Edited version of your written advice

Authorisation Number: 1051230162512

Date of Advice: 26 May 2017

Ruling

Subject: Betting activities - assessable income and allowable deductions

Question 1

Are proceeds received from the betting activities conducted by the syndicate assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

Question 2

Can deductions be claimed for expenses relating to the betting activities conducted by the syndicate under section 8-1 of the ITAA 1997?

Answer

Yes

Question 3

Is the syndicate a partnership for tax purposes?

Answer

Yes

Issue 2 - Goods and Services Tax

Question 4

Is the syndicate entitled to input tax credits in respect of betting acquisitions pursuant to section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2017

The scheme commences on:

1 July 2016

Relevant facts and circumstances

Background

You are an Australian resident.

You participate in a betting syndicate whose members share a common interest in probabilities, betting and gambling.

You became a member of the syndicate when it commenced.

The first bet placed on behalf of the syndicate occurred in 20XX.

Due to sustained losses incurred in early 20XX, the syndicate ceased all betting activity early 20XX. The syndicate is now no longer active and no further betting activity will occur. The funds remaining in the betting account used by the syndicate are now in the process of being returned to syndicate members in proportion to their initial contributions.

Roles of the members in the syndicate

One of the syndicate members ('administrator') provides most (if not all) of the operational and administrative support. It includes liaison with betting exchange, holding and management of betting accounts, as well as the licence of betting exchange trading software for the syndicate. This member is responsible for distributing any winnings to other syndicate members.

Another syndicate member restarts internet enabled computers used by the syndicate once a week or after a Windows update. This member ordered and paid for the computers and was reimbursed by the other syndicate members. All the computers are currently housed in the residence of this member.

One member holds the licence for a data analysis and statistical software used by the syndicate.

The other members do not actively participate in the day-to-day activities of the syndicate and are only required to monitor syndicate's performance on an ad hoc basis and to contribute towards the funding requirements of the syndicate.

Operations of the betting syndicate

The syndicate did not have formal business plans, nor projected income. It did not hire any employees, but it engaged contractors for computer programming and operational resources on arm's length terms.

The syndicate operated from the residential premises of a few active members who are undertaking day-to-day operational and administrative activities. These syndicate members do not charge money for providing operational and administrative support, resources and the use of the premises. The betting information is shared between syndicate members via the internet.

The syndicate used computer software to collect, sort, compare and analyse publicly available data in an attempt to predict favourable outcomes for betting purposes. These software products include Microsoft Access, Microsoft Excel, a data analysis and statistical software, and betting exchange trading software.

One of the syndicate members wrote the applications for automating data collection and betting. This member made the decision to engage a contract programmer to develop some of the routines that were proving difficult to achieve.

The syndicate placed bets exclusively with betting exchanges on a back and/or lay basis primarily in win markets and to a lesser extent in exacta markets. The syndicate did not place any bets with traditional bookmakers or into pari-mutuel totalisator pools. The syndicate have never placed bets “In-Play”. It was not an objective of the syndicate to trade markets so that a “Green Book” is achieved.

To fund the cash flow of the betting activities, the syndicate relied on funding solely from its members and it did not seek bank financing in this regard. The syndicate expected that several hundred thousand dollars were required to fund the cash flow of their activities.

The administrator holds a betting account that was used exclusively for syndicate betting on behalf of the syndicate.

The syndicate must ensure that sufficient funds were maintained in the betting account at all times to cover the maximum possible exposure of bets being made at any point in time.

Agreements between syndicate members

As a syndicate member, you did not have (nor contemplate to have) a formal agreement with other syndicate members. You had not met or spoken to all members in the syndicate, nor had the syndicate held a meeting with all members being present. Despite a lack of written agreements, it was orally agreed (among members):

1. the codes in which countries the syndicate will bet on;

2. the betting medium for placing the bets; and

3. capital contributions of members and the sharing of profits and losses.

Admission and removal of syndicate members

It was agreed between syndicate members that the syndicate could accept new members if it continuously lost the available funding allocated. The percentage new members received would be agreed upon by all members and the total must add up to 100%. This was not formally documented but understood by all members. No single syndicate member or sub-set of members could make the decision to approve a new or remove an existing member from the syndicate.

Association with other related business activities

The syndicate's betting activities were not undertaken in association with any other related business activities. Further, the syndicate and its members did not have access to insider information such as information.

