IN THE ADMINISTRATIVE Tribunal Ref: M2020/1089 APPEALS TRIBUNAL

BETWEEN: RUTH BOOKS Applicant

AND: THE COMMISSIONER OF TAXATION Respondent

DOCUMENTS FILED PURSUANT TO SECTION 37 OF THE ADMINISTRATIVE APPEALS TRIBUNAL ACT 1975 [AS MODIFIED BY SECTION 14ZZF OF THE TAXATION ADMINISTRATION ACT 1953]

Filed on behalf of the Respondent by: Date of this document: 24 February 2020

Australian Taxation Office Attention: Gordon Stuart-Reeve Review and Dispute Resolution File ref: 1-A2WXYZ 52 Gee St Tel: (02) 9999 XXXX Sydney NSW 2000 E-mail: gordon.stuart@ato.gov.au

- i -

IN THE ADMINISTRATIVE Tribunal Ref: M2020/1089 APPEALS TRIBUNAL

BETWEEN: RUTH BOOKS Applicant

AND: THE COMMISSIONER OF TAXATION Respondent

INDEX OF DOCUMENTS

NO DATE DESCRIPTION PAGES

T1 24-Jan-20 Application for review 1 - 9

T2 29-Nov-19 Notice of objection decision 10 – 16

T3 26-May-19 Amended notice of income tax assessment for year ended 30 June 2018 17 – 20

T4 26-May-19 Amended notice of administrative penalty assessment for year ended 30 June 2018 21 - 22

© Commonwealth of Australia www.aat.gov.au T: 1800 228 333

Application for Review of Decision (Individual)

This form is for use in the AAT’s General Division, Freedom of Information Division, National Disability Insurance Scheme Division, Security Division, Small Business Taxation Division, Taxation & Commercial Division and Veterans’ Appeals Division.

Please read the Guide to applying for review before completing this form. You must complete the fields and answer the question marked with an asterisk (*). SECTION 1 APPLICANT (INDIVIDUAL)

Personal details *

Mr Mrs Ms Miss Other:

Family name:

Given name(s):

Female Male Unspecified Date of birth 03 / 08 / 1959

Are you of Aboriginal or Torres Strait Islander origin? Yes No

Street address *

State: Postcode:

Postal address * ‘As above’ if also your street address State: Postcode:

Email

Telephone * / Fax

Landline: ( ) Mobile: Fax: ( )

Preferred method for receiving correspondence Please select one *

Email: Fax: Post:

Representative If someone will represent you, please fill in these details

Name:

Organisation:

Postal address:

State: Postcode:

Email

Telephone / Fax

Landline: ( ) Mobile: Fax: ( )

Preferred method for receiving correspondence Please select one

Email: Fax: Post:

Interpreter * Do you need an interpreter?

Yes

No

If yes, for which language or dialect?

Turn to page 2

188 Towers Road, Toorok

As above

Axe Your Tax Pty Ltd

19/53 Taa Street, MelbourneVic 3000

info@ayt.org.au

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Application for Review – Individual

Administrative Appeals Tribunal / Page 2 of 3 www.aat.gov.au Approval date 27 June 2019

SECTION 2 DECISION Date you received the decision you want reviewed * 01 / 12 / 2019

Are you sending us a copy of this decision? *

Yes Go to section 3 – attach a copy of the decision

No Complete all of section 2, then go to section 3

Briefly describe the decision

Who made the decision? Name and address of organisation

Name:

Address:

State: Postcode:

Date the decision was made

dd / mm / yyyy Decision

reference

SECTION 3 REASONS FOR THE APPLICATION Why do you claim the decision is wrong? *

Please read the ‘Reasons you are making an application’ section in the Guide to applying for review before answering this question.

Turn to page 3

Assistance If you have a disability or other special need and would like some assistance, please indicate the type of disability/need and assistance you require:

Physical (e.g. wheelchair user) Sensory (e.g. hearing or sight) Other, please specify

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Application for Review – Individual

Administrative Appeals Tribunal / Page 3 of 3 www.aat.gov.au Approval date 27 June 2019

SECTION 4 TAX DECISIONS ONLY Please answer both of these questions if you are applying to us for review of a tax decision.

Please refer to the ‘Tax Decisions’ and ‘Application Fees’ sections in the Guide to applying for review for more information before answering these questions.

1. Does the decision relate to a small business entity?

Yes

No

2. Is the amount of tax in dispute less than $5,000?

Yes

No

If yes, please state the amount of tax in dispute:

SIGNATURE

Signature Date 24 / 01 / 2020

Print name

* Mandatory field/question

$

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Administrative Appeals Tribunal / Page i of vi www.aat.gov.au Information date 27 June 2019

GUIDE TO APPLYING FOR REVIEW The Administrative Appeals Tribunal (AAT) can review a wide range of decisions made under Commonwealth laws by the Australian Government and some non-government bodies. We also review decisions made under Norfolk Island laws. You should use this guide if you want to apply for a review of a decision in the AAT’s General Division, Freedom of Information Division, National Disability Insurance Scheme Division, Security Division, Small Business Taxation Division, Taxation & Commercial Division or Veterans’ Appeals Division.

