Edited version of private advice

Authorisation Number: 1012650350826

Ruling

Subject: Am I in business

Question 1

Are the receipts 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

Will this ruling cover each member of your punters club?

Answer

No, each member will need to apply for their own private ruling.

This ruling applies for the following periods:

Year ending 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

The scheme commences on:

1 July 2013

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You bet on horse racing, greyhound racing, sports and other events.

You have no connection to racing or sporting industries.

You generally bet from a computer in your bedroom.

You will bet for a few days in a row and then have weeks off.

You started a punting club with some friends that uses arbitrage strategies and automated software to bet on events.

Other members of the punting group have other sources of income and have accounts with the TAB, exchanges and bookmakers, local and overseas.

Members will contribute money, bet, open accounts, program and analyse data.

In the future you may use contractors to do some programming and statistical analysis.

You may use a tipster service in the future.

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 Paragraph 118-37(1)(c).

Reasons for decision

Summary

As you are not in the business of gambling, your income is not assessable and your expenses are not 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.

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. 

The court in Brajkovich v. FC of T 89 ATC 5227;(1989) 20 ATR 1570 (Brajkovichs 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

2. the scale of the gambling activities

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 judgement or depends purely on chance, and

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

We have determined that you are not carrying on a business of gambling based on the application of the above indicators to your personal situation.

As you are not carrying on a business of betting or gambling, 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.

Question 3

Section 359-5 in Schedule 1 of the Taxation Administration Act 1953 provides the Commissioner may make a written ruling about how a relevant tax provision applies to you in relation to a specified arrangement or scheme. In your case, the question in your application regarding whether or not this ruling can apply to the other members of your punters club is invalid. If any member would like to know whether they are in the business of gambling, they will have to apply for their own ruling.

Further issues for you to consider

You have requested the Commissioner to provide you with a private ruling for future years. Due to the possibility of change to the law, the possibility of changes in your circumstances, and the risk that a subsequently issued public ruling might override a private ruling the Commissioner has issued, the Commissioner has provided a private ruling until the 2015-16 income year. You may request a further ruling after this time if this issue remains a concern to you.