Private ruling: Betting activities - assessable income and allowable deductions
Date of advice: 26 May 2017
Published: September 2017
Ruling period: Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021
Date scheme commenced: 1 July 2016

Ruling: Q1: Are proceeds received from the betting activities conducted by the X syndicates assessable income under section 6-5 of the Income Tax Assessment Act 1997 (' ITAA 1997' )? | A1: Yes. | Q2: Can deductions be claimed for expenses relating to the betting activities conducted by the X syndicates under section 8-1 of the ITAA 1997? | A2: Yes. | Q3: Are the X syndicates considered partnerships for tax purposes? | A3: Yes. | Q4: Are the X syndicates entitled to input tax credits in respect of betting acquisitions pursuant to section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act')? | A4: Yes.

Relevant facts and circumstances: Background You are an Australian resident. You participate in X racing betting syndicates whose members share a common interest in probabilities, betting and gambling. You became a member of the syndicates when they commenced. The first bets placed on behalf of the X syndicates occurred in 20XX. Due to sustained losses incurred in early 20YY, one syndicate ceased all betting activity from early 20YY. This syndicate is now no longer active and no further betting activity will occur. The funds remaining in the betting account used by this syndicate are now in the process of being returned to syndicate members in proportion to their initial contributions. The other syndicate ceased all betting activity in one betting exchange in late 20XX due to sustained losses. This syndicate, whilst initially betting in X racing codes, ceased betting on one of those racing codes from early 20YY due to sustained losses. It is not anticipated that any further betting in this racing code will occur in the foreseeable future. The activities of this syndicate are now limited to betting on one racing code. Roles of the members in the syndicates One of the syndicate members (' administrator ') provides most (if not all) of the operational and administrative support. It includes liaison with betting exchanges, holding and management of betting accounts, as well as the licence of betting exchange trading software for the syndicates. This member is responsible for distributing any winnings to other syndicate members. Another syndicate member restarts internet enabled computers used by the syndicates once a week or after a Relevant update. This member ordered and paid for the computers and was reimbursed by the other syndicate members. All the computers are currently housed in the residence of this member. One member holds the licence for a data analysis and statistical software used by the syndicates. The other members do not actively participate in the day-to-day activities of the syndicates and are only required to monitor syndicates' performance on an ad hoc basis and to contribute towards the funding requirements of the syndicates. Operations of the betting syndicates The syndicates do not have formal business plans, nor projected income. They do not hire any employees, but they have engaged contractors for computer programming and operational resources on arm's length terms. The syndicates operate from the residential premises of a few active members who are undertaking day-to-day operational and administrative activities. These syndicate members do not charge money for providing operational and administrative support, resources and the use of the premises. The betting information is shared between syndicate members via the internet. The syndicates used a variety of computer software to collect, sort, compare and analyse publicly available data in an attempt to predict favourable outcomes for betting purposes. One of the syndicate members wrote the applications for automating data collection and betting. This member made the decision to engage a contract programmer to develop some of the routines that were proving difficult to achieve. The syndicates currently place bets exclusively with betting exchanges on a back and/or lay basis primarily in win markets and to a lesser extent in exacta markets. Place betting may also be considered in the future. Neither syndicate places bets with traditional bookmakers or into pari-mutuel totalisator pools. These types of bets may be considered in the future. The syndicates have never placed bets “In-Play”. It is not an objective of either syndicate to trade markets so that a “Green Book” is achieved. To fund the cash flow of the betting activities, the syndicates rely on funding solely from syndicate members and they do not intend to seek bank financing in this regard. The syndicates expect that several hundred thousand dollars may be required to fund the cash flow of their activities. The administrator holds betting accounts that are used exclusively for syndicate betting on behalf of the syndicates. The syndicates must ensure that sufficient funds are maintained in the betting accounts at all times to cover the maximum possible exposure of bets being made at any point in time. Agreements between syndicate members As a syndicate member, you do not have (nor contemplate to have) a formal agreement with other syndicate members. You have not met or spoken to all members in the syndicates, nor have the syndicates held a meeting with all members being present. Despite a lack of written agreements, it has been orally agreed (among members): ● the codes in which countries the respective syndicates will bet on; ● the betting