The five parts of this guide will: • help you choose which application form to use (Part 1)• help you complete the application form (Part 2)• help you work out if you must pay an application fee and, if so, how much (Part 3)• give you some other information about applying to the AAT (Part 4) and• show you where to send your form and how to contact the AAT (Part 5).

If you want to apply for a review of a decision in the AAT’s Migration & Refugee Division or Social Services & Child Support Division, go to www.aat.gov.au and follow the links on the website.

PART 1: CHOOSING WHICH APPLICATION FORM TO USE The AAT has three application forms to apply for a review of a decision in the AAT’s General Division, Freedom of Information Division, National Disability Insurance Scheme Division, Security Division, Small Business Taxation Division, Taxation & Commercial Division or Veterans’ Appeals Division.

Application for Review of Decision (Individual) Use this form if you are an individual, unless you want to apply for a second review of a decision of the AAT’s Social Services & Child Support Division.

Application for Review of Decision (Organisation) Use that form if you are an organisation.

Application for Second Review of Decision Use that form if you want to apply for a second review of a decision made by the AAT’s Social Services & Child Support Division:

• about a Centrelink decision (except an employer-related paid parental leave decision)• to refuse an extension of time to apply for a child support review• about a person’s percentage of care for a child in a child support review.

For information about completing this form, see Part 2 of this guide.

PART 2: COMPLETING THE APPLICATION FORM Read this guide and the form carefully. If you need more space to answer a question, continue your answer on another sheet of paper and attach it to the form.

If you need help filling out the form or if you need more information, ask us. When you have completed the form, you can bring it to the AAT in person or send it to us by post, email or fax. Our contact details are at the end of this guide.

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Administrative Appeals Tribunal / Page ii of vi www.aat.gov.au Information date 27 June 2019

APPLICANT

CONTACT DETAILS The form asks you to give us your address, phone numbers, and any email addresses or fax numbers. Please tell us your preferred method for receiving written information from us by ticking the box. If you have given us an email address and you do not tick a box, we will email the documents to you.

REPRESENTATIVE You can represent yourself at the AAT or any person you choose can represent you. If you tell us that you have a representative, we will send the letters and other documents about your case to your representative instead of sending them to you.

INTERPRETER If you need an interpreter, we will arrange for a qualified interpreter to assist you free of charge. If you speak a particular dialect, please include this in the form.

DISABILITY If you have a disability or special need and would like some assistance, we will try to make appropriate arrangements for you. Our offices (known as registries) have portable hearing loops and are wheelchair accessible.

DECISION

DATE YOU RECEIVED THE DECISION We ask you to tell us on the form when you received the decision. We need this information so we can check if your application has been lodged within the time limit.

The time limit for lodging an application for a review of a decision is usually 28 days after you receive the decision. For some types of decisions, the time limit is longer and for others it is shorter. The time limit is usually stated in the information given to you by the decision-maker about your review rights.

If the time limit has expired, you can apply for an extension of time to make your application. We can extend most, but not all, time limits. You can use the Application for an Extension of Time for Making an Application for Review of Decision form which is on our website.

SEND US A COPY OF THE DECISION If you can, send us a copy of the decision you want us to review. If you cannot, describe the decision briefly, for example: ‘The Tax Office decided that I have to pay a tax debt’.

WHO MADE THE DECISION If you are not sending us a copy of the decision, you need to tell us the name and address of the department or organisation that made the decision.

DATE THE DECISION WAS MADE AND DECISION REFERENCE If you are not sending us a copy of the decision, please tell us on the form when the decision was made and to give us a decision reference number. You will usually find a reference number on a covering letter or in the decision itself. Giving us these details helps us to identify the decision quickly.

REASONS YOU ARE MAKING AN APPLICATION You must tell us briefly why you want to have the decision reviewed. For example, you may think the decision is wrong and a different decision should be made, or the information you provided was not taken into account, or the law was not applied correctly. We cannot start the review if you do not answer this question.

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Administrative Appeals Tribunal / Page iii of vi www.aat.gov.au Information date 27 June 2019

TAX DECISIONS If you are applying for review of a tax decision, we need additional information to decide how the AAT will handle your application and the application fee you must pay.

If the tax decision relates to a small business entity, we will handle the review in our Small Business Taxation Division. In general, you are a small business entity if you were carrying on a business and your aggregated turnover was less than $10 million. In most cases, the letter from the Australian Taxation Office (ATO) telling you about its decision will state whether or not they consider you are a small business entity. For more information, please read the AAT’s Guide to the Small Business Taxation Division which can be found on our website.

If the decision does not relate to a small business entity, we will handle your review in our Taxation & Commercial Division.

The application fee you must pay depends on: • the type of tax decision you want us to review, and• the amount of tax in dispute, and• whether the decision relates to a small business entity.

Please read the next section to find out what fee you must pay.

PART 3: APPLICATION FEES AND REFUNDS You do not have to pay a fee when you apply to us for review of some types of decisions, such as applications about Commonwealth workers’ compensation, family assistance or social security payments, military compensation, the National Disability Insurance Scheme or veterans’ pensions.

For the review of other types of decisions, you must pay an application fee.

STANDARD APPLICATION FEE The standard application fee is $932.

