“Do I have to pay taxes on my gambling winnings?”
This is a common question. In Australia, the short answer is no. The long answer is it has never been specifically coded into tax law whether gambling winnings are taxable or not. However, there is an overarching tax law principle which applies. Furthermore, it has been decided upon in court cases in which the rulings have set legal precedents.
Whether or not you have to pay tax on gambling profit depends if the Australian Taxation Office (ATO) deems you to be running a business or not. It has nothing to do with whether it is your main source of income and it has nothing to do with windfall tax laws, as is sometimes suggested.
If you are running a gambling business you can report your net winnings as your income and claim your internet connection, computer and other gambling business-related expenses as tax deductions.
If you are not running a business then you do not have to report your winnings in your tax return and you cannot claim expenses or losses as tax deductions.
So the question then becomes how does the ATO define a gambling “business”? In an important and reference ruling on the taxation of gambling winnings, a judge used the following parameters to define whether you’re betting is a business or not.
- Whether the betting is conducted in a systematic, organized and businesslike way.
- The scale of the gambling activities, i.e., the size of wins and losses.
- Whether betting is related to or part of other activities of a businesslike character, e.g. breeding horses.
- Whether the punter appears to engage in his activity principally for profit or principally for pleasure.
- Whether the form of betting chosen is likely to reward skill and judgment or depends purely on chance.
- Whether the gambling activity in question is of a kind which is ordinarily thought of as a hobby or pastime.
In a separate important and much reference case, where the above parameters were cited, the judge made these conclusions.
“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
The taxpayer’s activities fell short of carrying on a business. They were not so considerable and systematic and organized that they could be said to exceed those of a keen follower of the turf
Although mere punting, especially with the aid of computers, can now be so systematic and dedicated to profit making that it may constitute a business, the intrusion of chance into the activity as a dominant ingredient will usually preclude such a finding”
Here are some guidelines from the ATO. All this basically means that you will not have to pay taxes on your gambling winnings.
Gambling sites do not automatically report how much you have won or lost to the ATO.
However, gambling sites located in Australia will provide all information that the ATO, or any part of the government, requests.
Any deposits and withdrawals of over $10,000 to/from an Australian gambling site or an Australian bank account will be reported to the government’s Australian Transaction Reports and Analysis Centre
The ATO had a high-profile case with David Walsh, a multi-millionaire gambler and art collector in Hobart, who was running a gambling business. Walsh did employ staff, keep records, bet systematically and have other related business.
The parties came to an out-of-court settlement which led to people suggesting the fact Mr Walsh had to pay tax would change the taxation and gambling landscape in Australia. This is not the case, Mr Walsh had to pay tax on his gambling profit because he was correctly found to be running a business, not because of any change to the law or interpretation of it.
Even the above-quoted ruling included the statement
“Ultimately each case will depend on its own facts”
so see your own taxation accountant, or taxation lawyer or contact the ATO to be sure for your particular case.