medium for placing the bets; and ● capital contributions of members and the sharing of profits and losses. Admission and removal of syndicate members If they continuously lose the available funding allocated, the syndicates will accept new members. The percentage new members receive will need to be agreed upon by all members and the total must add up to 100%. This has not been formally documented but is understood by all members. No single syndicate member or sub-set of members can make the decision to approve a new or remove an existing member from either syndicate. Association with other related business activities Three of the syndicate members have a minor interest in the racing industry but no bets are placed by the syndicates in races in which those members have a connection. The other members do not have any connections with the racing industries in the markets in which the syndicates have placed bets. The syndicates' betting activities will not be undertaken in association with any other related business activities. Further, neither syndicate nor any syndicate member has access to insider information. Selection and betting process The recommended bets are determined by using various products which automate the data collection and the selection of bets that would have otherwise been made in a manual system. A specific product uses publically available information which is combined with the fixed odds on offer. It also ensures all required data inputs are available for the potential events in the markets upon which the syndicates operate. Once all conditions are satisfied, this product will estimate the relative chances of each contender in the event. It will then execute bets on the contenders where the odds available on the betting exchanges are sufficiently favourable by a minimum pre-determined margin when compared to the estimated relative chances. All bets are placed over the Internet by receiving triggers from the specific product. No bets are placed by telephone or in person even though this could be done. As a result of this automated betting system, the syndicates do not need to manually input data, compile reports or perform ongoing research. However, the syndicates and their members may produce their own reports using the standard reports available on the betting exchanges. The syndicate can also cancel or manually override the bet made on any particular entrant, event or class of event. For example, this may happen when a syndicate member is observing bets going to the exchange and is of the opinion that the bets may not be in the best interests of syndicate members. The syndicate member may make an immediate decision to override those bets. No record has been maintained of system recommended bets being overridden. Equipment In order to carry out the above automated betting activities of the syndicates, one syndicate purchased X internet enabled computers while the other syndicate purchased Z internet enabled computers. The computers are linked to the internet and the same local area network but not for the purpose of allowing updating and monitoring of betting information across computers. However, sharing of data occurs where multiple computers are betting in the same market. Betting Exchanges Betting exchanges are an online marketplace for punters to bet against themselves on various events around the world. Exchanges can work on lower margins resulting in better odds. One syndicate placed bets exclusively with one exchange, while the other syndicate initially placed bets with X exchanges. Due to continual loss, this syndicate ceased all betting activity with one of the exchanges from late 20XX, and now only places bets with one betting exchange. The betting exchanges act as facilitators by holding all the customers' money and settling all bets on behalf of those customers. The syndicates' betting exchange accounts are held as separate sub-accounts of the administrator's own betting account (' master account '). This member also has a personal bank account linked to these betting accounts. The administrator also held this syndicate's betting account with this betting exchange. No bank account was linked to this betting account. The betting exchanges charge a commission calculated by reference to the net winnings on a market. No commission is payable where a market results in a net loss. Commission is calculated by multiplying the net winnings by the market rate less a discount which is based on historical betting activity. The discount rate is determined by the number of points earned in proportion to betting activity so the more that is bet, the more points are accrued and the greater the discount rate. However, the discount rate is capped at 60% with the exchanges. The precise calculation of the discount rate differs slightly between the X exchanges. The market rate on the exchanges in all markets that the X syndicates bet into is 5%. The exchanges settle bets in the same manner. Sufficient funds are required to be maintained in betting accounts at all times to cover the maximum possible exposure of bets being offered at any point in time. Markets are determined according to the official result. At this point any winnings are then credited to the betting account. For the betting exchanges, there were no minimum betting threshold limits. The maximum dollar value of bets placed has always been constrained by the account balance in that the total exposure from unresolved bets placed could not exceed the account balance at any point in time. No credit betting has been available to either