Are the large amounts of state tax revenue from gambling a safe bet?

In many countries, the good fortune of winning a hefty windfall from a lucky wager must come with a bittersweet tinge, as more often than not the government will have its hand out for a taste. For gamblers around much of the world, when they put their money on a lucky filly, or hit a big jackpot, it is treated as part of their regular income and taxed accordingly. This is particularly so in the USA.

But if Lady Luck smiles on an Australian, he or she is doubly fortunate in that gambling winnings come without tax.

For the ATO’s part, as gambling isn’t considered a profession for the vast majority of players, it is not viewed as usual income and therefore isn’t taxed as such. As the ATO notes: “There is no Australian case in which the winnings of a mere punter have been held to be assessable (or the losses deductible).”

Rather than assessable income, the government sees gambling winnings as a fortunate windfall, and allows players to keep the whole bag. (And if we’re to be honest with ourselves, let’s admit that most of the time the flow of money is out of the gambler’s pocket, not the other way around.)

So the fact is that Australians who like an occasional flutter already have one factor on their side because, by and large, gamblers never have to pay taxes on their winnings.

The state tax take
And yet a hefty amount of each state’s tax revenue is sourced from resident gamblers’ windfalls — with a total tax take by the states of around $6 billion annually. This comes about through the states and territories having the authority to levy taxes on wagering operators.

NSW and Victoria have the highest tax dependence on gambling, raking in an estimated $2 billion and $1.8 billion respectively. A report on gambling by the Productivity Commission several years ago put this in percentage terms, showing Victoria relying on gambling for 13% of its revenue. The ACT and Western Australia have the lowest percentage reliance, at 4%.

Data from the not-too-distant past shows that close to 10% on average of state revenue comes from gambling, so obviously someone is coughing up. And that someone, as mentioned, are the entities that provide the gambling services, with wagering operators, not players, shouldering the burden of tax.

Depending not just on the state but also the type of gaming involved, the rate of tax and how it is calculated can vary greatly. Casinos and venues with pokies also pay licensing fees for the right to have those machines in the building, and operators also pay taxes on their profits, either based on net profits or on what is known as “player loss”.

The way the latter works is for the gambling operator (for example the TAB) to pool the money from particular bets and deduct a percentage (the player loss) before distributing the remainder as winnings. Different states deduct at different rates, but also vary according to the type of bet.

The growth of online gambling has over recent years become a growing threat to much of this tax revenue. However the Interactive Gambling Amendment Bill 2016 has put a stop to much online wagering activity. The bill passed through Parliament earlier this year, and is intended to close loopholes in the 2001 Interactive Gambling Act that had failed to completely supress online gambling. With the amended legislation, much of the internet gambling activities have been put on hiatus — for now.

New SA gambling tax
A new tax on gambling has recently launched in South Australia, effective July 1, 2017, called the Betting Operations Tax. But again, and as the name suggests, it is targeted at betting companies, not the wagering public. Levied at 15% of “net wagering revenue” (aka gambler losses), the new SA tax is a first for the Australian taxation system in that it is based on a “point of consumption” to claw back some wagering tax revenue in danger of disappearing over the border.

It will apply to bets on horse, harness and greyhound racing, and bets on sports such as AFL, cricket and soccer. It will also apply to other bets, such as those on the winner of the federal election or the Academy Awards. Other states are presently considering their own form of the SA gambling consumption tax.