1 Is the income derived from gambling assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
1 Yes. This ruling applies for the following period : 30 June 20XX The scheme commenced on: 1 July 20XX
You are an individual who undertakes gambling activities. You commenced your gambling activities while employed. You placed bets across various online platforms. Most of your gambling activity was conducted through online prediction markets. You primarily focused on topics such as politics and popular culture. Initially, you used personal savings to fund your gambling activities. After becoming unemployed, you supported yourself through a combination of gambling proceeds and government financial assistance payments. Over time, you experienced both wins and losses, with overall positive outcomes. You now rely financially on gambling winnings and spend approximately 1-2 hours per day on this activity. You earned substantial profits from high-volume betting activity, with records indicating tens of thousands of individual bets. You developed research methods to inform your wagering decisions. You maintain a spreadsheet to track your betting activity and income. You also implemented risk management strategies to guide bet sizing and reduce potential losses.
Income Tax Assessment Act 1997 section 6-5 Income Tax Assessment Act 1997 section 118-37 Income Tax Assessment Act 1997 section 995-1
Ordinary income Section 6-5 of the ITAA 1997 provides that the assessable income of a taxpayer includes income according to ordinary concepts (ordinary income). Ordinary income is generally understood to fall into three categories: • income from rendering personal services • income from property • income from carrying on a business Additional characteristics of income, as developed through case law, include receipts that: • are earned • are expected • are relied upon • have an element of periodicity, recurrence, or regularity Section 118-37 of the ITAA 1997 disregards a capital gain or capital loss from a CGT event relating to gambling, a game or a competition with prizes. However, if the gambling activities of a taxpayer constitute the carrying on a business, the gains from the activity would be assessable under section 6-1 of the ITAA 1997. Carrying on a business of betting or gambling
Under section 995-1 of the ITAA 1997, a business is defined to include any profession, trade, employment, vocation or calling, but specifically excludes occupation as an employee. This broad definition is used to determine whether a taxpayer's activities qualify as a business for tax purposes. Gambling or betting can be carried on as either a business or a hobby. Winnings derived from gambling or betting are only assessable under section 6-5 of the ITAA 1997 if you are carrying on a business of betting or gambling. To determine whether a business of gambling is being carried on, reference must be made to case law. In Graham v Green (1925) 9 TC 309, Rowlatt J stated (at p. 312): a) A bet is merely an irrational agreement that one person should pay another person something on the happening of an event. A agrees to pay B something if C ' s horse runs quicker than D ' s or if a coin comes one side up rather than the other side up. There is no relevance at all between the event and the acquisition of property. The event does not really produce it at all. It rests, as I say, on a mere irrational agreement. In Evans v Federal Commissioner of Taxatio
n 89 ATC 4540; (1989) 20 ATR 922, Hill J stated that "if a mere punter is to be held to be carrying on a business it will be because the relevant betting activities will be systematically conducted so as to get the most favourable odds obtainable." His Honour found that the taxpayer's activities lacked system and organisation; there were no records, no use of technology, and no structured approach so the gambling did not amount to a business despite its scale. The decision emphasised that the presence of chance does not preclude gambling from constituting a business where the activity is conducted in a systematic and businesslike manner. In Babka v Federal Commissioner of Taxation 89 ATC 4963; (1989) 20 ATR 1251, Hill J observed that "no one factor ... is decisive of whether a particular activity constitutes a business; that conclusion will be derived from a consideration of all the relevant facts." He further noted 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." In Brajkovich v Federal Commissioner of Taxation
89 ATC 5227; (1989) 20 ATR 1570, the Court stated that "mere punting may constitute a business [by way of reference to organisation, systematic and businesslike character] although the intrusion of chance into the activity as a predominate ingredient at least in the outcome of the race itself does suggest...that it would be a rare case where the courts will conclude that activity is a business." In that case, the absence of system, organisation, and businesslike features led to the conclusion that the activity did not amount to a business despite its scale. Taxation Ruling IT 2655 was issued following the Federal Court decisions in Evans v Federal Commissioner of Taxation 89 ATC 4540; (1989) 20 ATR 922, Babka v Federal Commissioner of Taxation 89 ATC 4963; (1989) 20 ATR 1251, and Brajkovich v Federal Commissioner of Taxation 89 ATC 5227; (1989) 20 ATR 1570. Under Taxation Ruling IT 2655 , the Commissioner outlines 6 principal criteria for determining whether a person is in the business of betting, which are: a) whether the betting is conducted in a systematic, organised and businesslike way; b) the scale of the betting activities;
c) whether betting is related to or part of other activities of a businesslike character; d) whether the activity is principally for profit or principally for pleasure; e) whether the form of betting chosen is likely to reward skill and judgment or depends purely on chance; and f) whether the activity is of a kind ordinarily thought of as a hobby or pastime. These criteria must be considered collectively and, in their entirety, to determine whether gambling or betting is conducted in a highly organised, systematic, and profit-driven manner. Application to your circumstances The commissioner has considered the application of the above criteria as follows: Whether the betting is conducted in a systematic, organised and businesslike way The Commissioner considers that the betting activities are conducted in a systematic, organised and businesslike manner. This is demonstrated by the adoption of a structured approach, including the use of risk management strategies, conducting research to inform wagering decisions, and maintaining detailed records of profits and losses. The scale of the betting activities
The scale of the betting activity is significant. As of a specified date, total winnings were substantial, with records indicating thousands of positions involving tens of thousands of individual bets. These figures reflect a level of activity consistent with systematic and organised betting rather than casual or recreational wagering. Additionally, it is estimated that between one and two hours per day are dedicated to betting-related activities. Whether betting is related to or part of other activities of a businesslike character Although there is no involvement in ancillary activities such as operating a gambling website or application, the betting activities nonetheless exhibit characteristics commonly associated with business operations. These include: • the expenditure of time and effort in researching and analysing information to inform betting decisions; • the application of a general strategy to guide bet selection and manage risk; • the regular and consistent placement of bets; and • the maintenance of records pertaining to gambling activity.
Whether the activity is principally for profit or principally for pleasure Given the financial reliance on gambling profits and the absence of employment income, it can be reasonably concluded that the betting activity is conducted principally for profit rather than for pleasure. The commitment to research and strategic wagering further supports the conclusion that the intention is to generate income rather than engage in recreational activity. Whether the form of betting chosen is likely to reward skill and judgment or depends purely on chance While wagering on prediction platforms involves elements of chance, the approach taken demonstrates the application of skill and judgment. The use of research, strategic decision-making, and record-keeping indicates that the form of betting chosen is more likely to reward informed judgment than rely solely on chance. Whether the activity is of a kind ordinarily thought of as a hobby or pastime
Although betting is commonly regarded as a hobby or pastime, the scale and intensity of the activities suggest otherwise. The volume of bets placed, the time invested, and the financial outcomes achieved indicate that the betting activity exceeds the bounds of a mere hobby and aligns more closely with a business undertaking. Conclusion Based on the above factors, the Commissioner is satisfied that a business of gambling or betting was being carried on during the relevant income year. The use of research and strategic betting reduced risk and maximised profits. The income derived from the betting activity is considered ordinary income and assessable under section 6-5 of the ITAA 1997.