syndicate since their inception. Service providers Although the syndicates do not employ any staff, various services have been contracted for by individual syndicate members on behalf of the syndicates with various people or companies for computer programming and operational resources on arms lengths terms, for example, internet and data providers. A member of one syndicate volunteered and agreed to open an account with a service provider and contributions of the syndicate members were made to cover the costs. The syndicates engaged a contractor to provide computer programming services, in which this contractor wrote several programs for the purpose of retrieving data from the webpage as well as bookmaker odds from the webpage. This contractor updated and modified these programs for the purpose of improving functionality. Members may use various software products and engage internet service providers to access the internet for the purpose of observing the betting process and viewing results. Scale of Betting Activities The syndicates are placing bets seven days a week with the average weekly number of bets of one syndicate being in the thousands while the average weekly number of bets of the other syndicate is in the tens of thousands. The maximum win or loss from bets placed by either syndicate on any single event is currently less than $2,000 and this amount is unlikely to increase substantially in the foreseeable future. The historical records of bets maintained by the betting exchanges show that one syndicate had a turnover of almost a million dollars for a quarter while the other syndicate had a turnover of millions of dollars for a quarter. Members will spend an average of less than 15 hours per week on the betting activities of the syndicate not including time spent observing the events bet on via television, radio or internet. Record keeping The syndicates do not use accounting software or prepare financial statements. The syndicates record the betting account balances by using commercially available spreadsheet software. The syndicates and their members can also extract records from betting exchanges using standardised reports. Profit sharing arrangement All betting surpluses and/or deficits have been and will be shared by syndicate members according to their individual percentages in the syndicates at the time. Syndicate members have been allocated initial percentages based upon their initial bankroll contributions and these differ between the X syndicates and may change in the future. Each syndicate member is responsible for their own expenses incurred in operating and participating in the syndicate (excluding the cost of bets placed and acquisition of the computers used for placing the bets). Process of distribution of winnings between syndicate members For the betting exchange accounts, the administrator transfers an amount of between 0% and 30% of the balance of each sub-account used by the syndicates to the master betting account soon after the month end. The administrator will then decide if funds will be withdrawn from the master account to the administrator's personal bank account. This decision is within the discretion of the administrator. At the time funds are transferred from the syndicates' sub-accounts to the master account, the administrator becomes personally liable to pay the other syndicate members their share. Whenever the administrator withdraws funds from the master betting account to the personal bank account, a subsequent bank transfer is made to a joint bank account in the names of the administrator and spouse (who is also a member of the syndicates) to settle the spouse's share of winnings. The administrator would then make monthly remittances from their personal bank account to the member who looks after the syndicates' computers. The other syndicate members are advised by email on a monthly basis of amounts being held on their behalf by the administrator. At any point in time, members of the syndicates can request funds to be disbursed to the remainder of the members, via emails to the administrator. Such requests were made previously. Insufficient winnings were generated from the betting exchange to warrant any distribution to syndicate members. Any unpaid winnings are accumulated in the betting accounts for continuous betting purposes. Personal betting Members may choose to have their own personal betting accounts with betting exchanges, bookmakers and totalisators to place their own separate bets with these betting outlets on sporting and racing events as they see fit. They may use computers for this purpose but such bets are independent of and not related to the betting activities of the syndicates.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 6(1) | Income Tax Assessment Act 1936 Subsection 92(1) | Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 995-1 | A New Tax System (Goods and Services Tax) Act 1999 Section 7-1 | A New Tax System (Goods and Services Tax) Act 1999 Section 9-20 | A New Tax System (Goods and Services Tax) Act 1999 Section 11-5 | A New Tax System (Goods and Services Tax) Act 1999 Subsection 11-15(1) | A New Tax System (Goods and Services Tax) Act 1999 Section 11-20 | A New Tax System (Goods and Services Tax) Act 1999 Section 184-1 | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1 | A New Tax System (Australian Business Number) Act 1999 Section 41