APPLICATION FEES FOR REVIEW OF TAX DECISIONS A lower fee of $92 is payable for the review of the following tax decisions:

• the amount of tax in dispute is less than $5,000• the ATO has refused your request to be released from paying a tax debt (regardless of the

amount involved)• the ATO has refused to extend the time for you to lodge an objection.

If the decision relates to a small business entity and you are not eligible to pay the lower fee of $92, the application fee is $500.

For other applications for review of tax decisions, the standard application fee of $932 is payable.

CONCESSIONAL FEE You can pay a reduced fee of $100 instead of the $932 fee or the $500 fee if:

• you have been granted legal aid for your application• you hold a health care card, pensioner concession card or Commonwealth seniors health card• you are in prison or lawfully detained in a public institution• you are under 18 years of age or receiving youth allowance, Austudy or ABSTUDY, or• we decide that paying the full fee would cause you financial hardship.

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Administrative Appeals Tribunal / Page iv of vi www.aat.gov.au Information date 27 June 2019

To apply for a fee reduction on the grounds of financial hardship, you must fill out the Request for Fee Reduction form, which is on our website, and send it to us.

APPLICATIONS FOR REVIEW OF MORE THAN ONE DECISION If the same person (an individual, organisation or other entity) applies for review of more than one decision that relates to them and we decide that the applications can be dealt with together, we can order that you only have to pay one fee.

If you are applying for review of more than one tax decision and different application fees would be payable if the applications were handled separately, you must usually pay the highest of the fees. However, if one of the fees is the $932 fee and the other is the $500 fee, you pay the $500 fee.

WHEN THE FEE MUST BE PAID Application fees must be paid when the application is lodged. The AAT may dismiss your application if you do not pay the fee within six weeks after lodging the application.

HOW TO PAY A FEE You can pay a fee in cash or by cheque, money order, EFTPOS or credit card. We accept payment by MasterCard and Visa.

All payment types are accepted at our registries. Credit card payments can also be made by phone.

REFUNDS We will refund:

• the entire application fee if you were not required to pay it• the difference between the fee you paid and a lower fee if the lower fee was payable• if you pay the $932 fee or the $500 application fee and the application is resolved in your

favour, the difference between the fee you paid and $100. There is no refund if you pay thelower application fee of $92 or the reduced fee of $100.

For more information about fees, including when there is no fee and whether you are eligible to pay a reduced fee, go to the AAT website or contact your local AAT registry.

PART 4: OTHER INFORMATION ABOUT APPLYING TO THE AAT

APPLYING TO SUSPEND A DECISION In general, a decision continues to operate while we are reviewing it. In some cases, we can order that the decision be suspended while the review is taking place.

If you want to ask us to suspend the operation of the decision, you must complete a Request for Stay Order form, which is on our website, and send it to us.

STEPS IN A REVIEW In most cases, we use alternative dispute resolution (ADR) to help the parties – you and the department or organisation that made the decision you want reviewed – try to reach agreement about how the case should be resolved. Many cases are resolved at this stage. ADR processes are held in private.

If agreement cannot be reached, we will hold a hearing and make a decision. Hearings are usually open to the public.

Our procedures and the time needed to complete the review vary from case to case. We aim to have cases finalised within 12 months.

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Administrative Appeals Tribunal / Page v of vi www.aat.gov.au Information date 27 June 2019

PRIVACY – WHAT DO WE DO WITH INFORMATION GIVEN TO US?

We collect information from you to process your application and to carry out the review under the Administrative Appeals Tribunal Act 1975.

We give a copy of the form to the department or organisation that made the decision you want reviewed. We may also give a copy to any other person that is a party to the review.

If you give us other information during the review that another party does not have, we will usually give them a copy.

Limited information about cases in the AAT’s General Division, Freedom of Information Division, National Disability Insurance Scheme Division, Small Business Taxation Division, Taxation & Commercial Division or Veterans’ Appeals Division is usually made available to the public on request and can be accessed using eCase Search on our website. This information includes the names of the parties and any representatives, the type of application, dates of conferences, hearings or other case events, the types of key documents lodged by the parties and the outcome of an application.

More information is usually made publicly available if we hold a hearing and make a decision. If we prepare a written statement of the reasons for our decision in your case, it will usually be made public and published on the internet, including on the AustLII website (www.austlii.edu.au). For more information about the decisions we publish, see our Publication of Decisions Policy on our website.

We can order that information be kept confidential if we believe there is good reason to do so. You can apply for an order by writing to us stating what information you want kept confidential and why. In some cases, legislation requires that information be kept confidential.

For more information see our fact sheet, Privacy and confidentiality at the AAT, and our Privacy Policy. Our Privacy Policy includes information about how you can access and seek correction of your personal information, make a complaint about the way we have handled your personal information and how we will deal with such a complaint. Privacy and confidentiality at the AAT and our Privacy Policy are on our website or are available from your local AAT registry.

MORE INFORMATION ABOUT THE AAT

For more information about the AAT and how we conduct reviews go to our website or call us. Our staff can give you information about procedures but cannot give you legal advice.

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Administrative Appeals Tribunal / Page vi of vi www.aat.gov.au Information date 27 June 2019

PART 5: CONTACT THE AAT How do I submit this form?

You can send us your form by email, post, or fax, or deliver it to a registry.

