More profit betting or trading?
 

Would you say you make more profit straight out betting or trading?

betting ... If I want to trade I can trade the share market.

That's true, however this means paying tax..

Technically trading betfair also requires you to pay tax as it is no longer a form of gambling. Chrome Prince went into it a while back and if the tax office decided to follow up on your technique and they found you to be trading you would be required to pay tax on the profit.

Trading is not a form of gambling.

For instance :

------------------------
A recent decision by the Australian Tax Office (ATO) has cast doubt on whether the profits of spread betting are free from income tax.

Spread betting involves placing a bet with a licensed bookmaker that a stock or commodity will rise or fall in value. It does not involve the purchase of the stock or commodity but is a 'wagering contract'. The profits of spread betting (if any) are gambling winnings and are exempt from income tax.

On 12 March 2010, the ATO published interpretive Decision 2010/56, in which it determined that the proceeds of spread betting were taxable income. The ATO emphasised that, in Australia. spread betting is governed by a separate statutory regime from other gambling activities.

The ATO stated that “transacting with financial spread betting is closer to the skill end of the chance-to-skill spectrum and the commercial and of the private/recreation-to-commercial spectrum
than a bet on horse racing.
The winnings tend to be rewards for skill and judgment rather than purely betting on chance.‘

The taxpayer, the ATO found, was engaged in a taxable business.

---------------------


The important part of this is "The winnings tend to be rewards for skill and judgment rather than purely betting on chance."

The ATO could say trading is a skill and the winnings are rewards for reading the market which is the same as trading the share market.


In reality though your probably not going to have to pay tax.

Trading is still gambling as you're never gaurenteed to make money. You are just assuming or hoping you're lay bet will get matched. After you place a back bet there's no gaurentee your lay bet will be matched to lock in a profit, hence it's actually gambling and not a 'sure thing'.

Is there something in writing on the official ATO website where it says betfair trading requires tax to be paid?

Pat, in saying that there is no gaurantee that your lay bet will be matched, there is also no gaurantee that the individual spread betting will be profitable either. It's the fact that if you demonstrate to continually be matched over a period of time at a profitable margin in high dollar amounts that would determine whether your at the skill/commercial or chance/recreational end of the spectrum.

However I agree that its highly unlikely anyone would have to pay tax but at the same time UB has a point that there really isn't much stopping the ATO targetting someone making a living via sports/racing trading.

I've been advised by the ATO twice over the phone that no tax needs to be paid on winnings. If you're a business you are eligible to pay tax on profits. If there's something on the ATO website that clearly states tax needs to be paid on profits, then I'd like to read up on it.

In saying all this, who honestly would declare profits from gambling? I have read about pro millionaire gamblers being targeted by the ATO but not small time punters.

I think your missing what were saying a little bit Pat. Myself and UB haven't said that it will happen, were just saying its not out of the realm of possibilities if you trade a significant amount profitably over an extended period of time that eventually questions may be asked.

Anyhow i'll leave it at that :)

Yeah I get what you are saying - cheers for the info :)

Pat,

I would say there is 99.9999% chance the ATO won't come after you for trading on the horses. Its all theoretical. It was raised a few years ago and has lingered on since then as a possibility.

If you search google for "Australian Tax Office betfair" you might find a few things. as well as "ATO Tax Betfair"

Here is a link to a guy who got asked about his punting just this year :

http://community.betfair.com/austra...taxation-office

There are a few threads on this forum from a few years ago. There are also a few on the betfair forums.


and make sure you read this:

http://law.ato.gov.au/atolaw/view.h...5/NAT/ATO/00001

Thanks for this. I've been madly searching and from what I have found, it's such a grey area. I'll have a read of the info you've put up. Cheers

That's a good article from 1991. Here's another one:

http://www.theaustralian.com.au/nat...f-1226229779154

"The assumption that he owes them money depends on the assumption that gambling is taxable and that has never happened in Australia," Walsh says.

"At this stage no gambler in Australian history has ever been taxable."

Most are covered under Private Rulings, which were created in 2001, the issue being if you had a private ruling agreed, before 2005 (Betfair TAS) most of those rulings would not have covered those activities and governments fearing the worst with falling tax revenues from Racing, had the ATO play their hand.

If gambling were taxable, imagine all the claims for related expenses in performing your gambling like ratings services, data bases, form guides, etc, plus all the losses that would be claimable against your wins.

