Gary Riverhouse graduated with a Bachelor in Information Technology majoring in probability statistics from Charles Sturt University. He is now working for himself as an IT consultant and in the year ended 30 June 2015 he earned $100,000 from this work. He is an Australian tax resident, holds no private health insurance and has no dependents. He decided to apply his knowledge by developing a computer program, Horsemate, to accurately predict the winning horse. Gary developed Horsemate over a period of one year by attending horse races, testing the program and subscribing to several horse racing magazines. He used historical data and information from magazines to input the necessary information into Horsemate to predict the winning odds. By placing hypothetical bets Gary was able to establish that the Horsemate program was reliable and achieved a winning ratio of 4:1. In the year ended 30 June 2015 Gary spent $100,000 developing the program. Gary decided to allocate 20% of fees earned from his consultancy work to place bets on horse racing informed by Horsemate's predictions. He set a $500 limit per race and no more than five bets per day. He maintained separate records of all bets placed and the outcomes of those races as well as a separate bank account where he banked these winnings. In the year ended 30 June 2015 his records showed that he had made gross earnings from gambling of $85,000. Cool Runnings Ltd approached Gary and offered to buy the exclusive rights over Horsemate. Under the terms of the proposed deal, Gary is to provide Cool Runnings Ltd with training for one year in performing an accurate prediction along with all the necessary documentation to ensure that Cool Runnings Ltd can operate Horsemate in the same manner as it was operated by Gary. Any additional training required by Cool Runnings Ltd on Horsemate after the initial one year period will attract a fee of $2,000 per visit. Gary is also required to cease using Horsemate in his future horse bets. Cool Runnings Ltd offered Gary $50,000 plus 20% of winnings over 10 years or a lump sum payment of $300,000 for the sale of Horsemate. Required 1. Explain the income tax status of Gary's income earned from gambling for the year ended 30 June 2015. 2. Analyse the relevant tax treatment of both options for sale offered by Cool Runnings Ltd to Gary. 3. Assuming Gary accepts a lump sum payment for the sale of Horsemate; calculate his taxable income for the year ended 30 June 2015.