Are gambling wins taxable?
Typically, winnings from gambling are not taxable. BUT, there is a caution to this. The winnings of a “professional” gambler are taxable.
Whether gambling wins (and losses) are taxable depends on whether a taxpayer is “carrying on a business” of gambling. In determining whether a taxpayer is a professional gambler and thus carrying on a business, the following questions are relevant:
- Is the activity undertaken in a business-like manner.
- Does the person has specialist knowledge associated with that gambling activity.
- What is the scale of operations.
There are three main court cases that consider the tax consequences of gambling winnings..
In the first, Evans v FCT, the court stated that a “mere” punter may be carrying on a business if the relevant gambling activities are systematically conducted to obtain favourable odds.
In Evans, the taxpayer’s winnings were found not taxable as the taxpayer did not maintain an office or employ staff, did not keep any records and did not subscribe to any tipping services.
In the second case, Babka v FCT, the court confirmed that mere punting may constitute carrying on a business. On the facts of that case, the gambling winnings were not taxable as the chance of betting on a race suggests that it is rare for the individual to be deemed to be carrying on a business.
In the third case, Brajkovich v FCT, the Full Federal Court reiterated the principal criteria for determining whether gambling winnings are taxable. These characteristics include:
- Whether the gambling is conducted in a systematic, organised and businesslike way;
- The volume and size of the gambling;
- Whether the gambling is related to other activities of a business-like character; and
- Whether the gambler appear to engage in his activity principally for profit or pleasure.
On the facts the Full Federal Court found that the winnings were not taxable as the punter merely conducted gambling activities for pleasure rather than conducting a business.
The court noted that a significant element of skill in conducting gambling activities may have tax consequences.
How can Waterhouse Lawyers help you?
The team at Waterhouse Lawyers understand and hold considerable tax expertise that enable us to assist you determine whether your gambling winnings are taxable.