Reasons for decision: Summary: All references in issue 1 and 2 are to the Income Tax Assessment Act 1997 unless otherwise stated. | Summary: As a member of the syndicates, you are considered to be carrying on a business of betting. Any income received from this activity is therefore assessable under ordinary concepts and related expenses are deductible. | Detailed Reasoning - Detailed reasoning: Subsection 995-1(1) defines ordinary income to have the meaning given by section 6-5. Subsection 6-5(1) defines ordinary income as income according to ordinary concepts. In determining whether particular receipts are 'ordinary income' the courts have not adopted any precise definition of income and given the term its ordinary meaning. As Jordan CJ stated in Scott v. Commissioner of Taxation (1935) 35 SR (NSW) 215 at 219: The word 'income' is not a term of art, and what forms of receipts are comprehended within it, and what principles are to be applied to ascertain how much of those receipts ought to be treated as income, must be determined in accordance with the ordinary concepts and usages of mankind, except in so far as the statute states or indicates an intention that receipts which are not income in ordinary parlance are to be treated as income, or that special rules are to be applied for arriving at the taxable amount of such receipts. It is well established that amounts received as a result of carrying on a business, but not a pastime or hobby, are ordinary income. Under subsection 6-5(2), 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. Following on from the Federal Court decisions of Evans v. FC of T 1 ( Evans ), Babka v. FC of T 2 ( Babka ) and Brajkovich v. FC of T 3 ( Brajkovich ), the Commissioner published his views in relation to whether a taxpayer is considered to be carrying on a business of gambling in Taxation Ruling IT 2655 Income Tax: Betting and Gambling - Whether Taxpayer Carrying on Business of Betting or Gambling. At paragraph 8, the Ruling states that the criteria summarised in Brajkovich and the factors considered in Evans and Babka should be taken into account in determining whether a taxpayer is carrying on a business of betting or gambling. The six principal criteria for determining whether or not a person is in the business of betting are: (1) Whether the betting is conducted in a systematic, organised and businesslike way; (2) The scale of the betting activities; (3) Whether betting is related to or part of other activities of a businesslike character; (4) Whether the activity is 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; and (6) Whether the activity is of a kind ordinarily thought of as a hobby or pastime. As noted by Hill J in Babka 'It suffices here to say that in my view each case must be decided by reference to its own facts and that there is no one factor that is decisive of whether a particular activity constitutes a business, that conclusion will be derived from a consideration of all of the relevant facts'. 4 Hill J went on to note that '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'. 5 To further illustrate his view, Hill J used the examples of the activities of bookmakers and futures traders. Although The bookmakers' and futures traders' activities involve a degree of chance, they are able to reduce the odds to the point where there is sufficient skill to see the activity as being directed to profit in a systematic and businesslike way; in particular, The bookmakers and futures traders have some impact on the profit to be derived. Again, his Honour discussed the possibility of the existence of 'professional punters': In ordinary usage we recognise the possibility of mere punting being a business when we speak of the “professional punter” meaning thereby one of whom it could be said that placing bets is his vocation and I am inclined, particularly with the growth of modern technology such as computers, to think that there may be cases today, even if there were not at the time when Rowlatt J. decided Graham v. Green , where the activity of betting has become so organised, systematic and businesslike and is carried on with such dedication to potential profit that the man in the street would recognise that activity to be a business. That being so, I propose to proceed on the assumption that mere punting may constitute a business although the intrusion of chance into the activity as a predominant ingredient at least in the outcome of the race itself does suggest to me that it will be a rare case where a court will conclude that the activity is a business. 6 | Detailed Reasoning - Application to your circumstances: The facts applicable to your membership of the syndicates are reviewed below by reference to the criteria identified in Brajkovich . | Detailed Reasoning - (1) Whether the betting is conducted in a systematic, organised and businesslike way: The Commissioner considers that the following facts evidence that the betting is conducted in a systematic, organised and businesslike way: ● Most of the syndicate members do not actively participate in the syndicates, relying on a few active members to undertake activities. ● One syndicate member (the administrator) exerts a significant amount of control over the operations of the syndicates, including liaison with betting exchanges, management of betting accounts and the licence of a betting exchange trading software product. ● One member holds the licence for a data analysis and statistical software product. ● One member organised the purchase of and houses the computers used for betting activity. This member restarts the computers used by the syndicates once a week or after a software update. ● One member wrote the automation of data collection and bet selection. This member also