Edited version of private advice

Authorisation Number: 1052019830367

Date of advice: r

Ruling

Subject: Income tax - assessable income - gambling and betting

Question 1

Are winnings you receive from your personal betting, using tips from tipping service providers, assessable income per section 6-1 of the Income Tax Assessment Act 1997 (ITAA 1997)??

Answer

No

Question 2

Are the fees you pay to tipping service providers deductible expenses per section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)??

Answer

No

Question 3

Are any losses you make from betting using tips from tipping service providers deductible for tax purposes?

Answer

No

This ruling applies for the following periods::

For a number of income years commencing in the year ended 30 June 20XX

The scheme commences on:

Year ended 30 June 20XX

Relevant facts and circumstances

1. You were born in Australia and are an Australian citizen.
2. You live in Australia and have never been a resident of another country.
3. You undertake various hobbies including personal betting and gambling where you generally bet on Greyhounds, Gallops and Harness Racing and occasionally, on sports.
4. You undertake betting for your own personal enjoyment.
5. You are not a bookmaker and are not directly or indirectly involved in any bookmaking operations. You have no associations with Horse Breeding or Greyhound Breeding or Training.
6. All funds used to bet with are your own. You have not borrowed money to fund the placing of bets and you do not have a specific bank account allocated for the purpose of placing bets. You allocate funds to place bets with on an ad hoc basis.
7. You receive no rebates from bookmakers unless it is a general promotion being run by the bookmaker and available to the general public.
8. You are unaware of having benefited from any promotions, rebates or incentives sometimes offered by bookmakers.
9. There is no documented business plan for your gambling activities.

Betting strategy and process

10. You bet using electronic means from a home computer in your private residence as well as at the TAB machines located in pubs and clubs around Australia.
11. You place bets with multiple bookmakers in Australia and on different sporting events in various geographical locations.
12. Bets are placed at fixed odds via the bookmaker's platform online or at the pub and club.
13. No other people are involved in your betting activities, you do not bet in a group or syndicate.
14. You use multiple tipping services to assist in betting selection.
15. The tipping services are available online to the general public in return for a fee with some requiring an application to become a client.
16. You subscribe to these tipping services which charge monthly or weekly fees for the service and/or a percentage of winnings in some cases. You have standard industry agreements with the tipping services.
17. The tips provided by the tipping services are generally delivered using electronic means via email and phone.
18. Where required by the tipping service provider's agreement, you report bets made back to the tipping service to determine how much you owe them on a fee performance basis. This information is sent by phone.
19. You transfer funds electronically from your personal bank accounts to the bookmakers and tipping service providers.
20. You utilise both the tips provided by the tipping services for free to the general public as well as the tips that are only provided to subscribers.
21. You monitor each tipping service and, mathematically and through personal experience, determine which service provides the best advantage and you use their suggestions as part of your decision-making process.
22. You generally use your own personal experience in assessing how accurate the tipping services have been with their historical tips. If a service has demonstrated a more favourable recent history of tips then you may assign a higher weighting of confidence to the tips currently being provided by that service and may be more inclined to bet based on recent history.
23. It is at your discretion whether to bet on an event and if you do, how much to bet on each event.
24. Your general betting strategy involves analysing the betting odds of a tipped event prior to the start of the event. If the odds shorten with some consistency over time, you believe that market information has determined that the 'runner' is likely to be successful. You take this odds trend as a positive sign and are more likely to bet should the odds shortening observation materialise.
25. Once you have analysed the tipping odds, you implement the mathematical model or numerical component to the decision-making process which is a general inverse relationship between betting odds and bet size, i.e. shorter odds will usually result in a decision to place a larger bet.
26. You will sometimes study daily form guides and make online searches for historical 'runner' information before deciding to place a bet.
27. You maintain a profit and loss excel spreadsheet to track wins and losses as a way to determine which tipping service is offering the best returns and to track what you owe each service.
28. With the exception of the profit and loss excel spreadsheet, you do not utilise any software in support of your betting activities.
29. Your winnings are transferred to your personal bank account electronically from the bookmakers or, when you cash out at a TAB using TAB betting slips, funds are transferred to your personal bank account or you receive a cheque.