Selection and betting process

The recommended bets were determined by using Microsoft Excel and VBA routines which automated the data collection and the selection of bets that would have otherwise been made in a manual system.

Microsoft Excel used publically available information which is combined with the fixed odds on offer. It also ensured all required data inputs were available for the potential events in the markets upon which the syndicate operated.

Once all conditions had been satisfied, Microsoft Excel estimated the relative chances of each contender in the event. It then executed bets on the contenders where the odds available on the betting exchanges were sufficiently favourable by a minimum pre-determined margin, when compared to the estimated relative chances. All bets were placed over the Internet which was received by triggers from Microsoft Excel. No bets were placed by telephone or in person even though this could be done.

As a result of this automated betting system, the syndicate did not need to manually input data, compile reports or perform ongoing research. However, the syndicate and their members could produce their own reports using the standard reports available.

The syndicate could also cancel or manually override the bet made on any particular entrant, event or class of event. For example, this could happen when a syndicate member observed bets going to the exchange and was of the opinion that the bets were not in the best interests of syndicate members. The syndicate member could then make an immediate decision to override those bets. No record was maintained of system recommended bets being overridden.

Equipment

In order to carry out the above automated betting activities of the syndicate, two internet enabled computers were purchased. The computers were linked to both the internet and the same local area network but not for the purpose of allowing updating and monitoring of betting information across computers. However, sharing of data occurred where multiple computers were betting in the same market.

Betting Exchange

Betting exchange is an online marketplace for punters to bet against themselves on various events around the world. Exchanges can work on lower margins resulting in better odds.

The syndicate placed bets exclusively with an exchange which acts as a facilitator by holding all the customers' money and settling all bets on behalf of those customers. The syndicate's betting account was held as separate sub-account of the administrator's own betting account ('master account'). This member also had his personal bank account linked to this betting account.

The betting exchange charged a commission calculated by reference to the net winnings on a market. No commission was payable where a market results in a net loss. Commission was calculated by multiplying the net winnings by the market rate less a discount which was based on historical betting activity. The discount rate was determined by the number of points earned in proportion to betting activity so the more that was bet, the more points were accrued and the greater the discount rate, however the discount rate is capped at 60%. The precise calculation of the discount rate might differ at times. The market rate in all markets that the syndicate bet into is 5%.

Sufficient funds were required to be maintained in betting account at all times to cover the maximum possible exposure of bets being offered at any point in time. Markets were determined according to the official result. At this point any winnings were then credited to the betting account.

There were no minimum betting threshold limits. The maximum dollar value of bets placed was always constrained by the account balance in that the total exposure from unresolved bets placed could not exceed the account balance at any point in time. No credit betting was available to the syndicate since its inception.

Service providers

Although the syndicate did not employ any staff, various services were contracted for by individual syndicate members on behalf of the syndicate with various people or companies for computer programming and operational resources on arms lengths terms, for example, internet and data providers.

A member of the syndicate volunteered and agreed to open an account with a service provider and contributions of the syndicate members were made to cover the costs.

The syndicate engaged a contractor to provide computer programming services, in which this contractor wrote several Excel based programs for the purpose of retrieving data and bookmaker odds. This contractor also updated and modified these programs for the purpose of improving functionality.

Members used various software products and engaged internet service providers to access the internet for the purpose of observing the betting process and viewing results.

Scale of Betting Activities

The syndicate placed bets seven days a week and several thousand individual bets were placed each week.

The maximum win or loss from bets placed by the syndicate on any single race was less than $X.

The historical records of bets maintained by the betting exchange showed that the syndicate had a turnover of almost X dollars for a quarter.

Members spent an average of less than 15 hours per week on the betting activities of the syndicate not including time spent observing the events bet on via television, radio or internet.

Record keeping

The syndicate did not use accounting software or prepare financial statements. The syndicate recorded the betting account balances by using commercially available spreadsheet software. The syndicate and their members could also extract records from the betting exchange using standardised reports.

Profit sharing arrangement

All betting surpluses and/or deficits have been shared by syndicate members according to their individual percentages in the syndicate at the time. Syndicate members have been allocated initial percentages based upon their initial bankroll contributions.

