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Ruling
Subject: Is the income from a betting and gambling syndicate assessable?
Question 1
Is the income you receive from a betting and gambling business assessable income?
Answer
Yes
Question 2
Can you claim a deduction for expenses incurred which relate to the income you receive?
Answer
Yes
Question 3
Do you need to disclose the income received?
Answer
Yes
This ruling applies for the following periods:
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
Year ending 30 June 2018
The scheme commences on:
1 July 2014
Relevant facts and circumstances
You are a member of a partnership
The Partnership has a tax file number and is registered for GST.
The Partnership runs a betting and gambling business.
There is no partnership agreement and no terms of partnership.
You receive a percentage of the profits of the Partnership.
You are paid on an ad hoc basis.
The Partnership has no employees although it contracts various people or companies for computer programming and operational resources on arm's length terms.
The Partnership's gambling activities are not undertaken in association with any other related activities.
The Partnership bets seven days a week.
The Partnership holds bank accounts to accommodate the betting transactions in the Partnership member's names.
You have no day to day involvement with the Partnership and or any responsibilities.
Assumptions
That you are an Australian resident for the period covered by the Ruling.
Question 1
Is the income you receive from the betting and gambling business assessable income?
Summary
The income you receive from the betting and gambling business is assessable income as specified in subsection 92(1) of the Income Tax Assessment Act 1936 (ITAA 1936).
Detailed reasoning
Subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that your assessable income includes income according to ordinary concepts, which is called ordinary income.
Ordinary income is generally considered to include:
• amounts received in return for personal services, whether received in the capacity of an employee or otherwise;
• amounts received periodically or regularly and which the recipient relies on for the maintenance of themselves and/or their dependants (Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540).
You receive income from the Partnership in your capacity as a partner and it is therefore necessary to determine whether this income you receive is ordinary income and as a consequence, assessable.
For taxation purposes the term partnership is defined in section 995-1 of the ITAA 1997. It is described as:
(a) 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
(b) a limited partnership.
The Partnership in which you are a partner meets the definition in section 995-1 of the ITAA 1997. The Partnership is an association of persons, including you, who carry on a business of betting and gambling.
The Partnership is required to lodge a return of its income in accordance with section 91 of the ITAA 1936. While section 91 specifies that the partnership must lodge a return, it also specifies that the partnership is not liable for income tax on the income generated by the partnership. Section 91 states:
A partnership shall furnish a return of the income of the partnership, but shall not be liable to pay tax thereon.
Where a partnership submits an income tax return as required under section 91 of the ITAA 1936, it includes a statement of distribution which sets out the amount of income distributed to each partner in the income year as a result of a partnership carrying on a business. You have receiving income from the partnership in your capacity as a partner.
Generally, section 92 of the ITAA 1936 specifies how a partner in a partnership treats income and deductions received from a partnership. Subsection 92(1) of the ITAA 1936 deals specifically with income and includes in the assessable income of a partner in a partnership so much of their individual interest in the net income of the partnership for the year of income, as is attributable to a period, when the partner was a resident. Subsection 92(1) of the ITAA 1936 states:
92(1) |
The assessable income of a partner in a partnership shall include:
(a) so much of the individual interest of the partner in the net income of the partnership of the year of income as is attributable to a period when the partner was a resident; and
(b) so much of the individual interest of the partner in the net income of the partnership of the year of income as is attributable to a period when the partner was not a resident and is also attributable to sources in Australia.
As the Partnership of which you are a partner operates a business of betting and gambling and you received income from the Partnership, you are required under subsection 92(1) of the ITAA 1936 to include the income you receive in your assessable income.
Question 2
Can you claim a deduction where a betting and gambling partnership makes a loss in a year of income?
Summary
You can claim a deduction for the loss of a betting and gambling partnership equal to the amount of individual interest you hold in the partnership.
Detailed reasoning
Subsection 92(2) of the ITAA 1936 provides that a partner in a partnership which returns a loss in an income year may deduct:
(a) so much of the individual interest of the partner in the partnership loss as is attributable to a period when the partner was a resident; and
(b) so much of the individual interest of the partner in the partnership loss as is attributable to a period when the partner was not a resident and is also attributable to sources in Australia.
Accordingly, if the Partnership were to make a loss in any income year, you are able to deduct an amount equal to your individual interest in the partnership.
Question 3
Do you need to disclose the income received from the Partnership?
Summary
You need to disclose the income received from the Partnership
Detailed reasoning
As discussed in Question 1 above, as you are a partner in a partnership which is carrying on a business, subsection 92(1) of the ITAA 1936 requires that you include the income you receive in your income tax return.
Relevant legislative provisions
Income Tax Assessment Act 1936 section 91
Income Tax Assessment Act 1936 subsection 92(1)
Income Tax Assessment Act 1936 subsection 92(2)
Income Tax Assessment Act 1997 subsection 6-5(1)
Income Tax Assessment Act 1997 section 995-1
Cases
Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540