I am a
Crikey lifer and a former accountant. I have also been a professional
Black Jack player for the last 16 years who happens to have played
poker with Joe Hachem a number of times. Having won many millions over
the years, the issue of the taxation of gambling winnings is very close
to my heart. While I call myself a “professional” this doesn’t
necessarily mean that I’m running a “business” for the purposes of
income taxation.

In fact, income tax ruling IT 2655 notes that: “There is no Australian case in which the winnings of a mere punter have been held to be assessable (or the losses deductible).”

I have lawyers’ opinions on the matter and have researched it extensively. A summary of my research is available here. While it refers to Black Jack, the logic applies equally to poker. Some of the arguments are as follows:

It has long been established
that gambling winnings in Australia are completely free of tax. The
only scope for gambling winnings to be considered assessable is if the
gambler is considered to be in the “business” of gambling. The word
“business” is not defined in the taxation legislation. Whether one’s
gambling activities constitute a “business” or not is to be determined
on a case-by-case basis by the Taxation Office and is subject to appeal
to various Tribunals and Courts. This very issue was examined in detail
by the Federal Court of Australia in three separate cases in 1989: Evans
v FC of T 89 ATC 4540; (1989) 20 ATR 922, Babka v FC of T 89 ATC 4963;
(1989) 20 ATR 1251, and Brajkovich v FC of T 89 ATC 5227; (1989) 20 ATR
1570.
In the first two cases, the gamblers won substantial amounts
of money and the Taxation Office was trying to levy tax on those
winnings, arguing that the gamblers were in the “business” of gambling.
On both occasions the Court refused to characterise the taxpayers
activities as a “business,” even though they exhibited some elements
which could be characterised as business-like. In the final case, the
taxpayer lost substantial amounts and was trying to claim a deduction
as a “business” expense, trying to argue that he was in the business of
gambling. Once again, the Court refused to characterise the activities
as a “business.”

As a result of these cases, the Commissioner
of Taxation issued an income tax ruling about this very issue, IT 2655.
Although this ruling specifically dealt with racing not casino
gambling, the ruling held that: “…it will be rare for a taxpayer
with no connection with racing other than betting to be carrying on a
business of betting or gambling.”

As a practical matter
there are two other reasons which make it unlikely that the Tax Office
would ever try to levy tax on a casino player’s winnings. Firstly,
there is the difficulty of establishing the amount won, and secondly if
the Tax Office were ever to levy such tax, it would open the floodgates
for high rolling losing gamblers to claim that they are in the business
of gambling and therefore to claim a deduction for their losses.

Peter Fray

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