Each syndicate member was responsible for their own expenses incurred in operating and participating in the syndicate (excluding the cost of bets placed and acquisition of the computers used for placing the bets).

Process of distribution of winnings between syndicate members

The administrator may transfer an amount of between 0% and 30% of the balance of the betting exchange sub-account used by the syndicate to the master betting account soon after the month end. The administrator may then make the decision to withdraw some or all of the transferred funds from the master account to the personal bank account. Such decision is within the discretion of the administrator. At the time funds are transferred from the sub-account used by the syndicate to the master account, the administrator becomes personally liable to pay the other syndicate members their share.

Whenever the administrator withdrew funds from the master betting account to their own personal bank account, a subsequent bank transfer was made to a joint bank account in the names of the administrator and spouse (who is also a member of the syndicate) to settle the spouse's share of winning. The administrator then made monthly remittances from their personal bank account to the member who looks after the syndicate's computers. The other syndicate members were advised by email on a monthly basis of amounts being held on their behalf by the administrator. On a few occasions, members of the syndicate requested funds to be disbursed the remainder of the members, via emails to the administrator.

It was the syndicate's initial intention that any unpaid winnings were to remain in the betting account for continuous betting purposes.

However, due to the cessation of the syndicate, the funds remaining in the betting account are now in the process of being returned to its members in proportion to their initial contributions.

Personal betting

Members could choose to have their own personal betting account with betting exchanges, bookmakers and totalisators and place their own separate bets with these betting outlets on sporting and racing events as they see fit. They could use computers for this purpose but such bets are independent of and not related to the betting activities of the syndicate. They could also participate in additional separate betting syndicates if they wanted.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1936 Subsection 92(1)

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 995-1

A New Tax System (Goods and Services Tax) Act 1999 Section 7-1

A New Tax System (Goods and Services Tax) Act 1999 Section 9-20

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5

A New Tax System (Goods and Services Tax) Act 1999 Subsection 11-15(1)

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20

A New Tax System (Goods and Services Tax) Act 1999 Section 184-1

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

A New Tax System (Australian Business Number) Act 1999 Section 41

Reasons for decision

All references in issue 1 and 2 are to the Income Tax Assessment Act 1997 unless otherwise stated.

Issue 1 - Income Tax

Question 1

Summary

As a member of the syndicate, you are considered to be carrying on a business of betting. Any income received from this activity is therefore assessable under ordinary concepts and related expenses are deductible.

Detailed reasoning

Subsection 995-1(1) defines ordinary income to have the meaning given by section 6-5. Subsection 6-5(1) defines ordinary income as income according to ordinary concepts.

In determining whether particular receipts are 'ordinary income' the courts have not adopted any precise definition of income and given the term its ordinary meaning. As Jordan CJ stated in Scott v. Commissioner of Taxation (1935) 35 SR (NSW) 215 at 219:

The word 'income' is not a term of art, and what forms of receipts are comprehended within it, and what principles are to be applied to ascertain how much of those receipts ought to be treated as income, must be determined in accordance with the ordinary concepts and usages of mankind, except in so far as the statute states or indicates an intention that receipts which are not income in ordinary parlance are to be treated as income, or that special rules are to be applied for arriving at the taxable amount of such receipts.

It is well established that amounts received as a result of carrying on a business, but not a pastime or hobby, are ordinary income.

Under subsection 6-5(2), 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.

Following on from the Federal Court decisions of Evans v. FC of T (Evans), Babka v. FC of T (Babka) and Brajkovich v. FC of T (Brajkovich), the Commissioner published his views in relation to whether a taxpayer is considered to be carrying on a business of gambling in Taxation Ruling IT 2655 Income Tax: Betting and Gambling - Whether Taxpayer Carrying on Business of Betting or Gambling.

At paragraph 8, the Ruling states that the criteria summarised in Brajkovich and the factors considered in Evans and Babka should be taken into account in determining whether a taxpayer is carrying on a business of betting or gambling.

The six principal criteria for determining whether or not a person is in the business of betting are:

(1) Whether the betting is conducted in a systematic, organised and businesslike way;

(2) The scale of the betting activities;

(3) Whether betting is related to or part of other activities of a businesslike character;

(4) Whether the activity is 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; and

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

As noted by Hill J in Babka 'It suffices here to say that in my view each case must be decided by reference to its own facts and that there is no one factor that is decisive of whether a particular activity constitutes a business, that conclusion will be derived from a consideration of all of the relevant facts'.

