The case, ATO 2010/56, which includes sections 15-15 and 6-5, discusses Jeremiah Bolton's hypothetical situation as a taxpayer. According to the court's decision in this instance, financial spread betting profits are taxable income. Despite Jeremiah Bolton's desire to partake in an enjoyable online gambling activity, it was determined that spread betting is governed by a separate statutory authority from those who oversee gambling and lottery operations.
The issue is to determine whether or not the gains from financial spread betting are assessable income under s 15-15 or s 6-5 of the Income Tax Assessment Act (ITAA) 1997. However, the decision of these sections is that proceeds from financial spread betting are assessable income under s15-15 or s6-5 of the ITAA 1997.
Under s6-5 of the ITAA 1997, the taxpayer’s assessable income is treated using ordinary concepts of income. Proceeds from financial spread betting are treated as taxable income because these activities are regarded as a business based on this section. It is an interrogation of fact as to whether these activities amount to conducting a business. Jeremiah engaged into spread betting with an intention to make profit because this contract has a stop-loss capability requiring significant thought about the level of predetermined risks and exposure and it influences the movement of the financial index or market. If this section is inapplicable, s15-15 can be utilized as spread betting contract implies undertaking a profit-making plan and the proceeds generated thereof, is assessable income. Under these two sections, Jeremiah’s proceeds of financial spread betting were treated as taxable rather than the tax-exempt as in the case of gambling.
A Commentary for Agreeing or Disagreeing with ATO’s Position
I do not agree with ATO’s position on its interpretive decision in ATO 2010/56 that determined that proceeds generated through spread betting are assessable income. I would like to base my argument using the facts from Jeremiah’s case in relation to the two sections of the ITAA 1997: section 6-5 and section 15-15. The facts from the case indicate that Jeremiah engaged into spread betting with an intention of enjoying a “sophisticated, online fun game” and not to conduct a business. This fact contradicts with section 6-5 of the ITAA and the proceeds from his activities would not be assessable income from my own point of view. The facts from Jeremiah’s case also indicate that he did not considerably thought about the risks and exposure of spread betting; and that he did not undertake any formal research, use any system or trading techniques. This fact contradicts with section 15-15 and Jeremiah’s proceeds are not taxable income.
Most notably, spread betting does not entail buying a commodity or stock, but rather placing a bet with a licensed bookmaker with an anticipation that the commodity or stock may increase or decrease in value in the future. In fact, it is known as a wagering contract. I would treat Jeremiah’s gains from spreading betting, if any, are not different from gains realized from gambling winnings. The gains from gambling are not assessable income. Since I find that there is not substantial difference between spread betting and gambling, I am more compelled to think the gains from latter would be, prima facie, tax-exempt. The only principle the ITO used to come up with their Interpretive Decision 2010/56 is based on the premise that spread betting and gambling are regulated by different statutory bodies. With exception of this difference, I found no other differences between spread betting and gambling and that the proceeds from these activities should not be assessable income.
Resources
ATO legal database: https://www.ato.gov.au/law/view/document?docid=AID/AID201056/00001
