Question Regarding Income derived from Gambling

LuckyLloyd

Hi Folks, quick question to the experts.

In terms of Tax legislation and legal precedent in the state, I understand that income derived from gambling (betting on horses, Poker winnings, Sports / other betting, gaming wagers) is considered to be non - taxable. As such, the entire sector is currently outside the scope of income tax, in that a person is not required to declare such winnings and pay income tax to the Revenue commissioners. This situation is at odds with the system operated in the United Sates.

In practice, the majority of those that partake in such activities would not have any regular income to declare, and over a long term period would be losing money at such pursuits.

However, there is a tiny minority that can be considered professional gamblers. Over the long term, 5 - 10% of those that play poker can be identified as proven winners over a long sample. Some individuals can manipulate available information to turn a long -term profit from bets placed on Horse racing and other sports. There are individuals in the state that depend upon such activities as their sole source of income.

My question is therefore: while the above activities are considered tax exempt, if an individual derives an income solely from them - and the thresholds regarding the application of income tax at the standard rate are exceeded - can that individual be considered liable to pay tax upon their earnings?

This is my first post in this forum. I apologise if any of the above is unclear and would be happy to clarify and qualify where necessary. Thank you in advance to anyone who replies.

Gobán Saor

Assuming the question is entirely hypothetical:D I think you will find that the Revenue Commissioners simply do not want to know about the occasional "professional gambler" who does indeed win regularly. No doubt based on the very sound principle that if they recognised such profits as taxable gains, then they woulod also have to recognise gambling losses as taxable losses. Opens up a scenario of "gambling" being recognised as a trade or profession with expenses incurred therein being set off against income. Tax deductible trips to Vegas, anyone? Now where did I put that book on card counting;)

Robbo

I was thinking about similar hypothetical situation that if someone was doing sufficiently well, would it not be easier to set up as a company and put some of the income through that and pay a small wage (and thus some PRSI)?

Stirling

Just a thought and haven't looked into it at all but might a company which had gambling and the funding of gambling expenses its object run into problems under the Gaming and Lotteries Act?

johnnyskeleton

Robbo wrote:

I was thinking about similar hypothetical situation that if someone was doing sufficiently well, would it not be easier to set up as a company and put some of the income through that and pay a small wage (and thus some PRSI)?

No, then they would have to pay corporation tax on profits, and income tax on wages.

My understanding, and please bear in mind that I have no special knowledge of tax law, is that the rules are sufficiently broad that they would encompass a professional gambler. If you win money on a flutter, it is exempt, but if you carry on the business of gambling with a view to making a profit/loss, then I think it could be classed as income.

However, I would think that it is so rare that it is unlikely to come up.

dermot_sheehan

The issue is I believe that is something is a "vocation", then its captured by Schedule D case ii of the income tax code. Arguably if something is done as a profession or vocation, revenue is entitled to tax the profits or gians arising from it.

Old tax law precedent however holds that income from gambling doesn't come under either Schedule D (i) (in the course of trade), (ii) (professions and vocations) or (iv) (general catch all provision). The reason is that income from gambling doesn't satisfy the source doctrine, tax is only applied to profits or gains from an identifiable source.

Income from bookmakers and other such businesses have been held to be in the course of trade and are therefore squarely caught by schedule D case (i)

Victor

I imagine if you can be considered to be a professional gambler, i.e. that is all what you are about, you will be put in the same category as Paddy Power.

Just watch out for the BIK on the hard drinking, smoking and womanising.

LuckyLloyd

gabhain7 wrote:

The issue is I believe that is something is a "vocation", then its captured by Schedule D case ii of the income tax code. Arguably if something is done as a profession or vocation, revenue is entitled to tax the profits or gians arising from it.

Old tax law precedent however holds that income from gambling doesn't come under either Schedule D (i) (in the course of trade), (ii) (professions and vocations) or (iv) (general catch all provision). The reason is that income from gambling doesn't satisfy the source doctrine, tax is only applied to profits or gains from an identifiable source.

Income from bookmakers and other such businesses have been held to be in the course of trade and are therefore squarely caught by schedule D case (i)

Thank you for this response, and all other responses. I take it then that this is quite a grey and untested aspect of Tax law. However, judging from the second paragraph - can I assume that an individual supporting himself solely from income derived from a particular form or varied forms of gambling would likely not be held accountable for income tax under current laws by the Revenue?

padser

LuckyLloyd wrote:

Thank you for this response, and all other responses. I take it then that this is quite a grey and untested aspect of Tax law. However, judging from the second paragraph - can I assume that an individual supporting himself solely from income derived from a particular form or varied forms of gambling would likely not be held accountable for income tax under current laws by the Revenue?

Absolutely. Gambling wins are classified as non taxable income at the moment.

I would say its highly unlikely that this will ever change considering that it would be necessary to allow loses to be written off against tax if this was the case.

It's not a massively grey area, most accountants (and its an accountancy issue so you might get a more informed response there) with knowledge of personal income tax would (I think) be off the opinion that gambling winnings are definitely not taxable.

Our man in Havana

I would find it hard to believe that the revenue would allow you to earn serious amounts (€1m and above) from gambling and not collect a penny from you?

dermot_sheehan

Bond-007 wrote:

I would find it hard to believe that the revenue would allow you to earn serious amounts (€1m and above) from gambling and not collect a penny from you?

They do everytime someone wins the lotto, there is no specific statutory exemption for lotto winnings, they are tax free since they are not income under the source doctrine.

LuckyLloyd

Ok guys. Thank you for the responses - particularly Padser and Gabhain.

johnnyskeleton

gabhain7 wrote:

They do everytime someone wins the lotto, there is no specific statutory exemption for lotto winnings, they are tax free since they are not income under the source doctrine.

I think there is a statutory exmeption from Capital Gains Tax (sec 613(2) TCA 1997) if it is a once off gain.

However, the system might be different where a person gambles as a business venture and intends to rely on it for their main income. It is a factual rather than legal distinction, and it would be largely up to the revenue commissioners to decide if it was classed as income or capital gains.

I'm not quite sure how the source doctrine exempts a person from income tax, nor do I understand how it would apply where a person's income comes from bookmakers etc. My understanding is that a profit or gain is chargeable even where the source is unknown or suspected to be illegal.

If you want a definite answer, speaking to the revenue commissioners and a chartered accountant/tax consultant/solicitor specialising in tax is the only way to go.

LuckyLloyd

johnnyskeleton wrote:

If you want a definite answer, speaking to the revenue commissioners and a chartered accountant/tax consultant/solicitor specialising in tax is the only way to go.

Yes, I am fully aware of that fact. Simply trying to get a rough indication of the rules concerning this subject as I am completely clueless. Thank you for your post.

OTK

I asked the revenue this question a good few years ago. They solemnly replied that gambling was an illness. From the point of view of the revenue, there would be little point in taxing a generally loss making activity.

The revenue do take an interest in anyone claiming regular income as derived from gambling. (Such as the Gilligan case) They just need to determine that you really did win the money and didn't just purchase a few winning tickets from a bookie at a premium.