Email: generalreviews@aat.gov.au

Post: AAT, GPO Box 9955, Your capital city (Northern Territory residents should write to Adelaide) or Norfolk Island residents: AAT, c/- Supreme Court of Norfolk Island Registry, Kingston, Norfolk Island 2899

In person or by fax:

ADELAIDE Level 2 1 King William St ADELAIDE SA 5000

BRISBANE Level 6 295 Ann St BRISBANE QLD 4000

CANBERRA Level 8 14 Moore St CANBERRA CITY ACT 2600

HOBART Edward Braddon Building Commonwealth Law Courts 39–41 Davey St HOBART TAS 7000

FAX (08) 8128 8099 FAX (07) 3052 3001 FAX (02) 6243 4600 FAX (02) 9276 5597

MELBOURNE Level 4 15 William St MELBOURNE VIC 3000

NORFOLK ISLAND Supreme Court of Norfolk Island KINGSTON Norfolk Island 2899

PERTH Level 13 111 St Georges Terrace PERTH WA 6000

SYDNEY Level 6 83 Clarence St SYDNEY NSW 2000

FAX (03) 9454 6998 TEL +61 2 9391 2400 FAX +61 2 9283 4881

FAX (08) 6222 7299 FAX (02) 9276 5599

If you want more information or assistance, call us on 1800 228 333 (calls are free from landline phones, however calls from mobiles may be charged). Residents of northern NSW (postcodes 2460–2490) will be connected to the Brisbane registry and residents of the Northern Territory will be connected to the Adelaide registry.

Non-English speakers can call the Translating and Interpreting Service on 131 450 and ask them to call the AAT.

If you are deaf or have a hearing or speech impairment, contact us through the National Relay Service. For more information visit www.relayservice.gov.au

Website: www.aat.gov.au

T1-09

Ms Ruth Books 188 Towers Road Toorak, Victoria 3142

Our Reference: 1-A2WXYZ

29 November 2019

We have made a decision on your objection

Dear Ms Books,

We have finished looking at your objection which was received on 20 June 2019.

Objection to amended assessment of income tax

You objected to your amended assessment of income tax for the year ended 30 June 2018. We have made the following decisions on your objection.

Year Decision

Year ended 30 June 2018 Not Allowed

Objection to administrative penalty assessments

You objected to your administrative penalty assessment for the year ended 30 June 2018. We have made the following decisions on your objection

Year Decision

Year ended 30 June 2018 Not Allowed

What you need to do

You need to pay the full amounts shown on your assessment notices in the next 14 days. If you have trouble paying, we may be able to work with you to set up a payment plan.

You can find more information about payment plans on our website ato.gov.au/paymentplan

Yours faithfully,

Jeremy Geale Deputy Commissioner of Taxation

IF YOU DISAGREE

Your right to review

You have 60 days to apply to the Administrative Appeals Tribunal or Federal Court for a review of our decision. You can find more information about your review rights on our website ato.gov.au/externalreview

FIND OUT MORE

If you have any questions, you can phone us on 13 28 69 between 8.00am and 5.00pm, Monday to Friday. Ask for Laurel Lance on extension 123XX or phone them direct on (02) 9999 XXXX. It will help if you quote ‘Our reference’, which you will find at the top of this letter. If you can, have your tax file number or Australian business number with you when you phone.

T2-10

Ms Ruth Books

Objection Reference Number: 1-A2WXYZ

Date of Objection

1. We received your objection against amended assessment of income tax and administrativepenalties on 20 June 2019. These are our reasons for our decisions on your objection in relationto the tax assessments for the year ended 30 June 2018.

Background information

2. In January 2019 we began an audit of your compliance with the income tax laws including, inparticular, the Income Tax Assessment Act 1997 (ITAA 1997).

3. On 26 May 2019 we finalised our audit and issued you with the following documents:

A cover letter. Our Reasons for Decision paper. Notice of amended assessment of income tax for the year ended 30 June 2018. Notice of assessment of administrative penalty for the year ended 30 June 2018.

4. Our audit decision was to amend your income tax assessment to include unreported amountsof income on account of your gambling winnings from the partnership. An administrative penaltyof 50% of the tax shortfall was applied for recklessness by you in complying with the tax law.

On 20 June 2019 we received a notice of objection to your assessment of income tax and to the assessment of administrative penalty. The objection included a signed declaration from you that the information provided in the objection and supporting documentation was true and correct

5. We were satisfied that sufficient information had been provided to allow a response to yourobjection.

What you have argued 6. In your objection to the amended assessment, you stated you are not liable to income

tax on your winnings because you are a recreational gambler. Also, even if you have a method, it is not so sophisticated nor are you organised in a way so as to constitute a business of gambling. You do not have a dedicated office or employees nor did you keep any business records. Besides, you submitted that the element of chance means you cannot guarantee outcomes. You made the following further submissions:

1. No matter how organized the efforts of the punter the outcome of those efforts depend primarily on chance.

2. No matter what system the punter uses, the punter cannot affect the outcome of a race nor can the punter dictate the odds.

