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