Edited version of your written advice

Authorisation Number: 1051227990024

Date of Advice: 24 May 2017

Ruling

Subject: Am I in business - gambling

Question 1

Are you carrying on a business of gambling?

Answer

No.

Question 2

Is the income you receive from gambling, assessable?

Answer

No.

Question 3

Are you entitled to claim deductions (including losses) for gambling expenses?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2011.

Year ended 30 June 2012.

Year ended 30 June 2013

Year ended 30 June 2014.

Year ended 30 June 2015.

Year ended 30 June 2016.

Year ending 30 June 2017.

Year ending 30 June 2018.

The scheme commences on:

1 July 2010.

Relevant facts and circumstances

Some years ago, you began betting on sports, poker tournaments, and horses for fun, making small wins.

Some years later, you inherited a sum of money from an estate bequeathed to you.

You used the funds you inherited to gamble.

You commenced gambling on a larger scale with a group of friends 1-2 times a week at the casino.

You were a university student for most of this period and after completing your studies, were not employed until recently, in an unrelated field.

During this period, you received nominal income, other than from gambling, and have been financially supported by your parent.

Your activities are not being carried on as part of a formal syndicate.

You have not received any training or formal qualifications in relation to your gambling activities.

You rely on your previous gambling experience, intuition, discussions with other gamblers, and information available on the internet to guide your decisions.

You do not have a business plan.

You do not prepare budgets or forward plan in relation to your gambling activity.

You do not hold a separate bank account for your gambling activities, but use your personal bank accounts.

You do not borrow funds or hold credit facilities with casinos or bookmakers.

Your gambling activities are funded by your own savings.

The bets you make usually vary, however you may engage in multiple gambling activities in one day, increasing the total amount you gamble in one day.

You have little knowledge of horses and only make bets on horse racing based on tips from friends who follow racing more closely.

You are an AFL fan and generally bet on AFL matches to increase the level of excitement.

You enter poker tournaments at a nearby casino based on the anticipated prize pool and whether the dates fit in with other commitments.

You estimate that on average per month you:

● make approximately 15 bets on sports and horse racing

● play poker approximately 5 times

● play casino table games approximately 3 times

● play backgammon, pineapple or rummy once

You use your personal computer and mobile phone to place bets with bookmakers.

You do not keep records of individual wins and losses or the number of times you engage in various bets or games; however some records are available through bookmaker websites. You also have a list of other gamblers who owe you money.

You determine your yearly wins/losses by comparing your bank balance at the start and end of the year, while making adjustments for non-gambling transactions.

You have provided an estimated breakdown of time spent on each gambling activity and the profit made.

The time you spend gambling each varies, depending on other commitments. You estimate that you spend an average of 20 hours per week on gambling activities.

You have made trips with gambling friends to interstate and overseas casinos.

You have provided a record of wins/losses from your bank account records.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 6-1(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

Reasons for decision

Summary

You are not carrying on a business of gambling. Winnings you receive in relation to your personal betting and gambling activities will not be assessable and the losses and expenses related to the activity will not be deductible.

Detailed reasoning

Subsection 6-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that assessable income is made up of both ordinary income and statutory income.

Ordinary income

Under subsection 6-5(2) of the 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.

Carrying on a business

Section 995-1 of the ITAA 1997 defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'.

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 Income tax: betting and gambling - whether taxpayer carrying on business of betting or gambling 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.

There have been numerous Federal Court cases relating to the issue of whether a taxpayer was carrying on a business of betting or gambling. However the criteria in Brajkovich v. FC of T 89 ATC 5227; (1989) 20 ATR 1570 (Brajkovich) and the factors considered in Evans v. FC of T 89 ATC 4540; (1989) 20 ATR 922 (Evans' case), Babka v. FC of T 89 ATC 5227; (1989) 20 ATR 1570 (Babka's case) and Prince v. FC of T (1959) 7 AITR 505; 12 ATD 45 (Prince's case), should be used to determine if a taxpayer is carrying on a business of gambling.

In Brajkovich, the court identified the following 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. its scale: i.e. the size of the wins and losses;

3. whether the betting is related to, or part of, other activities of a businesslike character, e.g. breeding horses;

4. whether the bettor appears to engage in his 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 in question is of a kind which is ordinarily thought of as a hobby or pastime.

No one factor is decisive, and they must be considered in combination and as a whole.

Statutory income

Statutory income includes amounts that are not ordinary income, but are included as assessable income by provisions of the tax law.

There is no provision of tax law that includes income received from your gambling activities as statutory income.

Application to your situation

In your case, the betting and gambling activities you engage in are not are conducted in a systematic or businesslike way. You do not have a business plan and you generally do not maintain records of your activities. While the scale of your activities has fluctuated, having had significant losses and wins over a number of years, this alone is not determinative. Your gambling and betting activities are in no way related to any other activities you are involved in or your formal university qualification. You engage in betting activities to add excitement to sports and games, and rely on tips from friends and your intuition. Despite the fact that you may have gained experience in gambling over this time, it is still considered that your overall financial gains will be dependent on chance rather than skill. The majority of your gambling and betting activities are of the kind which are ordinarily thought of as a hobby, or played for fun.

Therefore you are not considered to be carrying on a business and the winnings you receive in relation to this activity are not assessable under section 6-5 of the ITAA 1997. Furthermore, the expenses related to the activity are not deductible under section 8-1 of the ITAA 1997.

Future years

You should note that conducting an activity that has been described as a hobby is a 'status'. You can change from conducting an activity as a hobby to that of being in business and vice-versa over time as your level of activity changes. Therefore you should evaluate your level of activity on a regular basis to see whether you are conducting a hobby or carrying on a business.

You had requested the Commissioner to provide you with a private ruling for a period from 1 July 2011 to 30 June 2020. Due to the possibility of changes in your circumstances, the possibility of change to the law, and the risk that a subsequently issued public ruling might override a private ruling the Commissioner has issued, the Commissioner has provided a private ruling from 1 July 2011 until the 30 June 2018 only. You may request a further ruling after this time if you require further binding advice.

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