“Do I have to pay taxes on my gambling winnings?”

1. Gambling Losses Tax Deductible Australia Tax
2. Gambling Losses Tax Deductible Australia 2020

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.

Is your gambling a business?

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.

1 Answer from Attorneys. Gambling losses, unless gambling is your occupation, can only be deducted to the extent of winnings, and each year stands on its own; i. E., losses not used in one year cannot be carried forward to another year. Shop for Low Price Gambling Controversy And Gambling Losses Tax Deductible Australia.

Gross gambling income is reported on page one of Form 1040, while gambling losses are a miscellaneous itemized deduction (not subject to the 2%-of-adjusted-gross-income (AGI) limit). Taxpayers often believe their winnings are immune from reporting unless they receive a Form W-2G.

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.

Define a gambling business

So the question then becomes how does the ATO define a gambling “business”? In an important and much reference ruling on taxation of gambling winnings, a judge used the following parameters to define whether you’re betting is a business or not.

1. Whether the betting is conducted in a systematic, organized and businesslike way.
2. The scale of the gambling activities, i.e., the size of wins and losses.
3. Whether betting is related to or part of other activities of a businesslike character, e.g. breeding horses.
4. Whether the punter 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.

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 reporting to the government

Gambling Losses Tax Deductible Australia Tax

Gambling sites do not automatically report 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
(AUSTRAC).

The David Walsh case

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. Here is a story and interview with the man on the ABC’s 7:30 report.

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, taxation lawyer or contact the ATO to be sure for your particular case.

Date of effect

This topic has effect to controlled private trusts and controlled private companies from 1 January 2002.

Summary

This topic contains information on:

• allowable deductions, and
• non-allowable deductions.

Allowable deductions

Allowable deductions from the business income of a private trust or private company are as follows:

• expenses:
  • incurred while earning taxable income, OR
  • necessary for the conduct of a business with the purpose of earning taxable income,
• depreciation:
  • allowed on plant and equipment actually used, or ready to be used, in producing assessable income,
  • NOT allowed on plant and equipment which ONLY provides an external environment for the income producing activity,
• superannuation deductions paid to a complying superannuation fund (as per SIS),
• interest of no more than 10% p.a. paid in respect to GENUINE non-commercial loans,
• rent or mortgage interest, when business is conducted from the income support recipient's home,
  • a deduction is allowed from the gross income, ONLY for rent or mortgage interest on the portion of the premises actually involved in conducting the business, and
• environmental impact assessments.

Act reference:SSAct section 7(2) An Australian resident is…

Non-allowable deductions

Non-allowable deductions from the business income of a private trust or private company are as follows:

• prior year losses ITAA,
• offsetting losses from unrelated businesses,
• building depreciation,
• borrowing expenses (ITAA sections 67 and 67A),
• contributions to non-complying (as per SIS) superannuation funds,
• donations (ITAA section 78(1)(a)),
• income equalisation deposits/farm management bonds (ITAA sections 159GA - 159GDA),
• double wool clip (ITAA section 26BA),
• forced disposal of livestock (ITAA sections 36AAA or 36(3)(7)),
• trading stock valuation adjustments (ITAA section 28),
• premiums for personal life insurance policies or funds,
• private health insurance premiums,
• obsolescence (ITAA section 31(2)),
• industry concessions/incentives,
• amortisation of intangible assets,
• provisions to defer taxation,
• capital expenditure deductions,
• entertainment, and
• deductions for research and development.

For the legal authority and a complete list of the non-allowable deductions, please see the Disallowable Instrument, Social Security (Attribution of Income - Ineligible Deductions) Determination 2017.

Gambling Losses Tax Deductible Australia 2020

Act reference:SSAct section 7(2) An Australian resident is…, section 1208B Permissible reductions of business and investment income