Hill J went on to note that 'the mere fact that the outcome of a particular activity may be dependent at least in part on chance will not negate a business activity being carried on'.

To further illustrate his view, Hill J used the examples of the activities of bookmakers and futures traders. Although both bookmakers' and futures traders' activities involve a degree of chance, they are able to reduce the odds to the point where there is sufficient skill to see the activity as being directed to profit in a systematic and businesslike way; in particular, both bookmakers and futures traders have some impact on the profit to be derived.

Again, his Honour discussed the possibility of the existence of 'professional punters':

In ordinary usage we recognise the possibility of mere punting being a business when we speak of the “professional punter” meaning thereby one of whom it could be said that placing bets is his vocation and I am inclined, particularly with the growth of modern technology such as computers, to think that there may be cases today, even if there were not at the time when Rowlatt J. decided Graham v. Green, where the activity of betting has become so organised, systematic and businesslike and is carried on with such dedication to potential profit that the man in the street would recognise that activity to be a business. That being so, I propose to proceed on the assumption that mere punting may constitute a business although the intrusion of chance into the activity as a predominant ingredient at least in the outcome of the race itself does suggest to me that it will be a rare case where a court will conclude that the activity is a business.

Application to your circumstances

The facts applicable to your membership of the syndicate are reviewed below by reference to the criteria identified in Brajkovich.

(1) Whether the betting is conducted in a systematic, organised and businesslike way

The Commissioner considers that the following facts evidence that the betting was conducted in a systematic, organised and businesslike way:

● Most of the syndicate members did not actively participate in the syndicate, relying on a few active members to undertake activities.

○ One syndicate member (the administrator) exerted a significant amount of control over the operations of the syndicate, including liaison with betting exchanges, management of betting account and the licence of a betting exchange trading software product.

○ One member held the licence for a data analysis and statistical software product.

○ One member organised the purchase of and housed the computers used for betting activity. This member restarted the computers used by the syndicate once a week or after a Windows update.

○ One member wrote the automation of data collection and bet selection. This member also engaged external contractor(s) to assist.

● The syndicate relied on a fund of dedicated capital (solely from its members) with which to bet.

● The syndicate's activities of betting were systematically conducted so as to get the most favourable odds obtainable. It is evidenced by:

○ The syndicate predominantly relied on a few computer software programs (developed internally or commercial software) to automate the selection and placement of the bets.

○ For bet selection, the syndicate used programs to automate the data collection and the selection of bets. One of the members wrote the routines and made the decision to engage a contract programmer to develop some of the routines that were proving difficult to achieve.

○ The syndicate also used a data analysis and statistical software product.

○ The bets made were largely guided by these computer programs.

○ For bet placement, the syndicate used betting exchanges along with the above computer programs. It provided real time update of prices and allowed internally developed Excel software to trigger betting. It also communicated directly with betting exchanges.

○ The use of these computer programs to generate and place a high volume of bets indicates a systematic and organised approach to the betting activities. The syndicate also purchased high powered computers for this purpose.

○ It is reasonable to conclude that, at any time, the betting decisions made on behalf of the syndicate members were very well-informed and were not made on impulse.

● Despite a lack of formal written agreement and business plan, members of the syndicate made agreements about how the syndicate was to operate on matters such as the racing codes, which countries and betting medium; changes to membership; when to manually override bets, etc.

● Decisions have been made in a business-like manner. When losses were sustained, the syndicate was dissolved.

● Although no formal accounting records were kept, the syndicate and its members could retrieve their betting records from the betting exchange. The syndicate used commercially available software to record the betting account balances. Moreover, one of the active members (the administrator) constantly monitored the betting account's fund movements. It is evidenced by the fact that the syndicate must ensure the betting account maintain sufficient funds at all times to cover the maximum possible exposure of bets being offered at any point in time.

● Although there was no formal written agreement in relation to the rights and entitlements of members, an oral agreement did exist in relation to the percentage share of proceeds for each member and their obligations if the syndicate made losses. Each member and their percentage share of profits were clearly identifiable.

● The personal liability of the administrator to the other members for their share of the winnings occurred at the time the administrator moved funds from the sub-account used by syndicate to his master betting account with the betting exchange. Syndicate members were either distributed their share or advised by email on a monthly basis of amounts held on their behalf and then syndicate members could call for their share of the proceeds to be distributed.

