Every year, the Melbourne Cup or the race that stops a nation, as is locally known, the question of whether the Australian Taxation Office (ATO) considers gambling winnings taxable often crop up.
The Melbourne Cup is always expected to draw a big crowd of spectators and gamblers alike. Australia has the highest rate of gamblers in the world with 80% of its adult population engage in gambling.
Are Gambling Winnings Taxable?
So, are gambling winnings taxable? The ATO views money gained from gambling activities not as an income but as a result of good luck. In Australia, gambling winnings, including lottery winnings, are not subject to taxes.
The only time gambling winnings become taxable is when you own a betting or a gambling business and you place a bet yourself. The winnings from your bet-backs or lay-offs, as they are called, are treated by the ATO as gambling sales and gambling sales are taxable.
If you are a professional gambler, the ATO may also tax your winnings. Over the years, the ATO has pursued people who make their living from gambling. There was a cop who was fined $5500 for hiding gambling winnings from the ATO. There was also the case of Zeljko Ranogajec and David Walsh and their “Punters Club” that the ATO treated as a business and not a hobby.
You need not worry though, if you just happen to like to gamble a lot because to be classed as a “professional gambler” by the ATO, you must have business connections with the gambling industry.
Related: How to Declare Your Australian Real Estate Income as a Foreign Resident
For instance, if you’re betting on the Melbourne Cup and you are a horse breeder or a horse trainer by profession, then your gambling winnings are taxable. Otherwise, gambling winnings of recreational gamblers are tax-free just as gambling winnings of hobby racehorse owners are.
What About Gambling Losses?
Because the ATO does not consider gambling winnings taxable income, you can’t also claim deductions for all the time you lost on the table, in a racing bet or a lottery, however grand the money involved may be.
Conversely, if you own a horse racing business, then you may enjoy certain tax benefits like Goods and Services Tax (GST), Capital Gains Tax (CGT), and other tax deductions. Take note that hobby owners of racehorses may also be eligible for CGT benefits.
Ready to Bet on the Melbourne Cup?
Take advantage of tax-free gambling winnings in Australia and bet to your heart’s content! The ATO does not treat gambling winnings taxable, so go ahead, pick your winning horse and hope it wins the race.
Have a gambling business and need tax help for your gambling sales? Contact a Chan & Naylor accounting specialist here.
Peter Locandro is the Managing Partner of Chan & Naylor Melbourne, Moonee Ponds & Wheelers Hill. He has been a small business owner for more than 20 years, a keen property investor, a public speaker, a radio host, blogger and a small business mentor to many.