3. Each bet is a separate act and the outcome is out of the control of the punter.

4. In a business the many activities of that business are co-ordinated with a view to making a profit. With gambling, each bet is a separate event that is not connected to other bets and does not form part of a co-ordinated and

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related set of activities directed towards a profit. Each stands on its own as a success or failure and does not contribute value to other bets. Whereas in a business you have an accumulation of related and co-ordinated activities all directed to making a profit. A bet survives as long as the race lasts. Once the race is over that is the end of the activity. It contributes nothing to anything that went before it or after it. The outcome of the bet is predominantly a matter of chance. The punter may do his or her homework and select carefully in accordance with some “system”, but cannot improve his or her odds or reduce the risk of losing in any significant way.

5. If a punter had inside knowledge or was involved in race fixing then thepunter would be able to alter the chances and reduce the odds to such an extent that the punter could be said to have control of the situation and be considered to be carrying on a business.

Questions raised by our response

7. Your objection raises two separate questions which we have considered below.

Question 1

8. Was the amended assessment of income tax for the year ended 30 June 2018 excessive?

Answer: No

Question 2

9. Was the assessment of administrative penalty for the income tax year ended 30 June 2018correctly imposed as per Division 284 of the Taxation Administration Act 1953 (Cth) (TAA)? Ifso, should the penalty be remitted as per s 298-20 of the TAA?

Answers: Yes and No

Why we have made this decision

Question 1:

10. Under subsection 6-5(2) of the ITAA 1997, the assessable income of an Australian residentincludes ordinary income derived directly or indirectly from all sources during the income year.

11. Ordinary income has generally been held to include three categories, namely, income fromrendering personal services, income from property and income from carrying on a business.

12. Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income but areincluded in assessable income by another provision, are called statutory income and are alsoincluded in assessable income.

13. Betting and gambling are not assessable under section 6-5 of the ITAA 1997 unless you arecarrying on a business of betting and gambling.

14. Income Tax Ruling IT 2655 discusses the Commissioner’s opinion on whether betting andgambling can be considered to be carrying on a business. This ruling states at paragraph 7:

Ultimately each case will depend on its own facts. There is no Australian case in which the winnings of a mere punter have been held to be assessable (or the losses deductible). As Hill J stated in Babka v FC of T 89 ATC 4963; (1989) 20

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You additionally stated you are not liable to administrative penalty because you do not have a tax shortfall, and even if you did, you obtained legal advice from the leading tax expert Mr Scali QC, that you were not taxable on your winnings.

6(i).

ATR 1251, although mere punting may constitute a business, the intrusion of chance into the activity as a predominant ingredient will generally preclude such a finding. If a taxpayer is involved in other business activities in the racing industry, it will be more likely that betting activities are of a business nature.

15. The Federal Court in Brajkovich v. FC of T 89 ATC 5277; (1989) 20 ATR 1570 identified the following criteria for determining whether or not a person is in the business of gambling. These criteria are:

(a) Whether the betting is conducted in a systematic, organised and businesslike way.

(b) The scale of the gambling activities.

(c) Whether betting is related to or part of other activities of a businesslike character.

(d) Whether the gambling activity is principally for profit or principally for pleasure.

(e) Whether the form or betting chosen is likely to reward skill and judgement or depends purely on chance.

(f) Whether the gambling activity is of a kind ordinarily thought of as a hobby or pastime.

16. We formed the view that your activities with your partner, or alone, were considerable, systematic and organised such that they could be said to exceed those of a hobby gambler. In particular, the size of your betting is massive (both as to volume and size of bets) and more than that ordinarily characterised as a hobby or pastime. Although there is the element of chance you have managed to mitigate your losses and predict more winners, because your computer programming skills and expert judgement allow sophisticated betting decisions. The scale of your gambling activities is in the tens of millions of dollars per annum.

17. We have decided in your circumstances that you were carrying on a business of gambling with your husband and were partners of a partnership. You developed a computer program as well as a formula to choose which events to bet on. You have reduced the odds on your gambling activities.

18. We have decided the amount of time and effort involved in your betting and gambling turn your activities into a business even though you also work part-time for the CSIRO. This is because your method of gambling is methodical. Your activities have elements of being systematic and organised, mainly due to the computer program and database you use, even though you do not have employees to assist you and no connection with any relevant industry, such as bookmaking or training thoroughbreds.

19. Therefore, the share of the winnings you received from your partnership in relation to your gambling activities are assessable under section 6-5 of the ITAA 1997.

Conclusion

20. I consider the following conclusions made in our audit decision accompanying the amended assessment issued on 26 May 2019 are correct:

110. Bets were placed predominantly on horse racing events and to a lesser extent on sports and games. Compared with other forms of betting which depend on chance, the form of betting chosen allows rewards for skill and knowledge in predicting outcomes. …

112. The ATO obtained data in relation to the betting activities with Betfair forthe months of August and November 2017. This data indicates that the

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betting methods utilized, together with the computer programs generating and comparing outcomes, allowed an effective reduction in the element of chance and permitted a degree of control over the betting outcomes.

…

134. Mr and Ms Books employ sophisticated betting decision makingprocesses.

135. Bets are placed by Ms Books, Mr Books (and on occasion, the nanny)guided by the software. By following this process, no matter who placesbets, the person is able to exercise consistent and logical betting judgment,which produces the best betting outcome. Here, personal emotions andinstincts are not relevant

…

137. In summary, it is the Commissioner’s view that although the element ofchance may not be completely eliminated it was at least reduced to a levelcommensurate with that found in genuine business activity with the effectthat the betting activities of Ms Books were more likely to reward skill andjudgment.”

