A hotel owner who purchased gaming machine entitlements has successfully claimed deductions totalling $600,300. Costs for gaming machine entitlements have often be treated by the ATO as non deductible.

The recent decision of Pagone J in Sharpcan Pty Ltd v Federal Commissioner of Taxation [2017] AATA 2948, means that businesses in similar situations should check whether they have an opportunity to claim deductions for the costs of their gaming machine entitlements.


The trustee of a trust operated a hotel in Victoria. It purchased the business from Tattersalls in 2005. Under the liquor and gaming laws at the time, the trustee was the 'venue operator' of the hotel. Tattersalls continued to own and operate the 18 poker machines at the hotel – it was the 'gaming operator'.

In 2010, the Victorian gaming regulations changed. As a result of those changes, the 'venue operators' were allocated (through an auction) the gaming machine entitlements.

The trustee bought 18 gaming machine entitlements for $600,300 in 2010. The total amount was payable by deferred payments over six years.

The Tribunal found that the amount paid for the gaming machine entitlements was deductible because it was on revenue account. The ATO argued it was not deductible because it was on capital account. In reaching this conclusion, the Tribunal characterised the expenses as 'more like a fee paid for the regular conduct of a business than the acquisition of a permanent or enduring asset'. It was important that:

  • the trustee did not buy the entitlements in the process of starting a new business – it bought the business in 2005 for a price that included revenue from the gaming machines; and
  • the $600,300 reflected the value of the revenue expected from using other assets (e.g. the poker machines) to derive gaming income – the entitlements themselves had no value.

The Tribunal emphasised the importance of taking a practical business approach.


Each case will depend on its own particular facts and circumstances. The different gaming laws in each state will need to be considered.

Entities that own hotels and have acquired gaming machines and entitlements should review their circumstances to see if they can claim deductions.

There are time limits for lodging objections to previous assessments. Even if the Commissioner appeals the decision, taxpayers should consider lodging objections so that they are within those time limits.

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