Gambling is a popular pastime in Australia, with punters losing more on average than any other country in the world. But Australian gamblers are lucky, as their occasional winnings are free from tax.
However, professional gamblers must pay tax on their winnings. Australian courts have struggled with defining who is and who is not a professional gambler. But for most individuals, you can build your bankroll away from the tax-collector’s prying eyes.
Who Is a Professional Gambler in Australia?
Since professional gamblers are subject to taxation on their winnings, it is critical to understand who is and who is not considered a professional gambler. Australian courts have not been explicit about a definition. Unfortunately, this means casual punters may unknowingly be considered professionals, depending on their unique circumstances.
One key test for who is considered a professional gambler is whether the individual is carrying on a business of gambling. This makes sense, as “professional” indicates someone is acting in a business-like capacity.
But what are factors that lead to a conclusion you may be carrying on a business of gambling? There are three crucial questions to examine:
- First, is the activity conducted in the manner of a business operation?
- Second, is the individual in possession of specialist knowledge regarding gambling?
- Third, how large is the gambling operation?
The answers to these three questions, taken together, will determine whether a player must pay tax on their gambling winnings.
Should You Pay Tax on Your Gambling Winnings?
Gambling operators and companies operate differently and need to pay tax on their revenues. For operators licensed under the Interactive Gambling Act 2001, their business operations are taxable.
But because of the courts’ test, most punters will not need to pay tax on occasional gambling winnings. For gamblers who clearly are only betting on the ponies or a footy game occasionally, there is little risk. However, there are certain circumstances you should carefully avoid.
The first is betting on an industry where you have inside, special knowledge. For example, if you are employed in horse-breeding or training, you may want to avoid betting at the races. Or, if you do, consider paying tax on your winnings. Your connection to the racing industry may make your wagering professional.
The second is betting large sums of money. If you regularly throw down a few low-level sports bets, you will both avoid the tax-authority’s radar and be unlikely to be deemed professional. But tossing around a lot of dollars can draw attention. Especially for those punters who spend a lot of time developing betting models or doing research, large bets could create a problem.
