Private ruling: Assessable income
Date of advice: 7 August 2019
Published: October 2019
Ruling period: 1 July 2015 to 30 June 2016 | 1 July 2016 to 30 June 2017 | 1 July 2017 to 30 June 2018 | 1 July 2018 to 30 June 2019 | The scheme has commenced | The scheme has commenced.

Ruling: Q1: Are the losses incurred by the Taxpayer from the Syndicate's betting and gambling activities deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. | Q2: Are any proceeds received from the Syndicate's betting and gambling activities assessable income under section 6-5 of the ITAA 1997? | A2: No.

Relevant facts and circumstances: 1 Syndicate (a) Each Applicant (Taxpayer) is a member of a syndicate (Syndicate) which undertakes betting and gambling activities (Activities). (b) The Syndicate was formed by friends who are sports and gambling enthusiasts. (c) The syndicate does not have: (i) any formal agreements or other documents governing the Syndicate or its Activities; (ii) a business plan, budgets or income projections; or (iii) security or risk management arrangements amongst the members of the Syndicate; nor does the Syndicate contemplate any of them. The members of the Syndicate verbally agree to participate in the Activities of the Syndicate. (d) The members of the Syndicate informally agree on the percentage share of proceeds and losses for each member on an ad hoc basis. The Syndicate's discussions are informal. The Syndicate never has an agenda and no minutes are kept. (e) The Syndicate does not: (i) have a management or executive authority; (ii) employ any person; (iii) have any service providers for software, operational resources or otherwise; or lease or utilise any space. (f) Limited administration is undertaken in the Syndicate. To the extent that any administration is required each member of the Syndicate contributes to the Syndicate's administration on an ad hoc basis. (g) Decisions of the Syndicate are made by consensus. Decisions are made either unanimously or by majority after informal discussion. (h) The Taxpayer and each other member of the Syndicate has authority and discretion to place bets on behalf of the Syndicate based on their judgement and personal experience. (i) Each member of the Syndicate conducts its Activities in one or more of the following ways: (i) from their main residence using their personal computers; and/or (ii) remotely using their laptop or mobile phone (e.g. text messages or other instant messaging services). (j) There is no regular pattern or strict process to the Syndicate's Activities. (k) The time each member spends on the Syndicate's Activities varies during the year and is highly dependent on sporting seasons. (l) The Syndicate's founding capital was contributed from personal funds of Syndicate members. (m) The Taxpayer and each other member of the Syndicate receives a percentage of overall Syndicate proceeds or losses. These percentages are verbally agreed and adjusted at irregular intervals. (n) No member of the Syndicate has a legal right to any defined amount of any wins (or losses) from the bets placed on the Syndicate's behalf. 2. Gambling (a) The Syndicate's Activities were founded and are undertaken principally for pleasure and recreational purposes, rather than for profit. The element of sport, excitement and amusement is the main attraction for each member of the Syndicate to undertake the Syndicate's Activities. (b) The Syndicate primarily bets on X sport as well as a number of other sporting competitions and random events. (c) The Syndicate has no influence or control over the results of the sporting events that the Syndicate places bets on. (d) The Syndicate bets in a variety of ways. (e) The Syndicate does not engage in market-making activities or lay odds on betting exchanges. The Syndicate does not pursue guaranteed income opportunities such as selling tips, rake-back deals, arbitrage opportunities or totaliser overlays. Each bet placed by the Syndicate is limited to simple wagers against a professional bookmaker's fixed price line. Other betting accounts of the Syndicate are in the names of Syndicate members. All Syndicate members have access to the account balances and to view the Syndicate's financial position. The Syndicate does not have any shared bank accounts. (f) The Syndicate operates on a "trust" basis. The Syndicate seeks to place high bets as the entertainment value increases as the quantum of the bet increases. The Syndicate is willing to take the risk as Syndicate members enjoy high stakes gambling. (g) Each member of the Syndicate spends on average approximately B hours per week on the Activities by placing bets. However, the Activities are conducted on an ad hoc basis. Some weeks no bets are made at all and other weeks bets are made more frequently. (h) During the X sport season, the Syndicate bets a few days per week, (i) During the X sport off season, the bets are made less frequently and some weeks no bets are made at all. (j) The members of the Syndicate often refer to the Syndicate's databases to place bets. The databases contain a record of various statistics from the previous X sport seasons. The Syndicate considers the database can assist in making successful bets and the members of the Syndicate typically place bets with reference to the database. (k) Hundreds of bets can be placed per week during the X sport season. 3. Knowledge (a) The Syndicate maintains several databases which consist of a large majority of data acquired from the Internet or occasionally from manual data entry. The databases are essentially a compilation of publicly available data and statistics of historical data from various events. The Syndicate's database is used by members to collect and access information on past trends and identify situations that were historically profitable to bet. Broadly, members use the database for information (i.e. sporting statistics) and search for combinations of factors/statistics that have historically led to a profitable bet. Members then highlight future situations that have a similar combination of factors. The decision whether to place a bet is made by the member based on these factors and their instinct. The Syndicate has no specific 'safeguards', although it is common for Syndicate members to discuss a bet before placing one rather than making a unilateral decision to place a bet. In other words a member rarely makes a bet without discussing the bet (including the quantum of the bet) with the Syndicate. (b) Broadly, the