tip off

Tax Office has David Walsh by the short and curlies

Mega-successful professional punter and millionaire arts enthusiast David Walsh must think we are all stupid. He wants us all to believe that his little punters’ club comprising him and 18 other hand-picked professional punters that generates a turnover of more than $2.4 billion dollars annually is not a business but a mere hobby.

Thankfully the Australian Taxation Office is not that stupid and it is chasing Walsh hard for $37.7 million for the 2004-06 financial years, plus interest for unpaid tax on his little punters’ club hobby.

Walsh claims the ATO has done a U-turn on previous advice it has provided him that income from the gambling wins was not assessable. Crikey understands that Walsh was provided a private binding ruling from the ATO that confirms that advice. The ATO is bound to abide by that ruling so long as the taxpayer has provided all relevant facts for it to make an informed decision.

But if the ATO subsequently believes it was not told everything, then the private binding ruling is no longer valid and all bets are off — so to speak.

The tax office position on gambling and betting wins has been well documented since 1991 when the income tax ruling IT 2655 was publicly released. The ruling says that betting and gambling wins will not be assessable unless the taxpayer is carrying on a business and they provide examples of the criteria the courts have used to determine whether in fact a business is being carried on.

Crikey sources have revealed that the ATO case is “strong” and it has the various members of the punters’ club by the “short and curlies”. How on earth can anyone support the notion that Walsh and his cronies are carrying on a hobby when we know the following from Federal Court documents and what is on the public record:

  1. The syndicate employs about 300 people at its offices in Hobart and Sydney and it runs a global gambling operation that places bets on races in Japan, Hong Kong, England, Australia and the US.
  2. Destroying business records and using encryption software to attempt to hide details of their $2.4 billion global gambling business.
  3. Conducting management discussions orally to avoid “leaving a paper trail”.
  4. Three holding companies have been formed to provide analysis including form, competitiveness, style of racing and on-track behaviour for the gambling syndicate.
  5. Four members of the club have left Australia amid inquiries and audits by the Tax Office.

Furthermore, if the ATO wins the Federal Court action against Walsh and the court confirms the ATO allegations regarding the destruction of business records and concealing the true facts when requesting a private binding ruling from them, then the tax office should refer the matter directly to the Commonwealth Director of Public Prosecutions. These are serious matters and any allegations concerning a taxpayer that may have been deliberately deceiving the commissioner of taxation deserves the higher sanction of prosecution.

Historically, courts in Australia have been reluctant to make a finding that a taxpayer is carrying on a business of betting or gambling. When I worked in the ATO, I was always told to back away from making a case against gamblers as they did not want to set a precedent of allowing the gamblers’ losses. Let’s face it; most gamblers lose — don’t they?

The Federal Court next month will not doubt be influenced by the decision of their brother judges in a leading tax case in 1989 on gambling wins known as the Brajkovich case. The full court in that matter established that gains and losses from gambling or wagering transactions are not taxable in the absence of a business. They ruled that the principle criteria for determining whether there is a business of gambling include the following:

  1. Whether the betting is conducted in a systematic, organised and “businesslike” way
  2. Its scale: i.e. the size of the wins and losses
  3. Whether the betting is related to, or part of, other activities of a businesslike character, e.g. breeding horses
  4. Whether the bettor 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 that is ordinarily thought of as a hobby or pastime.
A lot of that applies to Walsh.
14
  • 1
    Posted Monday, 16 July 2012 at 5:21 pm | Permalink

    Thanx for this report and analysis, which I found informative.

  • 2
    Phaser Norton
    Posted Monday, 16 July 2012 at 5:58 pm | Permalink

    This is quite a nasty article. For one, I don’t believe that Crikey can establish that Walsh is not compliant. Second, it is a gross violation of ethical principles (presuming that Crikey recognises those) to publish such violent assertions. Thirdly, your article confirms that Walsh does indeed have formal advice from the ATO that he has a private and binding ruling that the ATO must now prove to be based on a falsehood.
    I prefer that courts decide this stuff. If the ATO is leaking this then it tends to prove they don’t have a case and are blackmailing.
    Crikey should be regulated. By an editor with ethics.

  • 3
    The Old Bill
    Posted Monday, 16 July 2012 at 8:21 pm | Permalink

    I’m with you Phaser.
    My betting is conducted in a systematic, organised and “businesslike” way and is engaged in for profit. I find it offensive that my skill or judgement would be drawn into it, as the ATO has let me claim significant business losses from several of my other failed business ventures. If Walsh loses, I will be claiming my lottery ticket purchases as a tax write off at the earliest opportunity:)

  • 4
    Wilson Ralph
    Posted Monday, 16 July 2012 at 10:37 pm | Permalink

    I am with Old Bill and Phaser.

    I find it interesting that the ATO are attempting to bolster what appears to be a weak case, one without precedent, by selective leaking.

    Crikey, you state much as being fact.
    “we know the following from Federal Court documents and what is on the public record……

    2 Destroying business records and using encryption software to attempt to hide details of their $2.4 billion global gambling business.
    3 Conducting management discussions orally to avoid “leaving a paper trail”.”

    These would appear to be mere untested assertions by ATO and not what “we know’

    Will Crikey continue to be the ATO’s dupe

  • 5
    phjk
    Posted Tuesday, 17 July 2012 at 12:43 am | Permalink

    No mention by Chris Seage of the good work David Walsh has done in our community. He is one of the most generous cultural benefactors this country has seen and the ATO is going after him? What gives? The ATO gave Walsh clear advice that his earnings would not be taxable and has now decided to have a crack at trying to squeeze a bit of extra revenue? You think there’d be some real tax cheats the ATO could have a go at, people who don’t do anything for the community, people who are genuinely greedy.
    This article is petty and nasty and I agree with Wilson Ralph that it seems odd that Crikey would publish something like this.