(2) The scale of the betting activities

The computer programs used by the syndicate allowed bets to be placed on a variety of events overseas. These programs also allowed the syndicate, to place large amounts of bets through betting accounts with betting exchanges.

The historical records of bets maintained by the betting exchange show that the syndicate had a turnover of almost X dollars for a quarter.

There is no information held that indicates that the turnover was significantly different in the rest of the relevant income year.

This number of bets placed and the value of betting turnover indicates to the Commissioner that the syndicate's betting activities were beyond just a pastime.

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

The Commissioner understands that most of the syndicate members were not involved in other related activities of a businesslike character.

We note that some syndicate members were involved in these activities. We do not believe this has caused the syndicate to have a material association with related business ventures.

(4) Whether the activity is principally for profit or principally for pleasure

The question here is whether the activities were carried on with such purpose of profit making that they indicated the carrying on of a business.

During the relevant income year, a majority of the members did not actively participate in the syndicate's activities. Given their limited role in the syndicate, it is considered that these members were not in the syndicate for pleasure.

As for the active members: one was actively involved in the operational and administrative tasks of the syndicate; one maintained the computers used by the syndicate once a week or after a Windows update. Neither role was considered to include activities that were undertaken principally for pleasure.

One member wrote routines for automation of data collection and betting selections and engaged a contract programmer to develop some of the routines that were proving difficult to achieve, contributing their time, knowledge and skills to develop and improve the system by which the betting activities would be undertaken.

The large volume of automated bets is also a strong indicator that the betting activity was less for pleasure and more for profit. In particular, the syndicate members did not personally go to betting agency outlets to place bets and they only placed bet on the odds chosen by their computer software. It shows that the syndicate members were not emotionally involved in the betting process.

Further, the decision was made to dissolve the syndicate when losses were sustained.

Sophisticated computer software was developed and subscribed to in order to automatically generate, improve and compare outcomes. By implementing this highly structured decision making process, it is the Commissioner's view that the betting activities were carried out by the syndicate principally for profit.

(5) Whether the form of betting chosen is likely to reward skill and judgment or depends purely on chance

Compared with other forms of betting which purely depend on chance, the use of automated betting increases the likelihood of predicting the outcome and reduces the element of chance.

The computer programs used by the syndicate identified bets relying on the gathering and analysis of a range of information available in the market. This information was used to estimate the relative chance of the contender and then bets were executed on those contenders where the odds available on the betting exchange were favourable compared to the estimates by a minimum predetermined margin. Bets were placed on back and lay bases using the methodology. The computer program was repeatedly and continually performing this analysis to determine the bets to be placed generating a high volume of transactions.

This process was automated and profitability was dependent upon the accuracy of the programming. However, it is clear that the objective of the syndicate was to utilise the data gathering and analytical capability of the computer programs to derive a profit. Where necessary the syndicate employed the skills of other computer programmers to ensure the capability of the system to identify the most profitable bets.

By following this process, personal emotions and instincts were not relevant.

In summary, it is the Commissioner's view that although the element of chance may not be completely eliminated, the business activity was automated, primarily undertaken with the use of sophisticated computer programs designed to reduce risk with such risk being commensurate with that found in a business activity.

(6) Whether the activity is of a kind ordinarily thought of as a hobby or pastime

The majority of the bets were placed by the syndicate were considered a recreational activity.

However, as stated by Justice Hill in Babka, there are cases, 'particularly with the growth of modern technology such as computers', where

the activity of betting has become so organised, systematic and businesslike and is carried on with such a dedication to potential profit that the man in the street would recognise that activity to be a business. [89 ATC 4963 at 4966]

Based on the following facts, the Commissioner's view is that the betting activities in your case are not a hobby or pastime:

(1) The scale of the syndicate's betting activities was (and remains) large. They placed bets 7 days a week. The turnover was also considered large.

(2) Bets were predominantly placed by computer software when triggered by the Excel program. Syndicate members did not place bets on behalf of the syndicate and most syndicate members were not actively involved in the activities of the syndicate.

(3) The syndicate's objective was profitability. This is evidenced by the forms of betting chosen, the betting methods utilised, the sophisticated computer program developed within the syndicate to generate the bets. When the syndicate sustained losses, it was dissolved.

