Private ruling: Your application for a Private Ruling
Date of advice: 17 December 2015
Published: February 2016
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2011

Ruling: Q1: Do the proceeds from your personal gambling activities constitute assessable income to you? | A1: No | Q2: Are outgoings relating to the purchase of gambling tickets deductible to you? | A2: No | Q3: Are rebates, bonuses and free games relating to your gambling activities assessable income to you? | A3: No

Relevant facts and circumstances: You have ceased to be a resident of Australia for the purposes of section 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). Australia will remain your domicile. You undertake personal betting and gambling on a regular basis. You play as a gambler not as the operator of the gambling game in Australia. In relation to your personal gambling you play with others. Bets are placed with an operator located inside the venue who print out your tickets using a standard terminal. Numbers are selected in groups and these groups are then combined to cover multiple combinations. You transfer money from your personal bank account to the gambling venue to allow bets to be placed on your behalf. Distributions are proportionate to the level of risk in each game. Your wins and losses are tracked via a spreadsheet which is sent to you periodically. Your share of the winnings is sent to you electronically. Rebates are offered by the gambling venue to everyone who plays. They are calculated as a percentage of turnover above the minimum threshold. Rebates are paid as cash. Bonuses are free games the operator offers to players who buy a large number of games in advance. For example, if you buy 50 games in advance, the operator may charge you $48 instead of $50. You add rebate payments to your win-loss amount and distribute them proportionally.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 6(1) | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 subsection 6-5(1) | Income Tax Assessment Act 1997 subsection 6-5(3) | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 Part 3-1 section 118-37

Reasons for decision: Summary: Your participation in gambling activities undertaken by you personally is not considered to be the carrying on of a business. Therefore, the winnings you receive in relation to your personal gambling activity will not constitute assessable income to you and the losses and expenses you incur related to the activity will not be deductible. | Detailed Reasoning - Detailed reasoning: Subsections 6-5(1) and 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provide that the assessable income of a foreign resident includes ordinary income derived from all Australian sources. 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. Section 6-10 of the ITAA 1997 also includes in assessable income amounts that are not ordinary income but are included in assessable income by another provision (called statutory income). Section 8-1 of the ITAA 1997 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, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. 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; or conducting a business from which gambling is seen to be an integral component. If there is not a business, then the activities giving rise to the winnings will be no more than the pursuit of a pastime, no matter how vigorous the pursuit. Furthermore, gambling winnings and losses are specifically excluded from the capital gains and capital losses provisions by Part 3-1 section 118-37 of ITAA 1997. A licensed casino operator or bookmaker will be carrying on a business; the income of such a business is assessable and the losses and outgoings deductible on ordinary principles. Private gamblers, on the other hand, have usually been held not to be carrying a business, no matter how dedicated and systematic the pursuit of their gambling activities may be. There are suggestions in early court cases that a taxpayer who is associated or identified with, say, the horse-racing industry in some capacity as a breeder or trainer, and who also bets in a systematic way, may be found to be carrying on a business so that the taxpayer's winnings are assessable and the losses deductible. Refer to 7 CTBR (NS) Case 46; 7 CTBR (NS) Case 72 and 8 CTBR (NS) Case 134. As to private gamblers, there is a suggestion in the judgment of Hill J of the Federal Court in Babka v FCT (1989) 20 ATR 1251 at 1257; 89 ATC 4963 at 4968 ( Babka ) that it is possible to distinguish among different kinds of gambling on the basis of the degree to which pure chance affects the outcome of each wager, or whether the gambler's skill plays a significant part. On this basis, the skilful card player who plays every day and who can rely of his or her skill in, for example, memorising the cards played, is more likely to be found to be carrying on a business than a punter who concentrates on betting on horse and/or dog races, where he or she is in no position to affect the outcome. The question of whether winnings are assessable and losses deductible therefore depends on the answer to the question, whether or not a business of gambling is being carried on. Income Tax Ruling IT 2655 discusses the Commissioner's opinion on whether gambling can be considered to be carrying on a business. The 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 , although mere punting may constitute a business, "the intrusion of chance into the activity as a predominant ingredient" will generally preclude such a finding... The court in Brajkovich v. FT of T 89 ATC 5227; (1989) 20 ATR 1570 ( Brajkovich ), have identified 'principal criteria' for determining whether or not a person is in the business of gambling. Whilst these criteria relate to wagering activities in respect of horse racing they have general application to other forms of gambling. These criteria include: 1. 