Automatic Totalisators Limited v Federal Commissioner of Taxation

Automatic Totalisators Limited and Colin Campbell Stephen, as Chairman of the Australian Jockey Club, sought an injunction to restrain the Federal Commissioner of Taxation from enforcing a notice requiring the company to deduct income tax from dividends paid to totalisator investors. The Commissioner had appointed Automatic Totalisators Ltd. as an agent for all persons entitled to receive such dividends, requiring the company to deduct 13 per centum income tax and pay it to the Commissioner. The matter was referred to the Full Court of the High Court of Australia.

The primary legal issue before the Full Court was whether dividends received by investors in a totalisator constituted a "cash prize in a lottery" within the meaning of section 14(h) of the *Income Tax Assessment Act 1915-1918*. This question turned on the definition of a lottery and whether the operation of a totalisator involved an element of chance that was not solely dependent on the outcome of the race.

The Court, comprising Knox C.J., Gavan Duffy and Starke JJ., with Isaacs and Rich JJ. concurring with doubt, held that dividends from a totalisator are not prizes in a lottery. Their Honours reasoned that the term "lottery" implies a distribution of prizes by chance and nothing but chance. In the context of a totalisator, investors exercise judgment in selecting the horses they wish to back, thereby introducing an element beyond pure chance. The Court found that this process was akin to a bet, differing from a lottery in that the fund for payouts is derived from mutual contributions of investors, and the odds are determined by the amounts invested. The Court approved the decision in *Stoddart v. Sagar* (1895) 2 Q.B. 474, which held that a transaction involving the exercise of skill or judgment is not a lottery.

By consent of the parties, the motion was treated as a motion for a decree. The Court granted an injunction restraining the defendant from enforcing the notice, and ordered the defendant to pay the plaintiffs' costs.