engaged external contractor(s) to assist. ● The syndicates rely on a fund of dedicated capital (solely from their members) with which to bet. ● The syndicates' activities of betting are systematically conducted so as to get the most favourable odds obtainable. It is evidenced by: ● The syndicates predominantly rely on a few computer software programs (developed internally or commercial software) to automate the selection and placement of bets. ● For bet selection, the syndicates use programs to automate the data collection and the selection of bets. One of the members wrote the routines and made the decision to engage a contract programmer to develop some of the routines that were proving difficult to achieve. ● The syndicates also use a data analysis and statistical software product. ● The bets made are largely guided by these computer programs. ● For bet placement, the syndicates used betting exchanges along with the above computer programs. It provides real time update of prices and allows internally developed software to trigger betting. It also communicates directly with betting exchanges. ● The use of these computer programs to generate and place a high volume of bets indicates a systematic and organised approach to the betting activities. The syndicates have also purchased high powered computers for this purpose. ● It is reasonable to conclude that, at any time, the betting decisions made on behalf of the syndicate members were very well-informed and were not made on impulse. ● Despite a lack of formal written agreement and business plan, members of the syndicates have made agreements about how the syndicates are to operate on matters such as the racing codes, which countries and betting medium; changes to membership; when to manually override bets, etc. ● Decisions on where to place bets are also made in a business-like manner. For example, when continual losses were sustained using the betting exchanges, that exchange was no longer used, and when losses were sustained in one industry, that industry was abandoned to focus on another industry. ● Although no formal accounting records were kept, the syndicates and their members can retrieve their betting records from the betting exchanges. The syndicates use commercially available software to record the betting account balances. Moreover, one of the active syndicate members (the administrator) constantly monitored the betting accounts' fund movements. It is evidenced by the fact that the syndicates must ensure the betting accounts maintain sufficient funds at all times to cover the maximum possible exposure of bets being offered at any point in time. ● Although there was no formal written agreement in relation to the rights and entitlements of members, an oral agreement exists in relation to the percentage share of proceeds for each member and their obligations if the syndicates made losses. Each member and their percentage share of profits are clearly identifiable. ● The personal liability of the administrator to the other members for their share of the winnings occurs at the time the administrator moves funds from the sub-accounts used by syndicates to the master betting account held by the administrator with the betting exchange. Syndicate members are either distributed their share or advised by email on a monthly basis of amounts held on their behalf and then syndicate members can call for their share of the proceeds to be distributed. | Detailed Reasoning - (2) The scale of the betting activities: The computer programs used by the syndicates allow bets to be placed on a variety of events overseas and recently in one country only. These programs also allow the syndicate to place large amounts of bets through betting accounts with betting exchanges. The historical records of bets maintained by the betting exchanges show that one syndicate had a turnover of almost a million dollars for a quarter while the other syndicate had a turnover of millions of dollars for a quarter. There is no information held that indicates turnover was significantly different in the rest of the relevant income year. This number of bets placed and the value of betting turnover indicates to the Commissioner that the syndicates' betting activities were beyond just a pastime. | Detailed Reasoning - (3) Whether betting is related to or part of other activities of a businesslike character: The Commissioner understands that most of the syndicate members are not involved in other related activities of a businesslike character. We note that some syndicate members were involved in these activities. We do not believe this would cause either syndicates to have a material association with related business ventures. | Detailed Reasoning - (4) Whether the activity is principally for profit or principally for pleasure: The question here is whether the activities are carried on with such purpose of profit making that they indicate the carrying on of a business. A majority of the members did not actively participate in the syndicates' activities. Given their limited role in the syndicates, it is considered that these members are not in the syndicates for pleasure. As for the active members: one was actively involved in the operational and administrative tasks of the syndicates; one maintains the computers used by the syndicates once a week or after a specific update. Neither role is considered to include activities that are undertaken principally for pleasure. One member wrote the routines for automation of data collection and betting selections and engaged a contract programmer to develop some