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Edited version of private advice
Authorisation Number: 1052199135974
Date of advice: 5 December 2023
Ruling
Subject: Are you in business - lottery
Question
Are the lottery syndicate winnings made by the directors of the company assessable to the company under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1977)?
Answer
No.
Gambling wins are only considered assessable income if you are carrying on a business of gambling.
Taxation Ruling IT 2655 Income tax: betting and gambling - whether taxpayer carrying on business of betting or gambling, and the Federal Court decisions of Evans v. F.C. of T. 89 ATC 4540; (1989) 20 ATR 922 (Evans), Brajkovich v. Federal Commissioner of Taxation 89 ATC 5227; (1989) 20 ATR 1570 (Brajkovich), Babka v. FCT 89 ATC 4963;(1989) 20 ATR 1251 (Babka) consider the issue of whether a business of gambling or betting is being carried on.
Paragraph 7 of IT 2655 provides that a mere punter may be carrying on a business, however the intrusion of chance into the activity as a predominant ingredient will generally preclude such a finding.
In Babka, Hill J stated:
It would, for example, seem impossible to imagine a taxpayer carrying on a business of buying lottery tickets. That presumably is because no matter how systematic a purchaser of lottery tickets may seek to be, no matter how frequent his bets or how large the sum he gambles, the odds will always be such that the outcome will predominantly depend upon chance.
The directors' purchases of lotto tickets, using their own personal funds, does not have any skill level and relies on pure chance for any win to occur. The directors are not carrying on a business of gambling. The lottery winnings are not assessable income to the directors.
Furthermore, the company does not purchase the lottery tickets, the company is only acting as the agent for the lottery provider. The company is not carrying on a business of gambling. Therefore, the director's lottery winnings that were deposited in the company's bank account are not assessable income under section 6-5 of the ITAA 1997 to the company.
This ruling applies for the following period:
Year ended 30 June 2023
The scheme commenced on:
1 July 2022
Relevant facts and circumstances
The company operates a business.
The company has two directors who work in the business.
The company is an agency for a lottery provider.
The directors buy lottery tickets using their personal funds.
The directors transfer their personal money into the company's bank account to purchase the tickets.
On one occasion the directors purchased a winning lottery ticket.
The director's winnings were paid out to the company's business account, as instructed by the directors.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
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