Private ruling: Gambling activities
Published: April 2014
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018
Date scheme commenced: 1 July 2012

Ruling: Q1: Is income from your horse racing gambling activities considered assessable income? | A1: No. | Q2: Are expenses relating to your horse racing gambling activities deductible? | A2: No .

Relevant facts and circumstances: You were casually employed in a field unrelated to horse racing. You recently undertook a self-education course in a field unrelated to horse racing. You have had an interest in horse racing since childhood. You have recently been engaged in horse race betting activities and have progressively increased the scale of your activity. You make a number of bets per week. You turn over a substantial amount of money weekly. You bet on a certain type of race. You do not employ a set strategy involving odds, probability or statistics in your betting activity. In addition to horse racing betting, you also place a number of bets per week on other forms of racing and the occasional bet on other sporting activities in which you have an interest. You spend a significant amount of time on your gambling activities per week. You have been actively engaged in betting activities in the past but on a smaller scale to your current activity. You do not keep detailed records of each wager you make with the online bookmaker. These details are automatically kept by the bookmaker for a time as online records. However you keep records for the purposes of cross-checking weekly settlements. Generally you make a fixed amount available for your betting activities. No separate bank account is maintained for the purposes of carrying on betting activities. Based on records available from your online bookmaker and the transactions with your bank account, you estimated your winnings from horse racing wagers to be substantial. You carry out the majority of your betting activities from your home. You do not rent or own an office for your betting activity. You have had no formal training and do not hold any qualifications in relation to gambling or gambling related activities. You have never owned a race horse or subscribed to a betting information service, and you do not employ anyone to assist you in your betting activities. You do not have a business plan or any similar document in relation to your betting activities. You intend on continue your gambling activities into the foreseeable future, and expected to increase your weekly turnover with increased capital and betting capacity. However you have no intention to employ people or rent an office premises to increase your betting capacity. You undertake your horse betting activity for pleasure and believe it is a hobby.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Subsection 6-5(2) | Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: Subsection 6-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that assessable income is made up of both ordinary income and statutory income. Ordinary income Under subsection 6-5(2) of the 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. Carrying on a business Section 995-1 of the ITAA 1997 defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'. 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. There have been numerous Federal Court cases relating to the issue of whether a taxpayer was carrying on a business of betting or gambling. However the criteria in Brajkovich v. FC of T 89 ATC 5227; (1989) 20 ATR 1570 ( Brajkovich's case ) 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. Of these cases, the circumstances in Brajkovich's case is most similar to yours. In Brajkovich's case , the taxpayer had amassed sufficient wealth to enable him to withdraw from his employment and devote himself to a business of gambling. The taxpayer commenced gambling on horse races and on games of cards in which he was playing. After suffering heavy losses from gambling, the taxpayer resolved to gamble only in a small way and for purely recreational purposes. The court identified the following criteria for determining whether or not a person is in the business of gambling. No one criteria is decisive, and they must be considered in combination and as a whole. These criteria are: 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 gambling activities are conducted. For example, whether the taxpayer rents an office, employs staff, uses a database to calculate odds, takes steps to lessen and exclude the element of chance, maintains adequate records, and whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business. The scale of the gambling activities The volume and size of bets are significant in most forms of gambling. However, the Court in Evan's case found that scale itself is not determinative of the outcome. The taxpayer in Brajkovich's case did not carry on a business of gambling. The taxpayer bet over $950,000 in three years and was involved in horse training. Whether betting is related to or part of other activities of a businesslike character Generally where 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's case ). The taxpayer in that case conducted a business as a bookmaker and also had interests in a horse training businesses. Whether the gambling activity is principally for profit or principally for pleasure? In Brajkovich's case 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". A taxpayer does not need to have a profit making intention. Consideration is given to the time spent on racing and betting operations, the proportion of assets and income applied, and the systematic methods employed. The court in Babka's case proceeded on the assumption that a mere punter may be carrying on a business but found the taxpayer lacked the concept of conducting business in a systematic, organised and businesslike way because: • the taxpayer did not follow any betting system although he placed bets in accordance with several guiding principles • judgment and instinct which both played a part in the taxpayer's selection of horses on which to bet as well as in his choice of the amount and type of bet placed was enough to negate the concepts of system and organisation, and • the intrusion of chance into the activity as a predominant ingredient will generally preclude finding mere punting to constitute a business. Whether the form of betting chosen is likely to reward skill and judgement or depends purely on chance In Brajkovich's case the Court said: Gambling which involves a significant element of skill, for example a professional golfer's betting on himself, is more likely to have tax consequences than gambling on merely random events. It is difficult to imagine how people in the latter category could be regarded as in a gambling business. Particularly this is so where the house takes a percentage, so that the overall result is necessarily a continual diminution of the collective funds of the customers. Although many roulette players sometimes earn substantial sums by their efforts, it is hard to see how one could characterise as a business playing a game in which the results are (or should be) purely random and in which there is a high probability that each player will lose in the long run… Whether the gambling activity is of a kind ordinarily thought of as a hobby or pastime Gambling 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. Application to your circumstances In your case, you have had an interest in horse races and horse race betting since you were a child. Despite the fact that you may have gained experience in gambling over this time, it is still considered that your overall financial gains will be dependent on chance rather than skill. Whilst the scale of your betting activity when compared to Brajkovich's case is considerable, as noted in Evan's case this is not determinative as to whether a business is being carried on. Further, your gambling activities do not appear to be systematic or organised in a businesslike manner. As in Babka's case your gambling activities cannot be said to exceed that of a keen follower of horse racing. Therefore you are not considered to be carrying on a business and the winnings you receive in relation to this activity are not assessable under section 6-5 of the ITAA 1997. Further the expenses related to the activity are not deductible under section 8-1 of the ITAA 1997. | Detailed Reasoning - Statutory income: Section 6-10 of the ITAA 1997 states that statutory income includes amounts that are not ordinary income, but are included as assessable income by provisions of the tax law. There is no provision of tax law that includes income received from your gambling activities as statutory income.