of the routines that were proving difficult to achieve, contributing their time, knowledge and skills to develop and improve the system by which the betting activities would be undertaken. Further, the syndicates are trying to maximise returns by removing loss-making elements. For example, when continual losses were sustained on one betting exchange, that exchange was no longer used, and when losses were sustained in one industry, that industry was abandoned to focus on another industry. The large volume of automated bets is also a strong indicator that the betting activity is less for pleasure and more for profit. In particular, the syndicate members do not personally go to betting agency outlets to place bets and they only bet on the odds chosen by their computer software. It shows that the syndicate members are not emotionally involved in the betting process. Sophisticated computer software was developed and subscribed to in order to automatically generate, improve and compare outcomes. By implementing this highly structured decision making process, it is the Commissioner's view that the betting activities were carried out by the syndicates principally for profit. | Detailed Reasoning - (5) Whether the form of betting chosen is likely to reward skill and judgment or depends purely on chance: Bets were placed predominantly on one racing code and to a lesser extent on another racing code. Compared with other forms of betting which purely depend on chance, the use of automated betting increases the likelihood of predicting the outcome and reduces the element of chance. The computer programs used by the syndicates identify bets relying on the gathering and analysis of a range of information available in the market. This information is used to estimate the relative chance of the contender and then bets are executed on those contenders where the odds available on the betting exchanges are favourable compared to the estimates by a minimum predetermined margin. Bets are placed on back and lay bases using the methodology. The computer program is repeatedly and continually performing this analysis to determine the bets to be placed generating a high volume of transactions. This process is automated and profitability depends upon the accuracy of the programming. However, it is clear that the objective of the syndicate is to utilise the data gathering and analytical capability of the computer programs to derive a profit. Where necessary the syndicate has employed the skills of other computer programmers to ensure the capability of the system to identify the most profitable bets. By following this process, personal emotions and instincts are not relevant. In summary, it is the Commissioner's view that although the element of chance may not be completely eliminated, the business activity is automated, primarily undertaken with the use of sophisticated computer programs designed to reduce risk with such risk being commensurate with that found in a business activity. | Detailed Reasoning - (6) Whether the activity is of a kind ordinarily thought of as a hobby or pastime: The majority of the bets were placed by the syndicates on industries ordinarily considered a recreational activity. However, as stated by Justice Hill in Babka , there are cases, 'particularly with the growth of modern technology such as computers', where the activity of betting has become so organised, systematic and businesslike and is carried on with such a dedication to potential profit that the man in the street would recognise that activity to be a business. [89 ATC 4963 at 4966] Based on the following facts, the Commissioner's view is that the betting activities in your case are not a hobby or pastime: (1) The scale of the syndicates' betting activities was (and remains) large. They placed bets 7 days a week. The millions of dollars quarterly turnover is also considered large (2) Bets were predominantly placed by computer software when triggered by the particular program. Syndicate members did not place bets on behalf of the syndicates and most syndicate members are not actively involved in the activities of the syndicate. (3) The syndicates' objective is profitability. This is evidenced by the forms of betting chosen, the betting methods utilised, the sophisticated computer program developed within the syndicates to generate the bets. Where the syndicate has derived losses in a particular industry, that industry has been abandoned. As noted by Hill J in Evans 'There is no one factor that is decisive of whether a particular activity constitutes a business'. 7 Nor is it necessary to satisfy all criteria. Combining the analysis under each of the six principal criteria identified in Brajkovich and based on the facts of the present case, it is the Commissioner's view that the syndicates carried on a business of betting and the proceeds received by the syndicates are ordinary income, with the appropriate expenses being allowable deductions. | Summary: Since you are considered to be carrying on a business of betting, you are entitled to claim as deductions, expenses and losses necessarily incurred in running that business under section 8-1. | Detailed Reasoning - Detailed reasoning: Section 8-1 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. However, losses or outgoings are not deductible to the extent that they are of a capital, private or domestic nature; relate to the earning of exempt income or non-assessable non-exempt income; or are otherwise made non-deductible by a relevant provision. As determined earlier, since you are considered to