What is crypto gambling?
Crypto gambling is where everyday crypto users can place bets online using popular digital currencies such as Bitcoin, Ethereum and other crypto for a chance of winning. There are two categories of crypto gambling:
- Placing bets directly in crypto.
- Funding your account on a gambling platform with crypto.
Using crypto for gambling is preferred by some users because:
- It can be simpler and faster than traditional methods of casino gambling.
- You can withdraw and deposit directly from a digital wallet to online gambling platforms.
- It can be fun and entertaining.
The popularity for crypto gambling sites is on the rise, as users can bypass the traditional methods of gambling using fiat currency, and instead use crypto assets to bet online at the click of a button.
In this article we will only consider the tax implications of crypto gambling for Australian users.
💡 Tax Insight
According to the latest official Australian gambling statistics, Australians spend around $25 billion in legalised gambling each year.
In Australia, winnings from gambling are generally tax free. But, how does this compare to some other jurisdictions around the world?
- US: Gambling winnings are subject to both Federal and State Income Tax.
- UK: Gambling winnings are tax free.
- Canada: Gambling winnings are tax free.
Even though gambling is tax free for gamblers, it’s not for gambling businesses. Australia pulls in an estimated $6.6 billion in tax revenue across all gambling sectors.
Examples of crypto gambling
One of the earliest types of crypto gambling was Satoshi Dice, a blockchain-based betting game that has been around since 2012. Satoshi Dice allows users to send their crypto to a specified public address, for a known chance of winning.
Now, there are many other online crypto gambling platforms that offer other crypto gambling options and accept a variety of crypto tokens to fund your account.
Do I have to pay tax on crypto gambling in Australia?
Typically, winnings from gambling are not taxable in Australia, unless the person is a professional gambler, or their gambling activities are a business or conducted in a business-like manner.
Gambling income is usually seen by the ATO as non-assessable income and any gambling losses as non-deductible expenses. This means that any winnings from crypto gambling do not need to be included as income in your tax return and any losses from crypto gambling can not be claimed.
If your gambling activity was found to be taxable, then it would be assessable as income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), which includes ordinary income derived directly or indirectly from all sources in and out of Australia.
Similarly, if your gambling activity was found to be assessable income, then any gambling losses would be deductible under section 8-1 of the ITAA 1997 which allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining assessable income, or in carrying on a business.
How to determine if my crypto gambling activity is taxable?
If crypto gambling is a source of income for you, then you will need to carefully consider whether you may actually be a professional gambler, or in the business of gambling, as this would mean your gambling activity is taxable. Determining this will ultimately depend on each case and its own facts, but there are many examples we can look at.
Taxation Ruling IT 2655 Income tax: betting and gambling - whether taxpayer carrying on business of betting and gambling discusses the ATO’s views on whether betting and gambling can be considered to be carrying on a business.
The Ruling refers to and discusses three main Federal Court of Australia cases that considers the tax consequences of gambling winnings on races.
One of the cases, Brajkovich v. FC of T 89 ATC 5227;(1989) 20 ATR 1570 (Brajkovichs), identified the following criteria for determining whether or not a person is in the business of gambling. The criteria outlined is:
- Whether the activity is conducted in a systematic, organised and businesslike way:
- for example, did the taxpayer rent an office, employ staff, maintain records.
- The scale of operations:
- the volume and size of the gambling activities.
- Whether the gambling activity is related to or part of, other activities of a businesslike character of the taxpayer.
- Whether the gambling activity is principally for profit or principally for pleasure.
- Whether the form of betting chosen is likely to reward skill and judgement or depends purely on chance:
- i.e. does the person have specialist knowledge associated with that gambling activity or have a significant element of skill.
- Whether the gambling activity is of a kind ordinarily thought of as a hobby or pastime.
The other case of Evans v. F.C. of T. 89 ATC 4540; (1989) 20 ATR 922 (Evans), the court explained that a mere punter could be carrying on a business if their gambling activities were conducted in a systematic manner to obtain favourable odds. In this case, the taxpayer’s winnings were not found to be assessable, as the taxpayer did not maintain an office or employ staff, nor keep any records.
In Babka v. F.C. of T. 89 ATC 4963; (1989) 20 ATR 1251 (Babka), the court confirmed that mere punting may constitute carrying on a business, but on the facts of that case, the taxpayer didn’t follow any betting system or organisation to rule it a business.
It is noted in IT 2655, that the criteria from the Brajkovichs case and the factors considered in Evans and Babka should be taken into account to determine if a taxpayer is carrying on a business of gambling or betting.
Crypto used for gambling is not tax exempt
Although the winnings and losses from a gambling activity are usually not taxed, the crypto used in the gambling activity usually is. I’m sure that may sound a bit confusing at first, but let’s look at an example:
- Satoshi holds 1 BTC for investment (originally purchased for $5,000 AUD).
- Satoshi places a 1 BTC bet (worth $20,000 AUD at the time) and subsequently loses.
- The $20,000 loss is not claimable, as it is a loss incurred from a gambling activity.
- The disposal of the 1 BTC that was held for investment, is a CGT event, that will result in a gain of $15,000 that must be declared.
The important takeaway here is that only the win or loss from the gambling activity itself is free from tax. The crypto used in the gambling activity is usually still taxed. Here’s another example:
- Satoshi holds 1 BTC for investment.
- Satoshi places a 1 BTC bet and wins, getting an additional 0.5 BTC (worth $10,000 AUD at the time):
- The $10,000 is not assessable income, as it is from a gambling activity.
- Satoshi continues to hold the 0.5 BTC for investment and later sells it for $12,000 AUD:
- The disposal of 0.5 BTC is a CGT event, that will result in a gain of $2,000 AUD that must be declared.
The important takeaway here is that even if you win crypto from gambling, if you hold the crypto for investment, there will be capital gains tax implications that must be calculated and declared to the ATO. If the crypto you won from gambling later goes down in value, you may also be able to claim as a capital loss.
Get a Private Binding Ruling if the amounts are significant
If you are unsure about your crypto gambling situation and wish to get more clarity on your tax position, or the amounts involved are significant, you can apply for a Private Binding Ruling from the ATO.
Here is an example of a private ruling regarding crypto gambling from the ATO.
Private Ruling 1051781223882: Cryptocurrency considered the application of IT 2655 and the criteria in the Brajkovichs case to determine if the taxpayer’s crypto activity constituted carrying on a business of gambling. The ATO concluded the overall evaluation of the activities did not amount to a business.
If you have a mix of crypto and gambling, than reach out to our tax team at Syla. We’ll be able to put you in touch with our network of crypto tax professionals who can assist you with preparing your private ruling application to determine if your crypto gambling winnings are taxable or not.
Tracking your crypto gambling transactions
If you have a mix of crypto gambling and investment or trading, then you’ll need a way to track your transactions so you can calculate the correct tax outcomes.
Crypto investors can use Syla to ensure you are only paying tax where required:
- Classify your transactions as gambling profit or gambling loss to ensure they are not taxed.
- Automatically track the cost base of your crypto winnings for when you eventually sell, ensuring you pay the lowest crypto tax.
With the increased popularity in crypto gambling, there has also been growth in fraudulent crypto gambling sites that may attempt to steal crypto assets from their users. If you find yourself in this unfortunate position, then you may still be able to claim the loss → Claim a crypto tax loss on lost, stolen and scammed crypto
