Taxes in Canada?

[TalentedTom]

Last year I was a 20 year old full time university student - I took a one year break (this year) and have been playing poker the last few months . I live in Toronto Canada. I've never done taxes or anythign of that nature before. I've cashed out over 200k via neteller and pokerstars cheque which is in my bank account, I'm wondering if I have to pay taxes on this? I don't know what the process is - can someone enlighten me or give me a link to something that will help.

[Pog0]

The extent of the taxcode with regards to gambling as far as I know:

http://www.cra-arc.gc.ca/E/pub/tp/it334r2/it334r2-e.txt

Basically, it seems vague enough that it would be silly to interpret this an meaning you have to pay taxes.

Focus on 3. Windfalls, 10. Gambling Profits, and 11. Hobbies

[TalentedTom]

[ QUOTE ]
Last year I was a 20 year old full time university student - I took a one year break (this year) and have been playing poker the last few months . I live in Toronto Canada. I've never done taxes or anythign of that nature before. I've cashed out over a lot via neteller and pokerstars cheque which is in my bank account, I'm wondering if I have to pay taxes on this? I don't know what the process is - can someone enlighten me or give me a link to something that will help.

[/ QUOTE ]

[Pog0]

why did you just quote yourself?

[DavidNB]

You should see an accountant and get proper advice. 200K is alot of money.

[Pog0]

[ QUOTE ]
You should see an accountant and get proper advice. 200K is alot of money.

[/ QUOTE ]

An accountant won't know anything about this.

It's always been an ambiguous situation where it all comes down to the interpretation of the tiny snippet of code that I linked to.

[SlightlyMad]

I am not a tax professional, and I wish I had your problem, but ...

It is really disingenuous to insinuate that an accountant wouldn't know about this. It will be VERY difficult to argue that $200K is a hobby or a windfall if you have no other income to speak of, are living on that money, and you don't have a full-time job or full-time schooling over a large part of the year.

Remember that the Canadian government does know about your large account; unless you keep it under your mattress, you are already raising eyebrows at your bank.

You should be prepared to pay taxes on the net income (as a self-employed professional) that you made in 2006. I hope you have (approximately) $70K saved for paying taxes on that $200K.

[TalentedTom]

I've been told by several people you can just tell them you've won an online tournament and write it off? I made my deposits not on a consistant basis - but in large sums. Does this make a difference?

[SlightlyMad]

At which point they'll ask you "Which one?" The onus will be on you to prove that it is a windfall, not on the government to prove that it is not.

Furthermore, a poker tournament win isn't the equivalent of a 6/49 win (which *is* a non-taxable windfall). There is skill associated with winning a poker tournament.

It doesn't matter if the money gets there in a roll of pennies every hour versus one lump sum (although you do have to report Large Cash Deposits in Alberta, as I discovered at the casino when they paid out $10K to someone at my table for a bad beat). Your account has already raised flags at Revenue Canada. They see $200K in your bank account, no taxes paid in your name, and there will be many questions regarding its provenance.

[bmxicle]

I'm in basically the exact same situation, and i talked to an accountant and he said i had to pay taxes. This pretty much confirmed my research. I mean canadian tax law doesn't explicitly state what is a business, and what is a hobby, but when you make 6 figures it becomes fairly obvious that it wasn't a windfall. I think at worst they will ask you for backed taxes, so if you decide not to pay make sure to save about 45% of your income (those bastards).

[-zero-]

Um, I thought the top tax bracket was 29%?

[SlightlyMad]

That's the top marginal federal tax bracket. Depending on the province you live in, you also owe another 10%-15% tax on top of that.

It is important to note that on the first $109,000 or so, the federal tax rate is lower than 29%, that's why I suggested he have about 23% (Fed) +12% (Prov) = 35% put aside.

[2218]

What about 65k as full time student?

[AAxxCracker]

[ QUOTE ]
What about 65k as full time student?

[/ QUOTE ]

Or even just 20K-30K whether a student or just "at home"? Just enough to live on, and more fun than work. It seems to get vaguer as the amounts get smaller. I'd think and hope they would go after the big winners first as a public example.

[SlightlyMad]

I'll say again, I'm not a tax professional ... I'm just someone who likes doing their own taxes.