Scale of betting activities

30. There is no set regularity to the size of the bets placed. Bet size is however generally proportional to the odds, that is, larger bets will be placed for events with shorter odds.
31. You started using the tipping services to assist with your betting selection in MM YY.
32. Prior to the 20XX income year you were less active in your betting activities than you currently are.
33. You have estimated that you spend approximately a few hours per week on betting activities however there are periods where you may not bet at all for a number of weeks.
34. You have estimated that there may be on average X number bets placed each week.
35. You have provided a profit and loss spreadsheet that covers the period from DDMMYYY to DDMMYYY which shows over the course of that period you won $X.
36. You have estimated that your outgoings for the period of the profit and loss spreadsheet were approximately $Y.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-1

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-6

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision

Issue 1

Question 1

Are winnings you receive from your personal betting, using tips from tipping service providers, assessable income per section 6-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Summary

The winnings you receive from your personal betting using tips from tipping service providers are not assessable income as the winnings are neither ordinary income nor statutory income.

Detailed reasoning

Subsection 6-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that assessable income consists of both ordinary income and statutory income.

Ordinary income

Subsection 995-1(1) ITAA 1997 defines ordinary income to have the meaning given by section 6-5 of the ITAA 1997. Subsection 6-5(1) defines ordinary income as income according to ordinary concepts.

Ordinary income has generally been held to include three categories: income from rendering personal services, income from property and income from carrying on a business.

Carrying on a business

Amounts received as a result of carrying on a business, but not a pastime or hobby, are ordinary income.

The Commissioner has published his views in relation to whether a taxpayer is 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 (TR IT 2655) which 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. 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.

Numerous Federal Court cases have considered the issue of whether a taxpayer was carrying on a business of betting or gambling. The criteria in Brajkovich v. FC of T 89 ATC 5227; (1989) 20 ATR 1570 (Brajkovich) and the factors considered in Evans v. FC of T 89 ATC 4540; (1989) 20 ATR 922 (Evans' case), Babka v. FC of T 89 ATC 5227; (1989) 20 ATR 1570 (Babka's case) and Prince v. FC of T (1959) 7 AITR 505; 12 ATD 45 (Prince's case), should be used to determine if a taxpayer is carrying on a business of gambling.

The six principal criteria identified in Brajkovich to determine whether a person is in the business of betting or gambling 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.

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

In Babka, 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. 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 betting activities are reviewed below by reference to the criteria identified in Brajkovich.

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

In Babka, Hill J stated at 4970:

I should point out that merely because a taxpayer follows a betting system will not require the conclusion that his activity constitutes a business. In Martin the Full Court said at p. 481:

"So it appears that the taxpayer, like many other persons who find pleasure in betting and even more pleasure in winning, used a system which he believed would bring him out on the credit side in the long run, that he sometimes got a friend who accompanied him to the races to lay his bets for him when he was himself occupied in the saddling paddock, and that he engaged trainers from time to time to train his racehorses. But we do not consider this evidence to be symptomatic of a business of betting or racing. It illustrates the normal and usual activities and nothing more of persons who derive pleasure from betting on the racecourse and racing under their own colours"

You have a basic system to assist with your betting. You subscribe to multiple tipping services to assist with betting selection. The tipping services are remunerated by a fee for service as well as a performance fee in some cases.

You generally use your own personal experience in assessing how accurate the tipping services have been with their historical tips. If a service has demonstrated a more favourable recent history of tips then you may assign a higher weighting of confidence to the tips currently being provided by that service and may be more inclined to bet based on recent history.

You have a general betting strategy whereby you analyse the betting odds of an event prior to the start of the event. If the odds shorten with some consistency over time, you believe that market information has determined that the 'runner' is likely to be successful. You take this odds trend as a positive sign and are more likely to bet should the odds shortening observation materialise.

Bet size is generally proportional to the odds, that is, larger bets will be placed for events with shorter odds however it remains at your discretion whether to bet using the tips and if you do, how much to bet.

You do not have a business plan. You do not keep formal account records of your personal gambling, but you do maintain an excel spreadsheet to track your wins and losses as well as what you owe each tipping service.

You bet using electronic means from a home computer in your private residence as well as at the TAB machines located in pubs and clubs around Australia.

You do not receive rebates from bookmakers unless it is a general promotion being run by the bookmaker and available to the general public and you are unaware of having benefited from any promotions, rebates or incentives sometimes offered by bookmakers.

All funds that you use to bet with are your own. You have not borrowed money to fund the placing of bets and you do not have a specific bank account allocated for the purpose of placing bets. You allocate funds to place bets with on an ad hoc basis.

(2)    The scale of the betting activities.