Syndicate maintains a database for the sports it bets on, but not for other sports (on which bets are placed purely on a willingness to gamble). The members of the Syndicate conduct analysis using this data. The members of the Syndicate find personal enjoyment in collecting and analysing this data. The collection and analysis of the data is conducted on an ad hoc basis. (c) Each member of the Syndicate contributes to the databases. (d) The Syndicate uses only software, tools and data available to the general public. (e) The Syndicate's bets are placed using a combination of the analysis of the internally developed databases and the personal experience and judgement of Syndicate members. (f) The Syndicate does not use computer programs to place bets. Further, the Syndicate does not rely on computer programs to automate the betting process or identify the most profitable bets. (g) The Syndicate does not have access to any insider sources of information and all information that is used by the Syndicate is available to the general public. (h) No member of the Syndicate is involved in any professional undertaking related to any of the sports on which bets are placed. (i) Some members of the Syndicate hold tertiary qualifications. In all cases, Syndicate members were invited to join and joined the Syndicate on the basis of longstanding friendship and an interest in gambling. (j) The Syndicate's Activities are not undertaken in association with any other related business activities such as horse breeding or training. 4. Proceeds (a) The Syndicate's funds are held by various members of the Syndicate and its agents. (b) The Syndicate's funds are considered to be collectively owned by the Syndicate. The Syndicate's funds fluctuate with wins and losses. The Syndicate does not generally bet on credit. (c) The Syndicate is always exposed to risk and is never in a "no loss" position. 5. Computer Programs The Syndicate does not use software to place bets in an automated way. All bets are placed either manually by Syndicate members or by an agent. Accordingly, the Syndicate has a completely manual betting approach to ensure bets are placed at the discretion of members of the Syndicate based on their personal judgement and experience. 6. Data Analysis Data analysis takes place on an ad hoc basis. The data analysis is relatively simple and usually involves finding subsets of historical games that match a pattern based on instinct. The Syndicate's software assists in collecting and collating game and odds data. This would otherwise have to be a manual process. The Syndicate collects and analyses historical results as that data will enable the Syndicate to identify betting opportunities. The Syndicate never uses any form of arbitrage or risk reduction. The Syndicate is always exposed to risk and is never in a 'no loss' position. The Syndicate's database does not directly recommend bets. The database generates an estimation which is then considered by Syndicate members who make the final decision about whether to bet and the quantum of the bet based on instinct.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Section 8-1

Reasons for decision: Summary: The Commissioner does not consider the Syndicate's Activities constitute the carrying on of a business of betting and gambling. Accordingly, any winnings you have received in relation to those activities are not assessable income in terms of section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) and the expenses related to those activities are not deductible under section 8-1 of the ITAA 1997. Any losses are not deductible. | Detailed Reasoning - Detailed reasoning: Subsection 6-5(2) of the ITAA 1997 includes the ordinary income derived directly or indirectly from all sources in and out of Australia as the assessable income of an Australian resident. Ordinary income has generally been held to include three categories of income. They are 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 the operation of another provision of the legislation, are called statutory income and are also included in the assessable income of an Australian resident. 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 assessable income, or necessarily incurred in carrying on a business for the purposes of gaining or producing assessable income. This is except to the extent the outgoings are of a capital, private or domestic nature or relate to the earning of exempt income. Where you are carrying on a business of betting and gambling the wins from betting and gambling will be assessable in terms of section 6-5 of the ITAA 1997. Taxation Ruling IT 2655 Income tax: betting and gambling - whether taxpayer carrying on business of betting or gambling (IT 2655) contains the Commissioner's view on whether betting and gambling can be considered to be the carrying on of a business. In IT 2655 it is stated: 6. The Commissioner accepts that it is possible for a mere punter to be carrying on a business of betting or gambling but considers that it will be rare for a taxpayer with no connection with racing other than betting to be carrying on a business of betting or gambling. 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. The court in Brajkovich v FC of T 89 ATC 5227; (1989) 20 ATR 1570 ( Brajkovich ) identified criteria for determining whether or not a person is in the business of gambling. The criteria are: 1. Whether the betting is conducted in a systematic, organised and businesslike way Australian courts have held that to determine this issue, it is necessary to examine the manner in which the gambling activities are conducted. For example, did the taxpayer rent an office, employ staff, use a database to calculate odds, take steps to lessen and exclude the element of chance and maintain adequate records? In the present case the taxpayer and associates did not rent an office, did not employ staff, did not use a database to calculate odds, did not take steps to lessen and exclude the element of chance and did not maintain adequate records in a business sense. Instead the taxpayer and associates operated from their home or by use of their mobile phone away from their home, engaged friends as agents to place bets on their behalf and engaged acquaintances as agents to provide overseas betting accounts through which those agents placed bets at the request of the taxpayer and associates, and used a database to collect and collate information that was consulted when deciding whether or not to make a wager; The taxpayer and associates state that "the Syndicate never uses any form of arbitrage or risk reduction"; and the Syndicate maintained records of betting account balances. Although this represents a systematic and organised operation it is not conducted in a manner that amounts to the carrying on of a business. 