Private ruling: Am I in business? - gambling
Date of advice: 17 October 2017
Published: March 2018
Ruling period: Income year ending 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Will receipts from your personal gambling activities be assessable income in the 2018 income year? | A1: No

Relevant facts and circumstances: You are interested in many sports including racing and you are well known in the racing industry. You have bet on animal racing for many years. You place bets for smaller amounts and more infrequently than you have in the past. You are also interested in payment technologies and apps related to the racing industry. You previously operated a website which offered account management and payment services for people who wished to place sporting and racing bets. Bets lodged through the service would be sent to licensed operators. The operation did not have a pecuniary interest in the outcome of any bets placed through the service. You also have a website which portals bets made by players to licensed operators within Australia. You do not charge a fee for this service and the full amount of the bet is passed on to the licensed operator. You, and an associate, plan to begin placing bets in your personal capacity with bookmakers who are located outside of Australia in the 2018 income year. Your associate previously operated as a bookmaker. It is their intention to resume this activity. They will apply for a gambling license. You intend to place a high volume of bets and to bet large sums in order to access more favourable odds offered by bookmakers. You will place a variety of types of bets, and the bets may be pooled. You and your associate both gamble frequently, placing bets with professional bookmakers. You place bets separately, but often combine your funds and place bets together to access better odds offered for placing higher value bets. You often bet amounts over $100,000. You do not have a business plan in relation to your personal betting activity but you will employ a stop loss limit. You will utilise a laptop computer and betting software in the form of an historical database which keeps a record of all runs, finishing positions and times to conduct the activity. The software does not analyse the data for you, but you will use the information to analyse the outcomes of past and current bets to identify trends, calculate the amount of potential winnings and to assess the risk of losing. Your strategy will be to place bets on runners and combinations which offer higher odds than you have estimated. You intend to spend approximately ten hours per week on the activity, but this may increase if you believe substantial wins are possible. You intend to fund the activity with your own money and with a private loan. Interest will be payable on the loan. The loan will be sourced within Australia. You will not form a betting syndicate but you may approach others to participate in the overseas betting activities, in order to increase the pool of funds available to bet. You will not charge other participants a fee, or take a percentage of their share of the win in return for facilitating the bet. You will share the proceeds of a winning bet with other participants in accordance with the percentage of their contribution to the sum which is wagered. Your personal betting activities will not be connected to your respective business pursuits and there will be no support, exchange of information or any other dependency from your business activities that could influence the betting activity, odds or outcome of your wagers. Neither yourself nor your associate own, breed or train these specific animals.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 995-1

Reasons for decision: Summary: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that 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. Amounts that are not ordinary income but are included in assessable income by another provision, are called statutory income and are also included in assessable income. You are allowed to claim deductions 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 income and losses are not deductible, 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. It has been accepted that a mere punter may be carrying on a business; however the intrusion of chance into the activity as a predominant ingredient will generally preclude such a finding. Taxation Ruling IT 2655 Income tax: betting and gambling – whether taxpayer carrying on a business of betting or gambling (IT 2655) discusses the Commissioner's opinion on whether betting and gambling can be considered to be carrying on a business. The ruling notes that ultimately, each case will depend upon its own facts, however the criteria identified in Brajkovich v. FC of T 89 ATC 5227;(1989) 20 ATR 1570 ( Brajkovich) and the factors considered in the cases of Evans v. Federal Commissioner of Taxation (1989) 20 ATR 922;89 ATC 4540 ( Evans ) and Babka v. Federal Commissioner of Taxation (1989) 89 ALR 373;20 ATR 1251;(1989) 89 ALR 373;89 ATC 4963 ( Babka ) should be taken into account. The matters to be considered are: ● whether the betting is conducted in a systematic, organised and businesslike way; ● scale: i.e. the size of the wins and losses; ● whether the betting is related to, or part of, other activities of a businesslike character, for example, breeding horses; ● whether the activity is engaged in principally for profit or principally for pleasure; ● whether the form of betting chosen is likely to reward skill and judgment or depends purely on chance; ● whether the gambling activity in question is of a kind which is ordinarily thought of as a hobby or pastime | Detailed Reasoning - Application to your circumstances: In your case, your personal betting activities will involve placing large bets to access better odds. You will place bets separately, and with your associate. You may approach others to pool funds but you will not form a syndicate. The scale of your activity is not the only factor which must be considered in determining whether in whether you are conducting a business of gambling. The fact that the races you will place bets on take place overseas does not, of itself, change the character of your activity from merely placing bets in your personal capacity to conducting a business of gambling. We do not consider that your personal betting activities will be conducted in a sufficiently systematic and businesslike manner to support the carrying on of a business of gambling for the following reasons: ● Your personal betting activity is and will be separate to your current and intended gambling related business activities. ● You will not derive any benefit in relation to your personal betting activities through the conduct of your business, such as the exchange of information, or the ability to influence outcomes. ● You do not have a business plan for the personal betting activities. ● You will devote relatively low amount of time to the activity. ● You will use your own judgement to determine which bets to place with reference to past results and the odds available, rather than having any control or influence over the outcome of the race. Accordingly, your winnings will not be assessable income and you will not be entitled to claim deductions or losses for costs or outgoings incurred in relation to your personal betting.

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