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 taxpayer conducted his gambling activities, i.e. did he rent an office, employ staff, did he take steps to lessen and exclude the element of chance, did he maintain adequate records in respect of his position from day to day and week to week, and if records were kept, for what purpose were those records kept. In Babka the court stated at 89 ATC 4970: I should however 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.'' Your personal gambling activity does not exhibit any elements of being systematic, organised or businesslike. You do not rent an office or personally employ staff. You keep no formal account records of your personal gambling. You do not use any specialised software to assist you in making bet selections. Your bet selection is based on experience and gut feel. Whilst your bet selection may be skilful it does not eliminate chance. Your personal gambling is not organised in a systematic, organised or businesslike way so as to gain a more favourable advantage or have a level of sophistication that eliminates chance, therefore this criterion is indicative of there being no business. 2. The scale of the gambling activities, i.e., the size of wins and losses. The court in Evans v. FC of T 89 ATC 4540; (1989) 20 ATR 922, has said that scale of itself is not determinative of the outcome. Therefore in your case the scale of your personal gambling activities will not be determinative in deciding whether or not you are carrying on a business. 3. Whether betting is related to or part of other activities of a businesslike character, e.g. breeding horses. In most cases where there is a finding that a taxpayer is carrying on a business of betting or gambling, the betting transactions are closely connected with some other activity which in itself constitutes a business carried on by the taxpayer, for example, breeding or training horses or bookmaking ( Prince v. FC of T (1959) 7 AITR 505; 12 ATD 45; 33 ALJR 172, Vandenberg v. C. of T. (N.S.W.) 50 W.N. (N.S.W.) 238; 2 ATD 343). In your case, you have stated that your personal gambling activity is not carried out as an adjunct to any other business activity. Therefore this criterion does not point to the conclusion that you are carrying on a business of gambling. 4. Whether the gambler appears to engage in the activity principally for profit or principally for pleasure. The courts have found that such issues as attendance at race meetings, a passion for gambling, etc, need to be considered when concluding whether the activities are conducted for profit or pleasure. In Brajkovich the court stated at 89 ATC 5233-5234: We agree also 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 [and that] 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. You state that you have been a gambler for most of your adult life. Your gambling is undertaken in the hope and never the certain expectation that you will win. It does appear that whilst you may gamble in the hope of making a profit that this is not the deciding factor in why you gamble, especially given that you have stated that your gambling results vary from significant gains to significant losses. On balance it would appear that your personal gambling is undertaken principally for pleasure. This criterion indicates you were not carrying on a business, even though it is preferable from your view that you make a profit from the activity. 5. Whether the form of betting chosen is likely to reward skill and judgement or depends purely on chance. In the case of Brajkovich it was established that there is a chance-to-skill spectrum and gambling which depends on a 'significant element of skill…is more likely to have tax consequences than gambling on merely random events' ( Brajkovich at 89 ATC 5233 and 20 ATR 1576-77). The Commissioner is of the view that successful betting and gambling is still subject to the whims of chance. By the application of skill, you may have reduced your chances of a loss; however, your overall gains are dependent on chance rather than skill. In Babka the court at 89 ATC 4968-4969 commented on 'chance' and 'skill': It would, for example, seem impossible to imagine a taxpayer carrying on a business of buying lottery tickets. That presumably is because no matter how systematic a purchaser of lottery tickets may seek to be, no matter how frequent his bets or how large the sum he gambles, the odds will always be such that the outcome will predominantly depend upon chance. Yet 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. The outcome of a bookmaker's business must