2. The scale of the gambling activities The volume and size of bets are significant in most forms of gambling. However, the court in Evans v FC of T 89 ATC 4540; (1989) 20 ATR 922 found that scale itself is not determinative of the outcome. The taxpayer in Brajkovich did not carry on a business of gambling. The taxpayer placed bets of over $950,000 over three (3) years and was involved in horse racing. In the present case the betting activity of the Syndicate can be distinguished as taking place in two distinct periods during an income year. First there is the X sport season when the estimated value of bets placed each week is in the range from $E million to $F million. Secondly, there is the X sport off season when the bets range from nil to $G million in any week. The proceeds from the Syndicate's Activities are significant. However, when considered together with the other features of the Syndicate's Activities, this scale of operation alone does not mean that the betting and gambling activities constitutes the carrying on of a business. 3. 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 race horses ( Prince v FC of T (1959) 7 AITR 505; 12 ATD 45). The taxpayer in that case conducted a business as a bookmaker and also had an interest in a horse training business. In the present case no member of the Syndicate is involved in any professional undertaking related to any of the sports on which bets are placed. 4. Whether the gambling activity is principally for profit or principally for pleasure? Issues such as attending race meetings and having a passion for gambling need to be considered when determining whether the activities are conducted for profit or pleasure. In Brajkovich Pincus, French and Gummow JJ at pp 5233-5234 said: We also agree with the learned primary Judge that, in his punting and card-playing activities, the appellant was not engaged in any business. His evidence shows that he had from his youth a simple passion for gambling on a large scale, on the authorities, merely indulging that, without more, is not engaging in a business. And more as a matter of usage than logic, it may be said that the gambler who seeks to demonstrate that he is thereby a businessman has more to show by way of system and profit motive than those who engage in more conventionally 'commercial' activities. In the present case each member of the Syndicate is a sports and gambling enthusiast who has a passion for gambling which began at a young age, The members of the Syndicate find personal enjoyment, excitement and amusement in the Activities of the Syndicate. The Syndicate's Activities were founded (and still are undertaken principally) for pleasure and recreational purposes, rather than for profit. The element of sport, excitement and amusement is the main attraction for each member of the Syndicate to undertake the Syndicate's Activities. The taxpayer and associates do not have a principal motive of profit in the conduct of the betting and gambling activities. The principal motive of those activities is pleasure. 5. Whether the form of betting chosen is likely to reward skill and judgement or depends purely on chance In Brajkovich Pincus, French and Gummow JJ at p 5233 said: On the question of skill and chance, some comment should be made. 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 mere random events. It is difficult to imagine circumstances in which people in the latter category could be regarded as in a gambling business. Particularly is that so where the form of gambling chosen is such that 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. In the present case the taxpayer and associates are predominantly placing bets on the outcome of sporting contests involving humans. The Syndicate has no influence or control over the results of these sporting events. The outcome in this form of betting although requiring some skill and judgement depends more on chance than skill and judgement. 6. Whether the gambling activity is of a kind ordinarily thought of as a hobby or pastime Betting on horse racing and other sporting events is ordinarily thought of as a hobby or pastime rather than engaging in a business. In Babka v FC of T 89 ATC 4963; (1989) 20 ATR 1251 ( Babka ) it was held by Hill J at p 4966 who said: ... a punter who did no more than bet, no matter how often and no matter how much he bet and no matter whether he adopted a 'system' and no matter how organised he was, could nevertheless never be found to be carrying on a business. In Babka , 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. In the present case the Syndicate's Activities predominantly involve betting on the outcome of X sport games as well as on other sports all of which feature in a comprehensive database of historical match statistics that is maintained by the Syndicate. This places the Syndicate's betting and gambling activities in the area that is ordinarily considered to be a hobby or pastime rather than the carrying on of a business. | Detailed Reasoning - Conclusion: The taxpayer and associates conduct some aspects of their betting and gambling activities in a sophisticated businesslike manner as those activities are systematic and organised to a high degree. The use of a comprehensive database as well as the collection and collation of the information in the database in respect of a number of sports and the creation of a network of agents for the purpose of placing high volume bets are instances of businesslike practices. However, the ever present element of chance in the outcome of the sports events upon which the Syndicate places bets means that the Syndicate's Activities cannot be the carrying on of a business. Therefore the taxpayer did not carry on a business of betting and gambling in the relevant income years ended 30 June 2016 to 30 June 2019 inclusive. Accordingly, the winnings received in relation to the betting and gambling activities are not assessable income in terms of section 6-5 of the ITAA 1997 and the expenses related to those activities are not deductible under section 8-1 of the ITAA 1997. Thus, any losses from those activities are not deductible.