Question 2:

Administrative penalties

21. A taxpayer who has a tax shortfall may be liable to pay an administrative penalty. The relevantpenalty provisions for the 2001 and later income years are contained in Division 284 of Schedule1 to the TAA.

22. Subsection 284-75(1) of Schedule 1 to the TAA provides that a taxpayer is liable for anadministrative penalty if:

the taxpayer or their agent makes a statement to the Commissioner, the statement is false or misleading in a material particular, and the taxpayer has a shortfall amount as a result of the statement.

23. Subsection 284-80(1) of Schedule 1 of the TAA provides that a taxpayer will have a tax shortfallamount where their tax-related liability for an accounting period, worked out on the basis of thestatement, is less than it would be if the statement were not false or misleading.

24. As you have not properly accounted for gambling winnings, you have understated your incomein the income tax return lodged for the year ended 30 June 2018, which has resulted in a taxshortfall.

25. As you made a statement that was false or misleading in a material particular that resulted in atax shortfall you are liable to a tax shortfall penalty under subsection 284-75(1) of Schedule 1 ofthe TAA.

26. Base penalty amounts are calculated at rates commensurate with the taxpayer’s behaviourresulting in the shortfall. Pursuant to section 284-90 of Schedule 1 to the TAA, base penaltyamounts apply at the following rates:

25% of the tax shortfall where it was a result of a failure by a taxpayer or their agent totake reasonable care to comply with a tax law

50% of the tax shortfall where it was result of recklessness by a taxpayer or their agentas to the operation of a tax law

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75% where the tax shortfall was a result of intentional disregard of a tax law by thetaxpayer or their agent.

Conclusion

27. It is incumbent on all taxpayers to be aware of their tax liabilities. The payment of tax is notvoluntary. It is imposed by the laws with respect to income, including earnings from businessactivities. You have engaged in a very lucrative, large scale business of gambling with yourpartner. You should have known your winnings were assessable income.

28. Although we acknowledge your history of compliance with the tax laws, it is important for allindividuals, especially those engaged in business to pay their fair share of tax.

29. The period over which you have been making money from gambling winnings without payingincome tax is significant. You had sufficient time and access to adequate resources, includingyour accountant, to investigate the relevant tax laws relating to your personal circumstances.You omitted to apply for a private ruling with the Commissioner to ascertain the position withrespect to your taxation affairs. In the circumstances, you are considered to be grossly careless.

30. The base penalty amount of 50% for recklessness was correctly imposed.

Remission of penalties

31. The Commissioner has the discretion, pursuant to section 298-20 of Schedule 1 to the TAA toremit penalties imposed.

32. PS LA 2012/5 also explains how shortfall penalties are to be administered, including decisionsabout remissions. PS LA states, at paragraph 156:

Tax officers must consider the question of remission in each case based on all the relevant facts and circumstances and having regard to the purpose of the provision. Relevant matters to consider in approaching the issue of remission of penalty include:

That the purpose of the penalty regime is to encourage entities to take reasonable care in complying with their tax obligations. Where the entity has made a genuine attempt to report correctly, it will generally be the case that no penalty applies because of the exercise of reasonable care, safe harbour or because the law was applied in the accepted way.

33. On the facts we consider that the discretion to remit the penalty is not enlivened. We considerthat remitting the penalty for a significant shortfall is not in the interest of the tax regime ingeneral.

We used these laws, cases and ATO views

• Income Tax Assessment Act 1997, sections 6-5 and 6-10

• Income Tax Assessment Act 1936, s 92 • Income Tax Ruling IT 2655

• Income Tax Ruling MT 2008/1: Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard

• Practice Statement Law Administration, PSLA 2012/ 5: Administration of penalties for making false or misleading statements that result in shortfall amounts

• Taxation Administration Act 1953 Division 284 of Schedule 1, sections 284-70, 284-75, 284-80,298-20

• Taxation Administration Act 1953, s 14ZZK• Babka v Federal Commissioner of Taxation (1989) 89 ALR 373• Brajkovich v Federal Commissioner of Taxation (1989) 89 ALR 408

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BRK (Bris) Pty Ltd v. Federal Commissioner of Taxation [2001] FCA 164; 2001 ATC 4111;(2001) 46 ATR 347

Commissioner of Taxation v Anstis (2010) 241 CLR 443 Commissioner of Taxation v Stone (2005) 222 CLR 289 Evans v Federal Commissioner of Taxation (1989) 20 ATR 922 Graham v Green [1925] 2 KB 37 Hart v. FC of T (2003) 131 FCR 2003; [2003] FCAFC 105 Leblanc v The Queen (2006) TCC 680; 2006 Can. Tax Ct. LEXIS 1155 Martin v Federal Commissioner of Taxation (1953) 90 CLR 470 Shing v The Commissioner of Inland Revenue [2008] 3 HKLRD 51 Spriggs v Commissioner of Taxation; Riddell v Commissioner of Taxation (2009) 239 CLR 1

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Tax period enclng

Tax fie number

Date of issue

Our reference

Australian Gowmment

Australian Taxation Office

lJ June 2018

26 May 2019

Internet: www.ato.gov.au Phone enquiries: 13 28 61

Notice of amended assessment • year ended 30 June 2018 Income Tax Assessment Act 1936 and Jnc0tre Tax Assessment Act 1997

We have reviewed some of the information reported in your income tax return for the period ending 30 June al18 and have amended your assessment forthatperiod.

