How Gambling at the Casino can get You into Trouble with the Tax Office

Are gambling winnings considered to be a form of taxable income?

In many countries around the world, when you have a big win at the casino it is treated as part of your regular income and you are taxed accordingly. This rate can be very high. For example, in the US it can be over 50% of a person’s winnings. 

Australian winners of all sorts of forms of gambling are luckier than a lot of other gamblers around the world. Gambling taxation in Australia does not affect the average Australian winner directly as gambling taxation is effected on a corporate level, not an individual one. This is very different from many places around the world, like the case of the United States; where the winner pays the taxes on the gambling prize.

The Australian government views gambling winnings slightly differently than many other countries and this is the cause of the different approach to gambling taxation. Where many nations, like the United States, view gambling winnings as income; Australia views it as luck.

The rationale for this is simple. When people gamble, most of the time, they lose. Gambling sees more money leave gamblers pockets on average than enter it. Also, when people do win, they usually don’t win large amounts. Gambling cannot reasonably or rationally be considered income because it’s making people lose money more than making it. 

Another reason that gambling winnings are not taxed as income is that “gambler” is not considered a profession in Australia. Gambling is considered a pastime or a hobby and a form of entertainment. Another argument is that it would be absurd to expect that a gambler could be able to include their losses at the casino as a loss in their tax return. Therefore, it should be equally as absurd to make them include their winnings as a form of income.

Prosecutions that can arise from gambling

A couple of years ago a specialised task force was formed within the ATO which targeted high-level gamblers at casinos all across Australia. What the ATO would typically do is obtain the gambling records of a player from the casino, which would identify how much that person has won and lost over a period of time, and then compare those records with the person’s annual tax returns. 

If there is a substantial difference between how much money the person has spent at the casino and how much they declared in their tax return, the ATO would issue these people with notices called ‘Amended Tax Notices’, seeking that tax be paid on the amount that the person spent at the casino. 

For example, if a person spent $1 million in the space of 1 year but in their annual tax return declared that they only earned $100,000, the ATO would seek to have that person pay tax on the amount of $900,000. That is because they say that the $900,000 would have been a form of income that the person had not declared.

These Amended Tax Notices can be absolutely terrifying to receive, firstly because it is usually a demand for a very large amount of money (sometimes in the millions) in a very short space of time (usually 28 days). An ordinary person would assume that they have to pay the requested money within that time frame or risk being bankrupted, which isn’t the case. Receiving this notice is only the first step in a very long court process and there are certainly ways to defend them. 

How to defend these matters

The main problem with these notices is that they are based on assumptions. One very common way to defend these actions is to prove that the person who is supposedly the gambler was not, in fact, the gambler.

For example, I was recently approached by a person who held a membership card at the Treasury Casino in Brisbane. Because that card had been used in the last couple of years to gamble a large amount of money, the ATO alleged that the owner of the card must have been responsible for the gambling and requested that person pay taxes on the gambled amount. 

The ATO, therefore, made the assumption that he was the gambler. However, in reality the person was not the one doing the gambling – he had lent his membership card to others who used it when they gambled and he, therefore, did not ever have any of the money that the others had gambled. 

In defending such actions, it is usually a matter of untangling all of the assumptions that the ATO has made and addressing them one at a time. This is an extremely difficult process and will usually involve the help of other specialists, such as a specialist accountant.

Do you need help understanding your legal rights? We at Cridland & Hua are indisputably one of Brisbane’s top law firms. Contact us for professional guidance today. 

 

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