying on of a business.

Therefore, the winnings you receive in relation to your personal betting and gambling activity will not be assessable and the losses and expenses related to the activity will not be deductible.

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; or conducting a business from which gambling is seen to be an integral component. If there is not a business, then the activities giving rise to the winnings will be no more than the pursuit of a pastime, no matter how vigorous the pursuit. Furthermore, gambling winnings and losses are specifically excluded from the capital gains and capital losses provisions of Part 3-1 section 118-37 of ITAA 1997.

A licensed casino operator or bookmaker will be carrying on a business; the income of such a business is assessable and the losses and outgoings deductible on ordinary principles. Private punters, on the other hand, have usually been held not to be carrying on business, no matter how dedicated and systematic the pursuit of their gambling activities may be.

There are suggestions in early cases that a taxpayer who is associated or identified with, say, the horse-racing industry in some capacity such as breeder or trainer, and who also bets in a systematic way, may be found to be carrying on a business so that the taxpayer's winnings are assessable and the losses deductible. Refer to 7 CTBR (NS) Case 46; 7 CTBR (NS) Case 72 and 8 CTBR (NS) Case 134.

As to private gamblers, there is a suggestion in the judgment of Hill J of the Federal Court in Babka v FCT (1989) 20 ATR 1251 at 1257; 89 ATC 4963 at 4968 (Babka) that it is possible to distinguish among different kinds of gambling on the basis of the degree to which pure chance affects the outcome of each wager, or whether the gambler's skill plays a significant part. On this basis, the skilful card player who plays every day and who can rely on his or her skill in, for example, memorising the cards played, is more likely to be found to be carrying on a business than a punter who concentrates on betting on horse and/or dog races, where he or she is in no position to affect the outcome.

The question of whether winnings are assessable and losses deductible therefore depends on the answer to the question, whether or not a business of gambling is being carried on.

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, although mere punting may constitute a business, the intrusion of chance into the activity 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), have identified 'principal criteria' for determining whether or not a person is in the business of gambling. Whilst these criteria generally relate to wagering activities in respect of horse racing they have general application to other forms of gambling.

These criteria include:

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, i.e. did he rent an office, employ staff, did he take steps to lessen and exclude the element of chance, did he maintain adequate records in respect of his position from day to day and week to week.

Your personal gambling activity does not exhibit any elements of being systematic, organised or businesslike. You do not rent an office or personally employ staff. You keep no account records of your personal gambling.

You do not use any specialised software to assist you in making bet selections. Your bet selection is based on experience, gut feel, public discussions and articles. Whilst your bet selection may be skilful it does not eliminate chance altogether.

Your personal gambling is not organised in such a way so as to gain a more favourable advantage or have a level of sophistication that eliminates chance, therefore this criterion is indicative of there being no business.

2. The scale of the gambling activities, i.e., the size of wins and losses.

It is not all together clear in terms of volume and size exactly what your wins and losses have, or will be for the private ruling period. However the impression gained is that your gambling activity varies wildly and is capable of significant wins and or significant losses. You have mentioned that you achieved a peak turnover of a very significant amount in a previous year.

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.  

Therefore in your case the scale of your personal gambling activities will not be determinative in deciding whether or not you are carrying on a business.

3. Whether betting is related to or part of other activities of a businesslike character, e.g. 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 chiropractor and then mortgage broker.

Your personal gambling activity is not carried out as an adjunct to any other business activity.

Therefore this criterion does not point to the conclusion that you are carrying on a business of 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 meetings, 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 have stated that you are a person who has a simple passion for gambling. Your gambling is undertaken in the hope and never the certain expectation that you will win.

It does appear that whilst you may gamble in the hope of making a profit that this is not a deciding factor in why you gamble, especially given that you have stated that your gambling results vary wildly from significant gains to significant losses. On balance it would appear that your personal gambling is undertaken principally for pleasure.

This criterion indicates you were not carrying on a business, even though it is preferable from your view that you make a profit from the activity.

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

In the case of Brajkovich it was established that there is a chance-to-skill spectrum and gains which depend on a significant element of skill are more likely to have tax consequences than 'gambling on merely random events' (Brajkovich at 5233 and 20 ATR 1570 at 1576-77).

The Commissioner is of the view that successful betting and gambling playing is still subject to the whims of chance. By the application of skill, you may have reduced your chances of a loss; however, your overall gains are dependant on chance rather than skill.

For you your personal gambling lacks a degree of control, your decision making is not made by a computer programme, therefore risk or the odds of loss are not reduced. Some of your gambling results would be purely random; the result would rely heavily on chance.

On consideration of your facts your personal betting / gambling activity lies towards the chance end of the chance to skill spectrum.

This criterion indicates you were not carrying on a business of gambling.

6. Whether the gambling activity in question is of a kind which is ordinarily thought of as a hobby or pastime. The private / recreational to commercial spectrum.

The more closely an activity is identified as undertaken for recreational purposes, the less likely it will have tax consequences.

Case X85 90 ATC 615; (1990) 21 ATR 3728, when considering the loss incurred by a taxpayer involved in a futures contract, it was stated at paragraph 13 that:

The essential question in the gambling cases is whether, by granting deductibility to the expenditure, the tax system is subsidising the personal 'consumption' activities of the taxpayer. It may seem strange, but I understand that there are Australians who view the losing of money at the racecourse or on other forms of gambling as a leisure pursuit.

The 'conventional' forms of gambling have a strong association with the concept of recreation and in some cases, are a social or community activity. In your case the kinds of gambling that you undertake have a strong link with recreation or with a social or community activity. You have stated that your personal betting is primarily sports betting. The type of personal gambling undertaken by you 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; and

The taxpayer's activities fell short of carrying on a business. They were not so considerable and systematic and organised that they could be said to exceed those of a keen follower of the turf.

Your recreational gambling pursuits involve betting primarily on sports betting, the element of chance is the dominant ingredient.

On a consideration of the overall facts in your case and those indicators discussed above, your circumstances push you at the private/recreational end of the private/recreational-to-commercial spectrum.

Conclusion

On the basis of all the indicators above, and in light of the decision in Babka's case, it has been determined that you are not carrying on a business of gambling and, as such, your winnings from your personal gambling is not assessable under section 6-5 of the ITAA 1997 and the losses and expenses related to the activity will not deductible under section 8-1 of the ITAA 1997.