Descr.,tion Your previous tax8ble Income was

Your amended taxableincomels Tax on your taxable or net inc om Less non-<efundable tax offsets Amended assessed tax payable

Less tax offset refunds Plus other liabilities, which may have changed Less Pay as you go (PAYG) cre<lts and other entitlements Result of this notice Result of previous notice for lhe period

D_ebits$

1,850,345

0.00 0.00 QOO

Cre'clts $

0.00

41,581.33

41,581.33 41,581.33 CR

Difference between this amended notice and your previous notice i850,345

Outcome of this notice

Where i!IIY amount is not paid by the <ile date, General �terest Charge (GIC)

accrues on the outsti!lldng balance until the entte amount has been paid

Robert Ravanello Deputy Commissioner of Taxation

E�OOOOO-FOOOOO

Australian Taxation Office PAYMENT SLIP - 01

Australian Taxation Offce Locked Bag 1793 PENRITH NSW 1793

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1,850,345 IR

Amount payable on this notice I . $i850,345 IR I :=;::=====::::::::::=�

Payment for this notice is d�.

I Please keep this notice for fltll'e reference I Please see over for important infonnation about your assessment

TFN

Amount due $1,850,345

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000000> 010< 123123>

T3-17

14 June 2019

IMPORTANT INFORMATION

Payment of tax You must pay the amount shown on the front of this notice by the due date even if you have lodged a private ruling appl ication, objection or amendment request. Interest charges wil l apply if you do not pay by the due date. If you cannot pay you r tax on time, phone us on the numbers l isted below to discuss your situation. Date for payment of other amounts The date for payment shown on this notice refers only to the balance of th is assessment. If you owe us other amounts, the dates for payment of those amounts remain as previously notified.

If you disagree with your assessment If you th ink this assessment is wrong, check al l the detai ls on th is notice with those on your tax return. If you th ink there is a problem, phone us on the numbers l isted below. You can write to us and object to the assessment if you sti l l d isagree with it. Objection forms and information about how to lodge an objection are available from our website at www.ato.gov.au/object or by phoning the numbers l isted below. If you disagree with our decision on your objection you can apply for an independent, external review. When we give you our decision we will let you know if you can apply to the Administrative Appeals Tribunal for a review or appeal to the Federal Court. We may amend your assessment The law gives us time to review information you have given us. General ly, we have two years from the date of the income tax assessment, but in some cases we have longer. If we find the information you provided was not correct we may amend this assessment. More information is avai lable at www.ato.gov.au/notices

Record keeping You must keep the records, receipts and other documentation you have used to prepare your return. General ly you need to keep them for five years. More information about record keeping is avai lable at www.ato.gov.au/notices

Keeping this notice of assessment for future reference You should keep th is notice as part of your taxation records as you may be asked to provide deta i ls from it when phoning us. Th is notice also contains a reference number required for lodging a future income tax return onl ine. Protecting your privacy when you phone us If you phone us we need to know we are talking to the correct person before providing account information . We wi l l ask you for detai ls only you, or your authorised representative, would know. It wil l be helpfu l if you have your tax fi le number or Austral ian business number and a copy of this notice ready when you phone us.

How to contact us For an explanation of this notice : Ind ividuals - phone us on 1 3 28 61 (8.00am - 6.00pm Monday to Friday) Businesses - phone us on 1 3 28 66 (8.00am - 6.00pm Monday to Friday) To make an arrangement to pay you can contact our automated self help 24 hours per day, seven days a week on 1 3 28 65 If you do not speak Engl ish and need help from us phone the Translating and Interpreting Service on 1 3 14 50 If you have a hearing or speech impairment phone the National Relay Service on 1 3 36 77

METHODS OF PAYMENT

BPAv® Credit card

2 of 4

Contact your financial institut ion to make this payment from your cheque or savings account. You wil l need the details l isted below.

Payments can be made on l ine or by phone, visit our website at www.ato.gov.au/howtopay or phone 1 300 898 089.

�

Bil ler Code : 75556 t Reference : Your PRN (shown on the front of your

• , payment s l i p d irectly above the barcode)

A ca rd-payment fee applies.

Other payment options For more information about other payment options, you can: • · visit our website at www.ato.gov.au/howtopay• phone us on 1 800 8 1 5 886.

Payments cannot be made in person at any of our branches or shopfronts .

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T3-19

IMPORTANT INFORMATION (CONT.)

Explanation of terms used in your notice of assessment

Tax on taxable income We calcu late the amount of tax you pay on your taxable income. We work it out based on the information in your tax return. This amount may be ni l.

Tax offsets Tax offsets directly reduce the amount of tax you pay. They are not the same as deductions. Deductions are taken off your income before your tax is worked out. With a tax offset, we work out the tax due on your taxable income then reduce it by the total amount of your tax offsets.

