Private ruling: Are you carrying on a business for tax purposes
Published: July 2013
Ruling period: Year ended 30 June 2008 | Year ended 30 June 2009 | Year ended 30 June 2010 | Year ended 30 June 2011 | Year ended 30 June 2012
Date scheme commenced: 1 July 2007

Ruling: Q1: Are you carrying on a business for tax purposes? | A1: No. | Q2: Is the income you receive from gambling activities assessable? | A2: Not applicable as you are not carrying on a business. | Q3: Are you entitled to claim deductions in regards to gambling activities? | A3: Not applicable as you are not carrying on a business.


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 on whether betting and gambling can be considered to be carrying on a business. This 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 v FC of T 89 ATC 4963; (1989) 20 ATR 1251, 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 ( Brajkovichs case) , identified the following criteria for determining whether or not a person is in the business of gambling. These criteria are: | Detailed Reasoning - 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 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? | 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 itself is not determinative of the outcome. The taxpayer in Brajkovichs case did not carry on a business of gambling. The taxpayer bet over $950,000 in three years and was involved in horse training. | Detailed Reasoning - 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 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 a horse training business. | Detailed Reasoning - 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 considering if the activities are conducted for profit or pleasure. In Brajkovichs case the Court said "the gambler who seeks to demonstrate that he is a businessman has more to show than those who engage in more conventionally 'commercial' activities". | Detailed Reasoning - 5. Whether the form of betting chosen is likely to reward skill and judgement or depends purely on chance: In Brajkovichs case 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 | Detailed Reasoning - 6. Whether the gambling activity is of a kind ordinarily thought of as a hobby or pastime: Betting on 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 ( Babkas 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 Babkas case , the taxpayers 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. We have determined in your circumstances that you are not carrying on a business of gambling. Although you use websites and Sky Channel to monitor prices/odds, have a staff member who maintains details records and have relationships with a network of trainers and owners, there is still a high element of chance involved. By using your techniques to choose which events to bet on, you may reduce the odds on your gambling activities, however, your overall gains are dependant on chance rather than skill. We acknowledge that you keep results and relevant records and that you invest significant time and money into your activities. However these factors do not amount to carrying on a business. While your activities have some elements of being systematic and organised, mainly due to the use of websites, Sky Channel and the relationships you have formed, the use these factors alone do not lend themselves to the existence of a business. As in Babkas case your activities can not be said to exceed that of a keen follower of sports. 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. 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.

Relevant facts: You maintain a betting system. | You partake in a substantial and systematic approach to investment/betting. | You use computer websites and Sky Channel to monitor prices/odds. | On average you spend about eight to 10 hours per week on betting activities, all from your home office or business premises. | You only attend the track once or twice per year. | · You maintain detailed records of your bets which are maintained by a staff member. | Relationships are fostered with a network of trainers and owners in order to receive betting information, to maximise return in the form of more educated decisions geared towards receiving better fluctuations than the average punter. | You also invest in X for the sole purpose of building an insider information network of relationships, fostered to generate maximum betting returns from your gambling activities.