be carrying on a business of betting, any expenses necessarily incurred in carrying on the business are deductible under section 8-1. | Summary: The syndicates are considered to be a partnership for tax purposes. | Detailed Reasoning - Detailed reasoning: Subsection 92(1) of the Income Tax Assessment Act 1936 (' ITAA 1936 ') includes in the assessable income of a partner in a partnership so much of their individual interest in the net income of the partnership for the year of income as is attributable to a period when the partner was a resident. Section 995-1 of the ITAA 1997 defines the term partnership to mean: (a) an association of persons (other than a company or a limited partnership) carrying on business as partners or in receipt of ordinary income or statutory income jointly; or (b) a limited partnership. The Commissioner considers that the syndicates are an association of persons carrying on a business as partners or in receipt of ordinary income jointly. | Detailed Reasoning - An association of persons: As the term 'association' is not defined in the relevant income tax legislation it takes its ordinary meaning in its context. In Kibby v. Registrar of Titles 8 Mandie J stated: I consider that the essence of an “association” may be described as some form of combination of persons (with a common interest or purpose) with a degree of organisation and continuity at least sufficient to distinguish the combination from an amorphous or fluctuating group of individuals and with some clear criteria or method for the identification of its members. The Commissioner understands the following information to relate to the overall structure, operations and activities of the syndicates. ● The syndicate members had a common interest, i.e. in betting activities and it was orally agreed that each member was entitled to a percentage of the proceeds based on their capital contributions. ● Although there was no formal written agreement in relation to the rights and entitlements of members, an oral agreement existed in relation to the percentage share of proceeds for each member and their obligations if the syndicates made losses. Each member and their percentage share of proceeds are clearly identifiable. ● The active members are in charge of the day-to-day management and operation of the syndicate including implementing computer software in betting activities, liaison with betting exchanges, account management and licencing. These active members have been acting in the common interest of all members of the syndicates. ● The syndicates used the sub-accounts of a master account with X betting exchanges. The administrator holds all of these betting accounts. Insufficient winnings were generated in the one betting exchange account to warrant any distribution to members but for the betting exchange account. When the administrator transfers amounts from the sub-accounts to the master account, they become personally liable to pay the other members their share. Winnings received from one betting exchange account are firstly paid to the administrator's personal bank account and then the administrator makes distributions to members. ● Any unpaid winnings remain in the betting exchange account for continuous betting purposes. The Commissioner considers that these facts establish that each of the syndicates is an association of persons with a common interest or purpose and that the syndicates possessed a significant degree of organisation and continuity. | Detailed Reasoning - Carrying on business as partners: Taxation Ruling TR 94/8 Income tax: whether business is carried on in partnership (including 'husband and wife' partnerships) Formation of a general law partnership , explains our view about the factors we take into account in deciding whether persons are carrying on a business as partners for income tax purposes. It provides as follows: 3. There are no statutory rules in the income tax law for deciding whether persons are carrying on business as partners. The question of whether a partnership exists is one of fact. The existence of a partnership is evidenced by the actual conduct of the parties towards one another and towards third parties during the course of carrying on business. 4. We look at the following factors in deciding whether persons are carrying on business as partners in a given year of income: | Detailed Reasoning - Intention: ● the mutual assent and intention of the parties | Detailed Reasoning - Conduct: (a) joint ownership of business assets (b) registration of business name (c) joint business account and the power to operate it (d) extent to which parties are involved in the conduct of the business (e) extent of capital contributions (f) entitlements to a share of net profits (g) business records (h) trading in joint names and public recognition of the partnership 5. The weight to be given to these factors varies with the individual circumstances. The above list of factors is not exhaustive and no single factor is decisive, although the entitlement to a share of net profits is essential. Having regard to the circumstances, we consider that the syndicates are associations of persons carrying on business as partners: ● For the reasons given earlier, the members are carrying on a business. ● Although there is no formal written agreement, the members of the syndicates have agreed how the syndicates are to operate on matters such as the industries to bet in, which markets, betting medium and when changes in membership can occur. ● The members have agreed to make capital contributions to fund the cash flow for