Non-refundable tax offsets Most tax offsets are non-refundable and generally can only reduce the amount of tax on you r taxable income to zero. This means that if your non-refundable tax offsets are greater than your tax on your taxable income, you do not get a refund of the excess amount. Usually, you cannot transfer the excess or carry it forward to a later income year. It does not reduce your Med icare levy or Medicare levy surcharge unless specific leg islation al lows.

Employment termination payment (ETP) An employment termination payment (ETP) is a lump sum payment made because your employment has finished .

Refundable tax offsets and tax offset refunds If you are entitled to any refundable tax offsets, they reduce the amount of tax on your taxab le income. If the tax on you r taxable income is reduced to zero and not a l l of your refundable tax offsets have been used up, the remaining amount wil l be shown at 'tax offset refunds'. This amount wil l be allocated against any outstanding l iabi lities , including Medicare.

PAYG credits and other entitlements Incl udes any credits or interest entitlements that have been taken into account in working out your refund or amount owing. An example of these credits is any tax that was deducted by your employer or bank from payments they made to you during the financial year.

4 of 4

T3-20

RUTH BOOKS188 TOWERS STTOOROK VIC 3142

Australian business number

Date of issue

Our reference

Internet: www.ato.gov.au

12 123 123 123 / 001

26 May 2019

1-A2WXYZ

Phone enquiries: 13 28 66

Notice of assessments of shortfall penalty Taxation Administration Act 1953

You have been assessed with administrative penalties because you or your agent were reckless in lodging your tax returns and you have shortfall amounts because of that recklessness. The Commissioner may have decreased the amounts you must pay by remitting some of the penalties assessed. The amounts below include the remission amounts.

Tax period Tax type Amount of penalty assessed $

01 Jul 2017 to 30 Jun 2018 Income Tax 925,172.50

Where any amount is not paid by the due date, general interest charge accrues on the outstanding balance until the entire amount has been paid.

Total amount due $ 925,172.50

Due date for payment is 14 June 2019 Deborah Jenkins Deputy Commissioner of Taxation

Please see over for important information about your assessments

PO Box 908 ALBURY NSW 2640

Please keep this notice for future reference

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Page 2 of 2

IMPORTANT INFORMATION Payment of tax You must pay the amount shown in this notice by the due date even if you have lodged an objection. The amount owing may be partially or fully offset by any credit or surplus on your running balance account – refer to your statement. If your statement shows a debit, you are required to pay that outstanding balance. We offer you a range of convenient payment options, both in Australia and overseas. Go to www.ato.gov.au/howtopay for more information. General interest charge applies to any amounts not paid by the original due date. If you cannot pay on time, phone us on the numbers listed below to discuss your situation. We may be able to make other arrangements for payment. If your statement shows a credit balance, you will be refunded any amount you are entitled to. Date for payment of other amounts The date for payment shown in this notice refers only to the balance of this assessment. If you owe us other amounts, the dates for payment of those amounts remain as previously notified. Calculating the penalty on a shortfall amount The law imposes penalties where you have a tax shortfall as a result of you or your agent making a false or misleading statement. If you (or your agent): failed to take reasonable care, the penalty is 25% of the shortfall amount were reckless, the penalty is 50% of the shortfall amount intentionally disregarded the law, the penalty is 75% of the shortfall amount.This is referred to as the 'base penalty amount'.Reduction in the amount of penalty If you make a voluntary disclosure about a shortfall amount before we notify you of a tax audit, the base penalty amount is reduced by 80%. If the shortfall amount is less than $1,000 the penalty is reduced to nil. If you make a voluntary disclosure after you have been notified a tax audit has commenced the base penalty amount may be reduced by 20% or by 80%. Increase in the amount of penalty The base penalty amount is increased by 20% if you: have had a shortfall penalty for a false or misleading statement imposed before did not tell us about the shortfall amount within a reasonable time after you became aware of it took steps to prevent us from finding out about the shortfall, or have previously had a penalty imposed for failing to provide a document.Remission of the penalty amount The Commissioner may remit all or part of the penalty. Objecting against your assessment of penalty You can write to us and object to the assessment if you disagree with it. There are timeframes for lodging objections. Objection forms and information about how to lodge an objection and the timeframes are available from our website at www.ato.gov.au by searching for 'objection' or by phoning us on the numbers listed below. If you disagree with our decision on your objection you can apply for an independent, external review. When we give you our decision we will let you know if you can apply to the Administrative Appeals Tribunal for a review or appeal to the Federal Court. Keeping this notice of assessment for future reference You should keep this notice as part of your taxation records as you may be asked to provide details from it when phoning us. Protecting your privacy when you phone us If you phone us we need to know we are talking to the correct person before discussing your tax affairs. We will ask you for details only you, or your authorised representative, would know. It will also be helpful if you have your tax file number or Australian business number ready when you phone us.

How to contact us Account enquiries - phone 13 28 66 (8.00am–6.00pm Monday to Friday) If you do not speak English and need help from us, phone the Translating and Interpreting Service on 13 14 50. If you have a hearing or speech impairment, phone the National Relay Service on 13 36 77. If you do not have access to TTY or modem equipment, phone the Speech to Speech Relay Service on 1300 555 727.

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