Well, if you want to get a rough idea of how much tax you have to pay, there are plenty of nice charts out there that give you a *rough* idea of how much you should pay.

This is the first link I hit on Google.

http://www.taxtips.ca/tax_rates.htm#ProvincialTaxComparison

As you can see, I got the Ontario tax rate wrong by about 2% on $200,000; it's about 14% versus 12%, so about 37% total tax payable. (Every dollar after that is taxed at 46.41%, the top marginal rate in Ontario.)

If you live in Ontario, it looks like you'll owe about 22% on 65,000, and about 12% on $25K.

If you've never filed taxes before, and drop them a load of cash ($2000+) at the end of April, there's a law that you need to be aware of for next year's taxes. If you *know* you are going to be paying $2000+ at the filing deadline, you are required to pay by installments over the course of the year (March/June/September/December 15th). The first year you do it; no harm, no foul. However, if you plan on doing it in subsequent years, they charge you interest on the amount of tax that you owe!

You'll get a lovely letter from the CRA around July reminding you of this responsibility ... and if you choose to ignore it, be prepared to pay the penalty!

[Tuco]

[ QUOTE ]
I am not a tax professional, and I wish I had your problem, but ...

It is really disingenuous to insinuate that an accountant wouldn't know about this. It will be VERY difficult to argue that $200K is a hobby or a windfall if you have no other income to speak of, are living on that money, and you don't have a full-time job or full-time schooling over a large part of the year.

Remember that the Canadian government does know about your large account; unless you keep it under your mattress, you are already raising eyebrows at your bank.

You should be prepared to pay taxes on the net income (as a self-employed professional) that you made in 2006. I hope you have (approximately) $70K saved for paying taxes on that $200K.

[/ QUOTE ]

I agree that it is disingenuous to insinuate that an accountant wouldn't know about this, but if your not a tax pro isnt it also disingenuous to speculate when you might not be correct?

Tuco.

[TorontoCFE]

If you tell them you won an online tournament, what are you going to say when they ask you to prove it?

Don't forget, if records are missing, they can shift the burden of proof to you to disporve their assumptions.

[TorontoCFE]

It isn't vague legally speaking, it is just the amount of risk you are willing to assume .
Do you think they would come after you for 10k of missed taxes or not? Will your income stadn out or not?
Can you convince them you got lucky a few times or not?

A business can result from a SINGLE activity lasting one day.
You can be a full time student and have a business on the side.

The issue is only whether you can claim it was just a hobby and they beleive you or not.

[TorontoCFE]

You also need to focus on the definition of a business.

There is a point where activities, even hobbies, stop being a hobby and become a business.

Once an activity can be classified a business, then you are stuck.

[SlightlyMad]

[ QUOTE ]
I agree that it is disingenuous to insinuate that an accountant wouldn't know about this, but if your not a tax pro isnt it also disingenuous to speculate when you might not be correct?

[/ QUOTE ]


It may be misleading for me to speculate if I wasn't basing my response on multiple opinions from different accountants. If I pulled all of my opinions out of my ass, I might even be insincere. However, that is not the case.

From my experience, all three of them were prepared for questions regarding the questions regarding the windfall and hobby status of online poker.

Having said that, there is a non-infinitesmal likelihood that all three of them are incorrect in their interpretation of that section of Canadian tax law.

I'm just trying my best to give people the advice that I paid a few hundred dollars for so that they don't have to do it themselves.

[Tuco]

[ QUOTE ]
[ QUOTE ]
I agree that it is disingenuous to insinuate that an accountant wouldn't know about this, but if your not a tax pro isnt it also disingenuous to speculate when you might not be correct?

[/ QUOTE ]


It may be misleading for me to speculate if I wasn't basing my response on multiple opinions from different accountants. If I pulled all of my opinions out of my ass, I might even be insincere. However, that is not the case.


[/ QUOTE ]

I guess I missed the post where you stated this. Carry on.

Tuco.

[Mossberg]

I quit my job last March because I was running hot at minbet holdem - variance caught up with me and I ended up breaking even for most of 2006. Altogether, with rakeback and bonus, I made about 20k. I worked full-time from January-March '06, and I've been attending college since September '06.. I'm really torn on whether to pay or not, and I'm quickly running out of time.