So I got confirmation over the phone the other day, and finally cleared up the grey area, with the ATO (I recorded the call too) that there is no tax needed to be paid on gambling. I was told, however, that if I was in the business of gambling/horse racing e.g. I owned a horse/trained them etc or had an ABN to do with gambling, then yes, I'd need to pay tax. He talked about previous court cases (even mentioned that one in 1991) where the person/group was found not to be "in the business" of gambling, and said himself that the ATO has never once been successful and would find it extremely difficult to prove I have a business in gambling. He mentioned that even trading has the element of "chance".

I also asked about professional online poker players and he said they don't even need to pay tax. Thought that was interesting - I swear I have heard that pro poker players need to pay it :-S

Not sure there is a need for 'a mystery' or puzzle to be cracked here.

In my opinion, it's a relatively simple matter which sometimes gets confused because the ATO will persue a case in court from time to time where it deems to have some chance of success. The main question being..

=> Are you carrying on a business enterprise or conducting a hobby?

Assuming the latter applies as is the case for recreational punting*, there is no assessment of 'income' or gains and deductions for expenses are not allowed - makes sense given that 95%+ of run of the mill punters loose money and have heaps of potential deductions! The ATO is charged with collecting revenues(not net deductions) to fund the nation's bills, so this would make sense?

Main tests applied for running a business enterprise are:
1 Does the activity have significant commercial purpose or character?
2 Is there more than just an 'intention' to engage in business?
3 Is their a purpose - prospect of making a profit?
4 Are activities planned & organised in a business like manner?
5 Is there repetition / regularity to the activity?
6.Is it setup - operated in a similar way to a commercial business in the same industry?

OR is the activity better described as a recreational - sporting activity i.e. a hobby?

As always..
Do your own research on this topic - no advice intended!!


Cheers LG


* When it comes to the 'professional punter' (e.g. type 'wizzard' into the search function), this is an entirely different matter altogether i.e. The tests above are applied by the ATO and suggest - indicate that a business enterprise exists. Hence, net profits / gains are taxable and will be persued in court as o/s debts

This is true. They are not going to take on 99% of punters. Its the professional punters where this is a cause.

In Pats case where he is doing sports arbitrage there is :

1. Very little chance involved. Arbitrage is not trading.
2. His primary income is from arbitrage - (not gambling).
3. He places trades in a systematic way.

There is a very small chance if they wanted to that they could say his activities are not gambling. Gambling implies risk and as Pat has said his method involves very little or no risk.

To back this up there was a tax ruling in 2004 (complex to read and is about the difference in horse race bets vs contracts for difference. But one of the important lines was :


31. One example of where it would be objectively concluded that there was a commercial transaction for the purpose of profit making is where a financial contract for differences was used in an arbitrage transaction. The exploitation of a market imperfection is a commercial transaction and its purpose is to make a profit.

Basically arbitrage trades are taxable.

But Im just saying this as devils advocate. If Pat used different words with the tax office and mentioned arbitrage there is a very good chance the advice offered would be very different.

Saying all this I doubt Pat would get taxed as the ATO has to first work out his profits are being derived from arbitrage betting rather then gambling.

Pat if you are extremely worried about this you can always request a tax ruling for your situation. In this case you would need to tell them exactly what you are doing and how you are doing it. They would then place a binding ruling on your situation which means you are 100% covered.

But for all its worth I wouldn't bother ...

After 3 months I've lost $15,901.18 on AUS races and overseas races lost $21,121.50 = Total: -$37, 022.68

This includes betting with all the UK bookmakers that limited me. I'm never going to go to straight out betting but I found this interesting as I bet on market movers/arb opportunities. If I never made one lay and just backed the whole time in 3 months I could have made an extra $37k :| But as I can't deal with losing I'm just going to stick to what works for me. But for those that may want a strategy, maybe this could work over the long run? I guess 3 months isn't long enough to gauge it though.

So Pat123, is that how much you have lost laying on BF? So how much have you won then? You are only showing us one side of he equation.

I don't want to specify exactly how much but I've obviously made that back to start with and a lot more on top.

Fair enough. Good stuff!

On a side note, anyone having trouble with Betfair?

There was an outage till 7:15 .. ITs back up now.

Thanks UB.