Private ruling: Am I in Business - Gambling
Published: November 2011
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Is the income you receive from betting and gambling assessable? | A2: 

Relevant facts and circumstances: You gamble on horse racing. You bet through the internet, at TAB outlets and at racecourses. You average less than 50 bets a week and bet sums of less than $60 per bet with an average bet of less than $15. You do not have a business plan. You undertake this activity for pleasure and for profit. Your strategy is to research the horses in the race and pick the best horse you believe will win the race and you also consider the market and the odds on the race. You do not use any systems or models when placing your bets. You undertake research using resources such as the internet, newspaper, best bets and information from the TAB. You do not seek advice before placing a bet. You do not employ anybody in connection with this activity. Apart from gambling you have no other interest in the horse racing industry.

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 Paragraph 118-37(1)(c).

Reasons for decision: Summary: Under subsection 6-5(2) of the Income Tax Assessment Act 1997 (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. Section 6-10 of the ITAA 1997 provides that 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. 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. Taxation 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's case ) identified the principal criteria for determining whether or not a person is in the business of gambling: 1. Whether the betting is conducted in a systematic, organised and businesslike way. 2. The scale of the gambling activities. In Brajkovich's case the taxpayer bet over $950,000 in three years and was involved in horse racing but was found not to be carrying on a business of gambling. 3. Whether betting is related to or part of other activities of a businesslike character. 4. Is the gambling activity principally for profit or principally for pleasure. 5. Whether the form of betting chosen is likely to reward skill and judgment or depends purely on chance. 6. Whether the gambling activity is of a kind ordinarily thought of as a hobby or pastime. In Babka v. FC of T 89 ATC 4963; (1989) 20 ATR 1251 ( 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, the information provided indicates the activity is not carried on in a systematic, organised and businesslike way. The scale of your betting activity is small when compared to Brajkovich's case . In addition, you do not have any other business activity related to your betting and gambling activity. You do not have a business plan and you have undertaken this activity for the purpose of making a profit and for pleasure. While you use your own judgement and carry out research as to which horse may win a certain race, your overall gains are dependent on chance rather than skill. The amount of time and effort involved in your betting activity does not turn your activities into a business. While your activities have some elements of being systematic and organised, mainly due to the use of the internet and research undertaken, these activities do not support the existence of a business. As in Babka's case your activities cannot be said to exceed that of a keen follower of the turf. As you are not carrying on a business of betting or gambling, the winnings you receive in relation to this activity are not assessable under section 6-5 of the ITAA 1997 and the expenses related to the activity are not deductible under section 8-1 of the ITAA 1997. Note: Paragraph 118-37(1)(c) of the ITAA 1997 provides that a capital gain or loss relating to gambling is disregarded. No other provision of the ITAA 1997 applies to your betting and gambling activities. As such your betting and gambling winnings are not assessable and the associated losses are not allowable deductions.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Can you claim deductions for expenses relating to your betting and gambling activities?