the syndicates' activities and to share surpluses and/or deficits based on those capital contributions. ● Members of the syndicate have responsibility for different functions in the syndicate although one member is predominantly responsible for many of the functions. ● Although betting accounts are held in the name of the administrator, the accounts used by the syndicates are held on behalf of the syndicates. The administrator becomes personally liable to pay the other members their share of winnings when amounts are transferred from the sub-accounts to the master account and winnings are distributed by the administrator in accordance with the agreements between the members. | Detailed Reasoning - In receipt of ordinary income jointly: An association of persons is considered to be in receipt of income jointly if the persons have actually received, or are entitled to receive, income jointly. As noted above, in accordance with the agreements made between members, the syndicate members are entitled to an identified share of the surpluses based on their capital contributions. Each of the syndicate members is entitled to receive distributions of their share of surplus proceeds from the syndicates' betting activities. The administrator becomes personally liable to other members to pay their share of surpluses when amounts are transferred from the betting exchange sub-accounts to the master accounts. Distributions have occurred on three separate occasions. All unpaid winnings are accumulated in the betting accounts for continuous betting purposes. Accordingly, the Commissioner considers the syndicate members to be in a partnership for tax purposes. | Detailed Reasoning - Whether you were a partner in the partnership: In the present case, you are one of the persons in the association that for the reasons discussed above, is a partnership for tax purposes. You are therefore a partner in the partnership. | Detailed Reasoning - Question 4: Are The syndicates entitled to input tax credits in respect of betting acquisitions pursuant to section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (' GST Act ')? | Summary: The syndicates are entitled to input tax credits in respect of betting acquisitions pursuant to section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 - provided they are registered or required to be registered for GST purposes. | Detailed Reasoning - Entitlement to input tax credits: Section 7-1 of the GST Act states that an entitlement to an input tax credit arises for a creditable acquisition. Section 11-20 of the GST Act provides that an entity is entitled to an input tax credit for any creditable acquisition that it makes. Section 11-5 of the GST Act, states that an entity makes a creditable acquisition if: (a) it acquires anything solely or partly for a creditable purpose; (b) the supply of the thing to it is a taxable supply; (c) it provides, or is liable to provide, consideration for the supply; and (d) it is registered, or required to be registered for GST. Subsection 11-15(1) of the GST Act provides that an entity acquires something for a creditable purpose to the extent that it is acquired in carrying on its enterprise. | Detailed Reasoning - Entity: The term 'entity' has a common meaning across the A New Tax System (Australian Business Number) Act 1999 (' ABN Act '), GST Act, ITAA 1997 and ITAA 1936. The definition of an entity in section 184-1 of the GST Act includes a partnership. 'Partnership' is defined in section 195-1 of the GST Act to have the meaning given by section 995-1 of the ITAA 1997. Each syndicate is considered to be a partnership for tax purposes. Therefore, each syndicate is also an entity for GST purposes. | Detailed Reasoning - Enterprise: Under the GST Act 'enterprise' has a broad meaning. In order to register for an Australian Business Number (' ABN ') and GST, an entity (unless specifically excluded) must carry on an enterprise. Miscellaneous Taxation Ruling MT 2006/1 explains the meaning of ' an entity carrying on an enterprise ' for the purposes of entitlement to an ABN. The dictionary at section 41 of the ABN Act defines 'enterprise' as having the meaning given by section 9-20 of the GST Act. Included in the definition of 'enterprise' in subsection 9-20(1) of the GST Act is an activity, or a series of activities, done 'in the form of a business '. The definition of 'business' in section 195-1 of the GST Act is the same as that in subsection 6(1) of the ITAA 1936 and section 995-1 of the ITAA 1997. As the definition is identical, the principles and indicators of carrying on a business considered in Taxation Ruling IT 2655 apply equally to a business in the context of determining whether an entity is carrying on an enterprise for ABN and GST purposes. Accordingly, as it has been determined that each syndicate is carrying on a business for income tax purposes, each is also (for the same reasons) carrying on an enterprise for GST purposes. | Detailed Reasoning - Statutory exclusions: As each entity is carrying on an enterprise the statutory exclusions in paragraphs 9-20(2)(b) and (c) of the GST Act do not apply. | Detailed Reasoning - Conclusion: As each syndicate is an entity carrying on an enterprise, each is required to register for an ABN and GST and claim input tax credits for the creditable acquisitions made by each business, respectively. 1 89 ATC 4540; (1989) 20 ATR 922. 2 89 ATC 4963; (1989) 20 ATR 1251. 3 89 ATC 5227; (1989) 20 ATR 1570. 4 89 ATC 4963 at 4966. 5 Ibid 4968. 6 Ibid 4969. 7 Evans v FCT 89 ATC 4540 at 4555. 8 [1999] 1 VR 861 at paragraph 50.