Any advice for me?

[TalentedTom]

Can I just take the money and put it back into my PS account and tell them I had to reload?

[TalentedTom]

Someone told me about a "tax lawyer" and I can get them to dismiss any tax I may ave to pay, anyone heard of this?

[2218]

I really appreciate your advice, SlightlyMad. I just really, REALLY don't want to be the sucker would dishes out 1/3 of his earnings when it could have been avoided. I don't want to start a poll or anything, but I am curious about this: Has anyone made a significant sum of money in prior years that was deposited in a bank account that year and not declared? If so, were you contacted about it? (And for that matter, how long would they take to contact you about it anyway?) Has anyone actually been persued about it?

[Pog0]

This is all that matters:

[ QUOTE ]

The issue of whether or not an individual's activities are
such that he or she can be considered to be carrying on a gambling business is
a question of fact that can be determined only by an examination of all of the
circumstances and the taxpayer's entire course of conduct. Although no one
factor may be conclusive, the following criteria should be considered in
making the determination:

(a) the degree of organization that is present in the pursuit of this activity
by the taxpayer,
(b) the existence of special knowledge or inside information that enables the
taxpayer to reduce the element of chance,
(c) the taxpayer's intention to gamble for pleasure as compared with any
intention to gamble for profit as a means of gaining a livelihood, and
(d) the extent of the taxpayer's gambling activities, including the number and
frequency of bets.


[/ QUOTE ]

Note that it doesn't say how many of these they have to prove or you have to disprove, it simply states that "[whether your gambling activities are taxable] is a question of fact that can be determined only by an examination of all of the circumstances and the taxpayer's entire course of conduct."

Now I don't know if we can argue that since they use the term 'taxpayer', that if you have never paid tax, then none of this even applies to you since you are not yet a taxpayer, so I'll leave that one to the professionals (provided they think outside the box)... sounds remarkably similar to any argument for the tax protestors in the USA.

So let's look at the factors:

(a) What would be considered organization? If you set yourself a schedule and adhere to it, then you are treating your time gambling much like a job. Would using PT and PAHud be considered an element of organization in the activity? I'd argue that using those programs are a part of my hobby and what makes the game that I'm playing more fun. So it's not an element of organization with regards to the activity, it is an actual part of the activity.

I play when I feel like for however long I feel like, and it's usually not long. I don't think there's very much organization in the way I pursue internet gambling.

(b) If someone were to fold every single hand, they would lose money at a very consistent rate. This reduces the element of chance to 0 since the result is certain. You'll lose 1.5 big blinds per cycle. However, I choose to play many of my hands. I choose to go all in preflop with AK. I make certain plays that actually increase the element of chance rather than decrease it. I do this with the intention of maximizing EV, however, it does not reduce the element of chance. Shifting my spectrum of possible results from -5/+5 to -2/+8 is not a reduction in chance.

So I have the knowledge that enables me to reduce chance (the knowledge that if I fold every hand, the element of luck goes away completely), however, I wouldn't consider this information 'special'. In my play, I purposely increase the element of chance, so I do not have special knowledge that allows me to reduce the element of chance.

(c) Does some of this mean that the more fun I have gambling the less likely I am to be taxable? I currently intend to make money from poker and it is currently my only source of income, however I don't intend for it to be the means of my livelihood for a long period of time.

They want to make a distinction between gambling for pleasure / gambling for profit. I don't think that can be done since one can do both and one can do neither (an addicted gambler who hates it and loses). Funny how if a terrible player intends to gamble for profit even though they aren't a winning player but happens to get extremely lucky and win, then they are more taxable than me when I play for the intention of fun but happen to be a winning player.

(d) Clearly, the terminology does not apply to poker (sounds like sports betting terminology). Number and frequency of bets? Obviously, they don't mean 'bet' like we do in poker, such that someone who calls more is less taxable than someone who bets more. What I believe this clause refers to is how often you play. Someone who plays 40 hours a week is more likely to be considered as being in the business of gambling than me.