  • 6
    Steve777
    Posted Tuesday, 17 July 2012 at 7:22 am | Permalink

    On the information presented here, it seems that the gambling operation described is a business, but of course the courts will decide that. Should there be credible evidence of documents being destroyed to avoid tax, the courts will also deal with that. The Judges will not be influenced by articles in crikey or any other journal. Further, the work done in the community by Mr Walsh sounds as though it’s likely to be tax deductible. The Tax Office and, if necessary, the courts will rule on that as well.

    So what’s the problem?

  • 7
    Hugh (Charlie) McColl
    Posted Tuesday, 17 July 2012 at 9:25 am | Permalink

    Phaser and Wilson - what’s this about “leaking”? Are you just making stuff up?

  • 8
    phjk
    Posted Tuesday, 17 July 2012 at 9:52 am | Permalink

    I don’t know David Walsh and I don’t know the minute details of this case but I do know that he’s not stupid and that he corresponded at length with the ATO when he began his operation and received an assurance that his earnings would not be taxable.
    Since then he has ploughed tens of millions of dollars into the creation of MONA in Hobart which is free to the public. This is now one of the most interesting and dynamic galleries in the world and represents an unprecedented contribution to Tasmanian and Australian cultural life. The ATO’s case against him may destroy all this - but hey, what’s the problem??

  • 9
    sebster
    Posted Tuesday, 17 July 2012 at 3:33 pm | Permalink

    Look basically, people like Walsh and MONA and the ATO can bugger
    off. Not scientific, I know, but really, who cares.

  • 10
    Bob Simpson
    Posted Wednesday, 18 July 2012 at 10:50 am | Permalink

    Outrageously poor journalism, picking bits out of court statements and quoting them as fact.
    Crikey I expected more.

    More importantly a key issue has been missed here that should scare the crap out of all of us. Random U-turns by the ATO and retrospective decisions smells real bad for any type of business or individual. By all means if they are a business tax them and let the country have a share but you don’t decide that years after the fact. Can’t imagine the ATO would be taking any interest in whether it is a business or not if they were losing.

    We need cases like this to reign the ATO in or they just keep making such unjust decisions. There is no place to retrospectively tax people after a change of heart on seeing they don’t have losses to claim.

  • 11
    phjk
    Posted Wednesday, 18 July 2012 at 11:13 am | Permalink

    Totally agree Bob… the ATO’s approach seems driven by a blindly bureaucratic approach that doesn’t take account of any broader implications. Like the article we are commenting on it seems weirdly amateurish.
    If the ATO believes it has a case for taxing Walsh’s enterprise as a ‘business’ (contrary to the original advice given to Walsh) then it should go ahead, make its case and tax according to the outcome of the case from that point on. But to try to make it retrospective is absurd, clumsy and destructive.

  • 12
    Alex
    Posted Wednesday, 18 July 2012 at 1:34 pm | Permalink

    Phasor, Old Bill, PHJK et al.

    The author states “But if the ATO subsequently believes it was not told
    everything,…”, and, “How on earth can anyone support the notion that Walsh and his cronies they are carrying on a hobby WHEN WE KNOW the following from
    Federal Court documents and what is on the public record:”

    So, seems like the author’s position is well substantiated, and I’m with
    him on the sentiment. It’s a “work-around” of the regulations, at best,
    and clearly not in the spirit of the law’s intention, and a scam at worst.

    And, to “ruin” an operation like this, PHJK. Do you mean a operation,
    such as a “business”? And, all the ATO wants is a tax on the profits,
    as all of us would expect to pay. As I small business owner & friend
    of mine says, “I don’t mind paying tax, because when I do, it means I’m
    making money”.

    Remember, every tax dollar lost has to be made up by others, and the
    losers are usually the wage & salary earners whose income is so closely
    monitored.

    I guess all of you must be self-employed billionaires.

    Cheers, Alex (ordinary salary earner who happily pays tax for all the
    publicly funded infrastrucure, services and social security he uses,
    is yet to use, or hopes he never has to use, but takes comfort in
    knowing it’s available, just in case).

  • 13
    djehuty
    Posted Monday, 23 July 2012 at 12:00 pm | Permalink

    But if the ATO subsequently believes it was not told everything” That’s the crux. It’s posed as a conditional, not an assertion. So the whole “these guys are obviously guilty” tone of the article is based on a possibility backed by no facts. If the author had any courage he would at least say “we can see this is a business therefore they must have lied to the ATO to get that binding ruling”. But that would expose just how weak the article really is: go do some bloody journalism, find out from the ATO or some other source if that’s what the ATO is basing it’s case upon. Here are some better questions, while you’re at it — 

    1. Has the nature of the operation substantially changed since the ruling?
    2. Did the ATO make a mistake in giving that ruling?

    If the answer to both of those is “yes” then perhaps the author can work that conditional “it’s now a business so if it didn’t change and the ruling was correct it was then a business, so false information must have been provided.”

    Employing 300 people is the one piece of “public record” which looks businesslike. Or maybe the creation of holding companies - the article doesn’t make clear how that works or what it means.

  • 14
    phjk
    Posted Monday, 23 July 2012 at 3:32 pm | Permalink

    ALEX, I mean an operation like MONA which is a gallery that gives away free entry to all patrons and therefore I imagine would not run at a profit. It’s separate from the gambling.

    DJEHUTY, you make a lot of sense. I think that fact that Chris Seage has not responded to these comments perhaps suggests he now realises that his article is perhaps a little light on for journalism.

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