The ATO always wins: Why the tax office is eyeing your gambling habits

A recent win by the Australian Taxation Office (ATO) at the Administrative Review Tribunal has come as a timely reminder to any gamblers to keep records of any regular winnings, with the ATO setting its sights on betting income and other “side hustle” earnings.

It’s one of many wins the tax office has had at the tribunal in cases of taxing unexplained deposits as income. In one case, Ti Ke Tran (or Lucky Eddie, as he is known by at the Crown and Star casinos) did not lodge a tax return for several years, claiming he was living off his poker and sports betting winnings.

As Kenny Rogers once said: never count your money while you’re sitting at the table, there’ll be time enough for counting when the ATO comes.Credit: Dominic Lorrimer

The trouble was Tran could not prove that the deposits into his bank account came from gambling. As noted in his defence of the case, he was not in business, so why would he keep records?

Unfortunately, this scenario was not a question of gambling being a business. Instead, it is simply that, unless taxpayers can prove where the deposits came from, the ATO will treat them as taxable income.

The onus of proof is on the taxpayer, and the ATO can simply choose not to believe your explanation. The level of proof required is not beyond reasonable doubt. It is similar to a civil case where you only have to prove that on the balance of probabilities, the deposit was not taxable income. The problem is, without irrefutable proof, you may have to go all the way to court to have that decided.

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Not depositing your winnings into a bank account will not help either because the ATO can always do an asset betterment test. They look at your assets and estimate the income you must have earned to be able to acquire them. So, if you have a gambling win, make sure you keep proof.

We have noticed in prefills this year, that the ATO is data-matching income you receive through PayPal. Some gambling apps apparently use PayPal for transactions, so make sure you keep records of your bets so you can show the source of those transactions.

The ATO is also questioning whether you may have a side hustle. The sales you make on eBay could be considered a business if they are profitable and regular. It is a question of being businesslike as opposed to a hobby or recreation.

The bottom line is that unless you can prove where your money came from, the ATO can tax you on it, as normal income. The ATO has no burden of proof requirement, they can jump to whatever conclusion they want. The burden is on the taxpayer to prove the ATO’s assumptions are wrong or pay the tax and penalties.

To (mis)quote the great Kenny Rogers, never count your money while you’re sitting at the table, there’ll be time enough for counting when the ATO comes.

Julia Hartman founded BAN TACS Accountants more than 30 years ago and is still passionate about all things tax.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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