Private ruling: Am I in business?
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2009

Ruling: Q1: Are you carrying on a business of gambling? | A1: No.

Relevant facts and circumstances: You and a friend began testing some gambling strategies on a betting exchange. You have also opened a bookmaker account. You bet on various events offered by the exchange. You conduct these activities in the hope of winning and having some enjoyment. You have developed a software program to be able to execute bets into the betting exchange automatically. Bets were placed when certain criteria was met which you deemed to be good bets. Criteria was developed via trial and error and perceived betting opportunities. You do not, nor do you expect to, use the software for a commercial benefit. You do not have a business plan. You mostly try to automate your betting processes; however you do have manual strategies that you execute yourselves via the website or your program. You control what days you want to run the software. It is not uncommon for you to bet on all days of the week if possible. Some days there are in excess of X bets ranging in amounts. You do not rent/own an office. You do not employ staff. You do not keep records. You rely upon the account balances as indication of how much you have made or lost. You and your friend made approximately $X, excluding expenses, in the last financial year. It is estimated that both you and your friend received around $X each in the 2009-10 financial year. Initially you and your friend spent roughly X hours a week developing strategies. Currently you spend X hours a week between you and your friend for software changes, analysing and monitoring of betting events. You also run other businesses that are separate to your gambling activities and unrelated to the events you gamble on. You spend X hours a week on these businesses.

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

Reasons for decision: Summary: You are not carrying on a business of gambling as you do not satisfy the indicators in Income Tax Ruling IT 2655. | Detailed Reasoning - Assessable income: A taxpayer is liable to tax on their taxable income derived during the income year. Taxable income is calculated by subtracting allowable deductions from the taxpayer's assessable income. | Detailed Reasoning - Ordinary income: Income is generally assessable as ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). Under subsection 6-5(1) of the ITAA 1997, ordinary income means income according to ordinary concepts. This phrase is not defined under the legislation. A large body of case law has developed to identify the factors that indicate if an amount is income according to ordinary concepts. | Detailed Reasoning - Statutory income: Under section 6-10 of the ITAA 1997 assessable income also includes statutory income. Statutory income includes amounts that are not ordinary income but are included as assessable income by provisions of the tax law. | Detailed Reasoning - Deductible expenses: Under section 8-1 of the ITAA 1997 you can claim deductions for expenses to the extent they are incurred in gaining or producing your assessable income, or they are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. You cannot claim deductions under section 8-1 of the ITAA 1997 for expenses to the extent to which they are of a capital, private or domestic nature or they are incurred in gaining or producing exempt income. A deduction is also not allowed where a provision of the tax law prevents it. | Detailed Reasoning - Gambling Income: Betting and gambling losses are not deductible under section 8-1 of the ITAA 1997 unless you carry on a business of betting or gambling. Income Tax Ruling IT 2655 discusses the Commissioner's opinion regarding carrying on a business of gambling. Ultimately each case will depend on its own facts. No decided Australian court case has found that the winnings of a mere punter are assessable (or that the losses are deductible). Mere punting may constitute a business; however, the element of chance as a predominant ingredient will generally preclude such a finding. The Court in Brajkovich v. FC of T 89 ATC 5227; (1989) 20 ATR 1570 ( Brajkovich ), identified the principal criteria for determining whether or not a person is in the business of gambling. | Detailed Reasoning - 1. Whether the betting is conducted in a systematic, organised and businesslike way: It is necessary to examine the manner in which the gambling activities are conducted. Did the taxpayer rent an office, employ staff, use a database for form guides or to calculate odds, take steps to lessen and exclude the element of chance, maintain adequate records of their position from day to day and week to week? You do not rent an office or employ staff. You do not keep records, you rely on the account balances to tell how much you've won or lost. This supports the view that you are not carrying on a business of gambling. | Detailed Reasoning - 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 does not solely determine the outcome. The taxpayer in Brajkovich did not carry on a business of gambling. The taxpayer bet over $950,000 in three years and was involved in horse training. This supports the view that you are not carrying on a business of gambling. | Detailed Reasoning - 3. Whether betting is related to or part of other activities of a businesslike character: Usually 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 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 interests in horse training businesses. You have no related activities besides the betting activities. This supports the view that you are not carrying on a business of gambling. | Detailed Reasoning - 4. Is the gambling activity principally for profit or principally for pleasure?: Issues such as attending race meetings and having a passion for gambling need to be considered when considering if the activities are conducted for profit or pleasure. You conduct your activity in your spare time and regard it as a hobby. This supports the view that you do not carry on a business of gambling even though you are endeavouring to earn a profit from it. | Detailed Reasoning - 5. Whether the form of betting chosen is likely to reward skill and judgement or depends purely on chance: In Brajkovich 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 You choose what sports and events to gamble on and how much to wager, however, your overall gains are dependant on chance rather than skill. | Detailed Reasoning - 6. Whether the gambling activity is of a kind ordinarily thought of as a hobby or pass time: Betting on horseracing 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 it was held: …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… | Detailed Reasoning - Application to your circumstances: We have determined that you do not carry on a business of gambling. We have based our decision on the indicators in IT 2655. The winnings you receive in relation to this activity are not assessable under section 6-5 or section 6-10 of the ITAA 1997. The expenses related to the activity are not deductible under section 8-1 of the ITAA 1997. If your circumstances change materially, you will need to reassess your situation. | Detailed Reasoning - Years ruled on: It is noted that you asked for the private ruling to apply from 1 July 2009 to 30 June 2019. The Commissioner does not rule for indefinite or extended periods as there may be changes to the facts of the arrangement or the law in question. Also, a public ruling may issue which affects the private ruling. Therefore, we have only ruled for the 2009-10 to 2012-13 financial years.

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