Winnings from gambling are tax free in most jurisdictions. Would there be any point to taxing winnings?
At a glance
- Australians lost close to A$24 billion on gambling, or an average of A$1251 per adult in 2016-17.
- The ATO states that taxpayers can exclude gambling wins from their taxable income, “unless you operate a betting or gambling house”.
- Most countries don’t tax gambling winnings; however, there are exceptions. These include the US, where winners are taxed, even casual gamblers.
- The majority of gamblers lose, so any additional government revenue from taxing winnings would be insignificant.
Prefer to listen to this story? Here it is in audio format.
In Australia, anyone who wins a few dollars on poker machines, a few hundred on a horse race or a few million on the lottery can hold onto the money and not share any of it with the Australian Taxation Office (ATO). However, there are some jurisdictions that do tax gambling wins – the US, France and Spain among them – which raises the question of whether taxing wins would be a good idea, particularly given the huge sums Australians bet each year.
Australians are among the most enthusiastic gamblers in the world, spending A$209 billion during 2016-2017 at bookmakers and betting agencies, on lotteries, in casinos and on poker machines.
Poker machine expenditure was the largest at A$144 billion. Per capita expenditure on gambling was a little over A$11,000 per adult. These figures measure total turnover – which often includes the “reinvestment” of gamblers’ winnings.
In terms of actual losses, Australians lost close to A$24 billion on gambling, or an average of A$1251 per adult.
For the handful of people who are lucky enough to win, their windfall is tax free. The ATO says that taxpayers can exclude betting and gambling wins from their taxable income, “unless you operate a betting or gambling business”.
Instead, gambling taxes are generally imposed on the operators, either on the gamblers’ losses, their turnover, the profit, or at the point the bet is made.
Different forms of gambling are taxed in different ways and at different rates, even within the same jurisdiction. On poker machines, states and territories generally levy a tax on player losses or net revenue, table games such as roulette and blackjack are taxed on turnover or profit, while in the Northern Territory, they are taxed only for the goods and services tax (GST).
CPA Australia Resource:
Access CPA Australia’s tax tips for 2019
The rise of internet gambling has prompted some states to introduce point-of-consumption taxes that are levied on expenditures, says Charles Livingstone, head of the Gambling and Social Determinants unit at Monash University’s School of Public Health and Preventive Medicine.
The taxes, usually about 10 per cent to 15 per cent, apply mostly to internet gambling where the operator is licensed outside the jurisdiction.
Taxes are levied on gambling at a higher rate than most other goods and services. For instance, the levy on poker machines is an average rate of 25 per cent.
“My goal, because I work in a school of public health, would be to use tax as an instrument to curtail and restrict the harm associated with gambling – which is significant – and the fact that gambling is taxed at a higher rate than other consumption suggests that everybody recognises that gambling is special and that it needs to be kept under control,” says Livingstone.
Taxing total winnings relies on people declaring their winnings, and can be unfair to those honest enough to declare them compared with those who just pocket the gains.
He says if the goal is to reduce harm, then introducing different tax rates on different gambling products according to the harm associated with them and their profitability would be more effective.
“Taxes need to be far more progressive to discourage operators from relying on poker machines, for example, to make the most of their money,” he says.
Additionally, there is the practical question of how winnings would be taxed. Livingstone points out that most poker machine players have exhausted their funds by the end of the night, even if they’ve had a few wins along the way. He asks at what point the winnings would be taxed.
“Would it be when they actually get a particular win above a certain level? Or when they cash out at the end of the night? Or when they cash out at the end of the month? Or when they do their sums at the end of the year?”
Who taxes gambling winnings?
Most countries don’t tax gambling winnings, but there are exceptions. The US taxes winnings, even for casual gamblers who aren’t in the business of gambling.
“Gambling winnings are fully taxable and you must report the income on your tax return. Gambling income includes, but isn’t limited to, winnings from lotteries, raffles, horse races and casinos. It includes cash winnings and the fair market value of prizes, such as cars and trips,” the Internal Revenue Service (IRS) states.
The IRS also lets taxpayers claim their gambling losses as a tax deduction, but only if they have kept records of all their wins and losses, and to a level no higher than gambling winnings.
France imposes a 12 per cent tax on any casino winnings above EUR1500. In Spain, players must declare winnings in their personal income tax return, but can deduct losses up to the level of their winnings.
Taxing total winnings relies on people declaring their winnings, and can be unfair to those honest enough to declare them compared to those who just pocket the gains, says Michael Rockloff, head of the Experimental Gambling Research Laboratory at Central Queensland University.
The vast majority of gamblers lose, so any additional government revenue from taxing winnings would be insignificant.
Winnings are also akin to a gift, he says, not income earned from work or assets, and should be treated as such. Rockloff also doubts such a move would reduce the harm from gambling.
“Taxing winnings would not play a role at all in terms of altering people’s behaviour,” he says, adding that countries with lower taxes on gaming still have similar rates of gambling compared with Australia.
The exception to the general rule that gamblers don’t win are people such as David Walsh, an Australian professional gambler who founded the Museum of Old and New Art (MONA) in Tasmania, but Livingstone says their operations are less about gambling and more about arbitraging different odds from different gambling organisations to provide a steady stream of income. The ATO took legal action against Walsh, who entered a confidential settlement in 2012.
There is also the issue of how much revenue a tax on winnings would raise. Livingstone points out that the vast majority of gamblers lose, and so any additional government revenue would be insignificant.
“Some people, luckily, can walk in, play the poker machine for 10 minutes, win a jackpot and go away and never venture back in the door again. They’re very rare,” he says.
The reality is that most people who play poker machines – and who indulge in other forms of gambling – often reinvest quickly and end up losing their winnings.
Digital tax: what happens when the taxman takes on the cloud?