You bet on an ad hoc basis and estimate that you may spend approximately a few hours per week on betting activities, however, there are periods where you may not bet at all. There is no set regularity to the size of the bets placed however bet size is generally proportional to the odds, that is, larger bets will be placed for events with shorter odds.

You started using the tipping services to assist with your betting selection in MMYY however prior to the 20XX income year you were less active in your betting activities than you currently are.

You estimate that you may place on average XX bets each week.

You have provided a profit and loss spreadsheet that covers the period from DDMMYYYY to DDMMYYYY which shows over the course of that period you won $X. You have estimated that your outgoings for this period were approximately $Y.

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

You are not a bookmaker and are not directly or indirectly involved in any bookmaking operations. You have no associations with Horse Breeding or Greyhound Breeding or Training.

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

While the fact that you use paid for tipping services and a computer spreadsheet to assist with your betting activities indicates that the betting is undertaken for profit, the following factors indicate that your betting is principally for pleasure:

-       you have not prepared a business plan,

-       you maintain minimal records in relation to the betting,

-       you bet using electronic means from a home computer in your private residence as well as at the TAB machines located in pubs and clubs around Australia,

-       all funds used to bet with are your own and you have not borrowed money to fund the placing of bets, nor do you have a specific bank account allocated for the purpose of placing bets,

-       you allocate funds to place bets with on an ad hoc basis,

-       you spend approximately a few hours over some days per week on betting activities, however there are periods where you may not bet at all,

-       there have been periods where you have ceased betting activities due to work or family commitments

-       you rely on personal judgment and have not eradicated the element of chance when placing your bets and in the course of betting you have made numerous bets that have been unsuccessful..

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

You utilise a degree of skill and judgment in determining how to bet when you analyse the tips provided by the betting services to determine on what and how much to bet. This however does not obviate that the outcome is dependent on chance. There is no automatic or constant guaranteed return from the betting activities.

While the element of chance may have been mitigated to some degree by the methodology you employ, the degree of chance, as described by Hill J in Babka, has not been reduced to the level that would be expected when conducting a business of gambling.

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

Betting on horse and greyhound racing is ordinarily thought of as a hobby or pastime rather than engaging in a business.

In Babka's case 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.

In Babka's case, 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 such a finding.

Based on the circumstances of your gambling activities, for the period in question, whilst balancing the scale of the betting volumes with the small scale of the operational aspects of the betting activity, the Commissioner's view is that the betting or gambling activities in your case are indicative of a hobby or pastime.

Ordinary income - Conclusion

Your gambling activities are undertaken with skill and judgement however your methodology has not eradicated the element of chance in placing your bets. You have a basic system and the activities are not conducted in such a systematic, organised and businesslike way to indicate that you are running a business. You bet for your own pleasure and your activities are not considered to constitute the carrying on of a business of betting or gambling.

The winnings you receive from your betting are also not income from rendering personal services or income from property and as such, any winnings you receive from your betting activities are not assessable income under ordinary concepts (section 6-1 of the ITAA 1997).

Future years - ordinary income

It is relevant to note that conducting an activity that has been described as a hobby is a 'status'. You can change from conducting an activity as a hobby to that of being in business and vice-versa over time as your level of activity and the process by which you undertake the activity changes. Therefore, you should evaluate your actions on a regular basis to see whether you are conducting a hobby or carrying on a business.

Statutory income

Statutory income includes amounts that are not ordinary income but are included as assessable income by specific provisions of the law.

There is no provision of tax law that includes income received from gambling activities as statutory income.

Conclusion

As the winnings you receive from your personal betting, using tips from tipping service providers, are neither ordinary income nor statutory income, the winnings are not assessable per section 6-1 of the ITAA 1997.

Question 2

Summary

The winnings you receive from your personal betting are not assessable income and the fees you pay to tipping service providers are not deductible expenses per section 8-1 of the ITAA 1997.

Detailed reasoning

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in 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.

As concluded in question 1 above, the winnings you receive from your personal betting activities using the tips provided by the tipping services are not assessable income. Therefore, losses or outgoings incurred in producing those winnings will not be deductible under section 81 of the ITAA.

The fees are similarly not deductible under any specific provision of income tax legislation and as such, are not deductible expenses.

Question 3

Summary

The winnings you receive from your personal betting are not assessable income and any losses you make from betting using tips from tipping service providers are not deductible expenses.

Detailed reasoning

Refer to the discussion in question 2 above. The same reasoning can be applied to conclude that any losses you make from betting using tips from tipping service providers are not deductible expenses.