As noted by Hill J in Evans 'There is no one factor that is decisive of whether a particular activity constitutes a business'. Nor is it necessary to satisfy all criteria. Combining the analysis under each of the six principal criteria identified in Brajkovich and based on the facts of the present case, it is the Commissioner's view that the syndicate carried on a business of betting and the proceeds received by the syndicate is ordinary income, with the appropriate expenses being allowable deductions.

Question 2

Summary

Since you are considered to be carrying on a business of betting, you are entitled to claim as deductions, expenses and losses necessarily incurred in running that business under section 8-1.

Detailed reasoning

Section 8-1 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. However, losses or outgoings are not deductible to the extent that they are of a capital, private or domestic nature; relate to the earning of exempt income or non-assessable non-exempt income; or are otherwise made non-deductible by a relevant provision.

As determined earlier, since you are considered to be carrying on a business of betting, any expenses necessarily incurred in carrying on the business are deductible under section 8-1.

Question 3

Summary

The syndicate is considered to be a partnership for tax purposes.

Detailed reasoning

Subsection 92(1) of the Income Tax Assessment Act 1936 ('ITAA 1936') 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.

Section 995-1 defines the term partnership to mean:

(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 Commissioner considers that the syndicate is an association of persons carrying on a business as partners or in receipt of ordinary income jointly.

Whether a partnership existed

An association of persons

As the term 'association' is not defined in the relevant income tax legislation it takes its ordinary meaning in its context.

In Kibby v. Registrar of Titles Mandie J stated:

I consider that the essence of an “association” may be described as some form of combination of persons (with a common interest or purpose) with a degree of organisation and continuity at least sufficient to distinguish the combination from an amorphous or fluctuating group of individuals and with some clear criteria or method for the identification of its members.

The Commissioner understands the following information to relate to the overall structure, operations and activities of the syndicate.

● The syndicate members had a common interest, i.e. in betting activities, and it was orally agreed that each member was entitled to a percentage of the proceeds based on their capital contributions.

● Although there was no formal written agreement in relation to the rights and entitlements of members, an oral agreement existed in relation to the percentage share of proceeds for each member and their obligations if the syndicate made losses. Each member and their percentage share of proceeds were clearly identifiable.

● The active members were in charge of the day-to-day management and operation of the syndicate, including implementing computer software in betting activities, liaison with betting exchange, account management and licencing. These active members acted in the common interest of all members of the syndicate.

● The syndicate used a sub-account of the administrator's master account with the betting exchange. When the administrator transferred amounts from the sub-account to the master account, they became personally liable to pay the other members their share. Winnings received from the betting exchange account were firstly paid to the administrator's personal bank account and the administrator then made distributions to members.

● Any unpaid winnings would have remained in the betting exchange account for continuous betting purposes, if the syndicate did not cease its betting activities.

The Commissioner considers that these facts establish that each of the syndicate is an association of persons with a common interest or purpose, and that the syndicate possessed a significant degree of organisation and continuity.

Carrying on business as partners

Taxation Ruling TR 94/8 Income tax: whether business is carried on in partnership (including 'husband and wife' partnerships) Formation of a general law partnership, explains our view about the factors we take into account in deciding whether persons are carrying on a business as partners for income tax purposes. It provides as follows:

3. There are no statutory rules in the income tax law for deciding whether persons are carrying on business as partners. The question of whether a partnership exists is one of fact. The existence of a partnership is evidenced by the actual conduct of the parties towards one another and towards third parties during the course of carrying on business.

4. We look at the following factors in deciding whether persons are carrying on business as partners in a given year of income:

Intention

● the mutual assent and intention of the parties

Conduct

(a) joint ownership of business assets

(b) registration of business name

(c) joint business account and the power to operate it

(d) extent to which parties are involved in the conduct of the business

(e) extent of capital contributions

(f) entitlements to a share of net profits

(g) business records

(h) trading in joint names and public recognition of the partnership

5. The weight to be given to these factors varies with the individual circumstances. The above list of factors is not exhaustive and no single factor is decisive, although the entitlement to a share of net profits is essential.

Having regard to the circumstances, we consider that the syndicate is an association of persons carrying on business as partners:

● For the reasons given earlier, the members are carrying on a business.

