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Horse-racing bettors and tax authorities are
embroiled in court battles that are climbing up Japan’s judiciary system
and could have a significant impact on the multi-trillion-yen gambling
industry.At issue is whether money spent on losing horse-racing tickets should be regarded as deductible business expenses.One case involves a civil servant in Hokkaido who won 7.84
billion yen ($76.9 million) from horse-racing bets over a six-year
period through 2010 but spent 7.27 billion yen on betting stubs.He declared the balance, about 570 million yen, as
“miscellaneous income,” after counting as business expenses the money
used to buy tickets that turned out to be losers.But the Sapporo Regional Taxation Bureau refused to certify
those losses as deductible expenses and said he failed to declare more
than 400 million yen in income.
The man recently filed a lawsuit with the Tokyo District Court, demanding that the tax bureau’s decision be overturned. He argued that the total amount he has been ordered to pay in taxes exceeds the profit he made through his bets on horse racing.
“Unless the tax authorities recognize losing bets as expenses, those who continuously purchase horse-racing tickets will become taxed even when they lose money or will be obliged to pay more tax than they earn,” the man claimed during the trial.
In a separate but similar case on taxing unsuccessful horse-racing bets, the Osaka District Court ruled in May 2013 that expenditures on failed bets should be considered expenses because the defendant had bet on a continuous basis to make a living.
The 40-year-old defendant earned 140 million yen from horse racing over a three-year period, but tax authorities said he dodged 570 million yen in income tax payments.
The ruling reduced the tax payment by more than 500 million yen, but prosecutors have since appealed that decision.
A resident of Yokohama in his 40s also filed a lawsuit with the Yokohama District Court in February, demanding a nullification of 5.16 million yen in additional taxes on his earnings of 12 million yen from horse-racing bets.
The man said horse-race betting is his profession, and declared the income as coming from business activities. However, tax authorities decided it was taxable “occasional income.”
According to the Japan Racing Association, about 3 million people bought horse-racing betting tickets online in fiscal 2013, and the amount they spent accounted for 60 percent of total ticket sales of 2.4 trillion yen.
After the JRA introduced an online system to allow gamblers to buy large numbers of tickets in 2002, the Hokkaido civil servant purchased betting tickets on more than 2,000 occasions each year.
He never missed live telecasts of horse races on Saturdays and Sundays. He also developed methods to analyze the potential of about 8,000 registered horses and jockeys.
Between 2005 and 2010, he spent 7.27 billion yen on the races and won 7.84 billion yen. He was investigated by the Sapporo Regional Taxation Bureau after failing to declare the profits from horse racing as his income.
In 2011, he declared 570 million yen in income and 210 million in income tax by reporting the profit as “miscellaneous income,” which can be filed after combining all profits and losses gained from such income throughout a year based on the Income Tax Law.
The tax bureau determined the money from the winning tickets was “occasional income.”
The only deductible expenses allowed for such income is the amount "directly spent to earn the income.” Thus, only the amount spent to buy winning tickets is considered deductible.
It is said the reason why tax authorities refuse to acknowledge earnings from horse racing as “miscellaneous income” is that they are concerned that taxpayers would combine income gains in this category with losses from horse racing for deductions to reduce the total income amount.
The Income Tax Law defines occasional income as money earned from a one-time activity, such as gambling. Half of those earnings are subject to taxation.
Based on a notice issued by the National Tax Agency more than 40 years ago, earnings from horse racing are included in this category.
As a result, the bureau decided that the Hokkaido civil servant should pay more than 570 million yen, including 370 million yen in income tax as well as penalty tax and residence tax, slightly exceeding the profit he earned over six years.
“If tax authorities only recognize expenses for winning tickets as deductible expense, the amount of tax will be billions of yen, which I can hardly pay in my entire life,” the Hokkaido man said in court.
He declined to comment to The Asahi Shimbun, saying his case is still pending in court.
The man recently filed a lawsuit with the Tokyo District Court, demanding that the tax bureau’s decision be overturned. He argued that the total amount he has been ordered to pay in taxes exceeds the profit he made through his bets on horse racing.
“Unless the tax authorities recognize losing bets as expenses, those who continuously purchase horse-racing tickets will become taxed even when they lose money or will be obliged to pay more tax than they earn,” the man claimed during the trial.
In a separate but similar case on taxing unsuccessful horse-racing bets, the Osaka District Court ruled in May 2013 that expenditures on failed bets should be considered expenses because the defendant had bet on a continuous basis to make a living.
The 40-year-old defendant earned 140 million yen from horse racing over a three-year period, but tax authorities said he dodged 570 million yen in income tax payments.
The ruling reduced the tax payment by more than 500 million yen, but prosecutors have since appealed that decision.
A resident of Yokohama in his 40s also filed a lawsuit with the Yokohama District Court in February, demanding a nullification of 5.16 million yen in additional taxes on his earnings of 12 million yen from horse-racing bets.
The man said horse-race betting is his profession, and declared the income as coming from business activities. However, tax authorities decided it was taxable “occasional income.”
According to the Japan Racing Association, about 3 million people bought horse-racing betting tickets online in fiscal 2013, and the amount they spent accounted for 60 percent of total ticket sales of 2.4 trillion yen.
After the JRA introduced an online system to allow gamblers to buy large numbers of tickets in 2002, the Hokkaido civil servant purchased betting tickets on more than 2,000 occasions each year.
He never missed live telecasts of horse races on Saturdays and Sundays. He also developed methods to analyze the potential of about 8,000 registered horses and jockeys.
Between 2005 and 2010, he spent 7.27 billion yen on the races and won 7.84 billion yen. He was investigated by the Sapporo Regional Taxation Bureau after failing to declare the profits from horse racing as his income.
In 2011, he declared 570 million yen in income and 210 million in income tax by reporting the profit as “miscellaneous income,” which can be filed after combining all profits and losses gained from such income throughout a year based on the Income Tax Law.
The tax bureau determined the money from the winning tickets was “occasional income.”
The only deductible expenses allowed for such income is the amount "directly spent to earn the income.” Thus, only the amount spent to buy winning tickets is considered deductible.
It is said the reason why tax authorities refuse to acknowledge earnings from horse racing as “miscellaneous income” is that they are concerned that taxpayers would combine income gains in this category with losses from horse racing for deductions to reduce the total income amount.
The Income Tax Law defines occasional income as money earned from a one-time activity, such as gambling. Half of those earnings are subject to taxation.
Based on a notice issued by the National Tax Agency more than 40 years ago, earnings from horse racing are included in this category.
As a result, the bureau decided that the Hokkaido civil servant should pay more than 570 million yen, including 370 million yen in income tax as well as penalty tax and residence tax, slightly exceeding the profit he earned over six years.
“If tax authorities only recognize expenses for winning tickets as deductible expense, the amount of tax will be billions of yen, which I can hardly pay in my entire life,” the Hokkaido man said in court.
He declined to comment to The Asahi Shimbun, saying his case is still pending in court.
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