depend to some degree on chance yet it has always been regarded as a business. Of the bookmaker's business it can be said that the bookmaker has, by laying off his bets and averaging them in his dealings with the public, by ``balancing his book'', been able to reduce his odds to the point where there is sufficient skill to see the activity as systematic and businesslike being directed to a profit which it is hoped will eventuate… as to the card player, it seems to me with respect that a person who played cards not for pleasure but with a view to profit might properly be said to carry on a business at least in cases where the game played depends to a substantial degree upon skill so that the player can, for example by using his ability to memorise cards, affect the outcome. A punter, particularly one betting upon the on-course totalizator or the TAB cannot affect the outcome of the race nor can he dictate the odds which he will receive… The punter stands somewhere in between the skilled player of cards in a game not totally dependent upon chance and the person buying lottery tickets. In favour of the activity being capable of being a business is that system, skill and organisation can all play a part in reducing although not eliminating the element of chance, especially where the punter bets with a bookmaker rather than on the on-course totalizator or TAB. In favour of mere punting being inherently incapable of being a business, is, that at the end of the day no matter how informed a punter may be and no matter how systematic he may seek to make his endeavours, there are so many chance factors intervening over which he has no control, that chance probably remains the predominant factor in the outcome. Where chance ultimately predominates there is something unusual about speaking of a profit motive yet it seems quite clear that the motive of making a profit generally forms an essential element in the factual matrix which leads to the conclusion that a particular activity is a business. This is not to suggest that a punter does not hope to win, clearly he does but one more readily refers to the punter's motive as "to be to win'' rather than to make a profit. In your case no matter how systematic or frequent your gambling may be, and no matter how much you gamble in dollar terms the outcome will always predominantly depend upon chance rather than the exercise of a substantial degree of skill. On consideration of your facts your personal betting/gambling activity lies towards the chance end of the chance to skill spectrum. This criterion indicates you were not carrying on a business of gambling. 6. Whether the gambling activity in question is of a kind which is ordinarily thought of as a hobby or pastime. The more closely an activity is identified as undertaken for recreational purposes as a hobby or a pastime, the less likely it will be characterised as a business and thus less likely to have tax consequences. The 'conventional' forms of gambling have a strong association with the concept of recreation and in some cases, are a social or community activity. In your case, the gambling you undertake with others has a strong link with recreation or with a social or community activity. This type of personal gambling undertaken by you is ordinarily thought of as a hobby or pastime rather than engaging in a business. In Babka at 89 ATC 4971 it was held that: 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. On a consideration of the overall facts in your case and those indicators discussed above, your circumstances in relation to your personal gambling activities characterise your gambling as private or recreational, and undertaken as a hobby or pastime. | Detailed Reasoning - Conclusion: On the basis of all the indicators above, it has been determined that you are not carrying on a business of gambling and, as such, your winnings from your personal gambling are not assessable under section 6-5 of the ITAA 1997 and the losses and expenses related to the activity will not be deductible under section 8-1 of the ITAA 1997. | Detailed Reasoning - Question 2: Are outgoings relating to the purchase of tickets deductible to you? | Summary: Your outgoings relating to the purchase of tickets are not deductible expenses under section 8-1 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: As discussed in Question 1 above, it has been determined that you are not carrying on a business of gambling and, as such, your winnings from your personal gambling are not assessable under section 6-5 of the ITAA 1997 and the losses and expenses related to the activity will not be deductible under section 8-1 of the ITAA 1997. | Detailed Reasoning - Question 3: Are rebates, bonuses and free games relating to your gambling activities assessable income to you? | Summary: Rebates, bonuses and free games relating to your personal gambling activities are not assessable income under section 6-5 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: As discussed in Question 1 above, it has been determined that you are not carrying on a business of gambling and, as such, your winnings, including rebates, bonuses and free games relating to your personal gambling are not assessable under section 6-5 of the ITAA 1997.