● Although there is no formal written agreement, the members of the syndicate orally agreed how the syndicate was to operate on matters such as the racing codes, which markets, betting medium and when changes in membership can occur;

● The members agreed to make capital contributions to fund the cash flow for the syndicate activities and to share surpluses and/or deficits based on those capital contributions;

● Members of the syndicate had responsibility for different functions in the syndicate although one member is predominantly responsible for many of the functions.

● Although the betting account was held in the name of the administrator, the account used by the syndicate was held on behalf of the syndicate. The administrator became personally liable to pay the other members their share of winnings when amounts are transferred from the sub-account to their master account and winnings were distributed by the administrator in accordance with the agreements between the members.

In receipt of ordinary income jointly

An association of persons is considered to be in receipt of income jointly if the persons have actually received, or are entitled to receive, income jointly.

As noted above, in accordance with the agreements made between members, the syndicate members are entitled to an identified share of the surpluses based on their capital contributions. Each of the syndicate members was entitled to receive distributions of their share of surplus proceeds from the syndicate's betting activities. The administrator became personally liable to other members to pay their share of surpluses when amounts were transferred from the betting exchange sub-account to the master account. All unpaid winnings were accumulated in the betting account for continuous betting purposes.

Accordingly, the Commissioner considers the syndicate members to be in a partnership for tax purposes.

Whether you were a partner in the partnership

In the present case, you are one of the persons in the association that, for the reasons discussed above, is a partnership for tax purposes. You are therefore a partner in the partnership.

Question 4

Summary

The syndicate is entitled to input tax credits in respect of betting acquisitions pursuant to section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 - provided they are registered or required to be registered for GST purposes.

Detailed Reasoning

Entitlement to input tax credits

Section 7-1 of the GST Act states that an entitlement to an input tax credit arises for a creditable acquisition.

Section 11-20 of the GST Act provides that an entity is entitled to an input tax credit for any creditable acquisition that it makes.

Section 11-5 of the GST Act, states that an entity makes a creditable acquisition if:

(a) it acquires anything solely or partly for a creditable purpose;

(b) the supply of the thing to it is a taxable supply;

(c) it provides, or is liable to provide, consideration for the supply; and

(d) it is registered, or required to be registered for GST.

Subsection 11-15(1) of the GST Act provides that an entity acquires something for a creditable purpose to the extent that it is acquired in carrying on its enterprise.

Entity

The term 'entity' has a common meaning across the A New Tax System (Australian Business Number) Act 1999 (ABN Act), GST Act, ITAA 1997 and ITAA 1936. The definition of an entity in section 184-1 of the GST Act includes a partnership. 'Partnership' is defined in section 195-1 of the GST Act to have the meaning given by section 995-1 of the ITAA 1997.

The syndicate is considered to be a partnership for tax purposes. Therefore, the syndicate is also an entity for GST purposes.

Enterprise

Under the GST Act 'enterprise' has a broad meaning. In order to register for an Australian Business Number ('ABN') and GST, an entity (unless specifically excluded) must carry on an enterprise.

Miscellaneous Taxation Ruling MT 2006/1 explains the meaning of 'an entity carrying on an enterprise' for the purposes of entitlement to an ABN.

The dictionary at section 41 of the ABN Act defines 'enterprise' as having the meaning given by section 9-20 of the GST Act.

Included in the definition of 'enterprise' in subsection 9-20(1) of the GST Act is an activity, or a series of activities, done 'in the form of a business'.

The definition of 'business' in section 195-1 of the GST Act is the same as that in subsection 6(1) of the ITAA 1936 and section 995-1 of the ITAA 1997.

As the definition is identical, the principles and indicators of carrying on a business considered in Taxation Ruling IT 2655 apply equally to a business in the context of determining whether an entity is carrying on an enterprise for ABN and GST purposes.

Accordingly, as it has been determined that the syndicate is carrying on a business for income tax purposes, it is also (for the same reasons) carrying on an enterprise for GST purposes.

Statutory exclusions

As the syndicate is carrying on an enterprise the statutory exclusions in paragraphs 9-20(2)(b) and (c) of the GST Act do not apply.

Conclusion

As the syndicate is an entity carrying on an enterprise, it is required to register for an ABN and GST and claim input tax credits for the creditable acquisitions made by the business.