I've been averaging 33 hours a month since January, 2006. Sounds like a hobby to me. I've been a full-time student for this duration, although I don't think that's at all relevant.

* * *

That's the end of my interpretation of the tax code for Gambling Profits. I believe that A, B, and D all fall in my favour while C is a gray area. However, it says that all factors should be considered and I'm already leading at minimum 3-1.

Please critique my interpretations and my application of these interpretations to my own situation. Let's keep this dialogue open.

I think the most important thing to realize is that, as far as I know, there has yet to be a precedent setting case in the matter of online poker. Until there is, with the law this ambiguous, I don't think any of us face any threat of jail time should the court find in favour of the government. However, until it is officially shown that we are indeed taxable, I don't see why we should interpret the law against our best interests.

[yenman]

i do live off some of my winnings but i dont think im gonna file it as income. if you think about it is easily possible to have one winning year and have a succession of losing years.

if you file as a pro one year, why not deduct losses in coming years. basically you can be a gambling degenerate writing off poker losses... besides its hard to say whether most pokerpros are really just gambling addicts that are actually winning players. I mean i should be allowed to file as a pro being a losing player that is planning to win money in the long run, much like how a business is run.

for these reasons i heavily doubt the govt will be in to really cracking down. it is far more inconvenient to have all these chumps filing as pros writing off losses against their other income.

ofcourse i guess if u made six figures i guess it would be hard to argue against being a pro. i would start playing a bit crazier though knowing losses can be deducted lol.

I think this is the most important question to throw out...
does anybody actually file their winnings as income?

[bmxicle]

yes /images/graemlins/frown.gif

[Pog0]

[ QUOTE ]
I think this is the most important question to throw out...
does anybody actually file their winnings as income?

[/ QUOTE ]

I don't think that question is important at all. I think a much more important question is, 'has anyone ever not filed their winnings as income and had to refile after the government insisted that their winnings should be filed?'

Equally important, are we actually taxable? Obviously, if you file, the CRA isn't going to look at your return, determine that your gambling winnings aren't profitable, and then return your money. So it's possible that many people who have been filing have been giving away money for no reason.

I believe that some poker players are taxable and some aren't. The question is, how close to fulfilling the requirements as listed in the tax code does one have to be before he is taxable? This question has never been answered.

[homeboy604]

so much speculation and no real solid answers...

im not going to pay taxes this year (made about 50k in 2006.)
im going to wait until next tax season and re evaluate my situation. mean while, ill be keeping money made from poker in my bank account. should be interesting to see if i get any phone calls from revenue canada in the mean time.

on a related note, my dad owes them 100k and has no plans on paying them any of it.
good role model....

[Pog0]

[ QUOTE ]
so much speculation and no real solid answers...

im not going to pay taxes this year (made about 50k in 2006.)
im going to wait until next tax season and re evaluate my situation. mean while, ill be keeping money made from poker in my bank account. should be interesting to see if i get any phone calls from revenue canada in the mean time.

on a related note, my dad owes them 100k and has no plans on paying them any of it.
good role model....

[/ QUOTE ]

I doubt you raised red flags like other posters have said.

I agree 100%. Too much speculation and no real answers. But why would anyone pay taxes when it's not clear that you have to?

Also, in response to tax estimates in this thread, people are forgetting to factor in CPP which can be up to about $8k for the self-employed. It hurts big time. Fortunately, you can creatively deduct computer equipment, internet connection, poker books, etc... so keep your receipts as well as your money.

I'd still love to hear comments on my interpretation of the tax code.

[RaiseAndPray]

I printed out your interpretation and am bringing it to my accountant tomorrow.

I have about 250k in poker winnings to account for over the past 3 years, from a variety of things (online and live cash games, few $10-$15k tournament cashes). Since December, I'm probably down 50k online and live together. I made the vast majority of my winnings (at least $150k) between July - December 2006 and maybe 50k each of the 2 years before. I don't know if anything I've said here affects my situation differently or increases my chances of making it look more like a windfall (???). I'm just very confused and want to avoid paying tax as much as possible since I honestly don't have that sort of money available (this recent 50k downswing has really dented me). Is it really realistic for Revenue Canada to tax me on something I did ON AVERAGE about 15-20 hours/week, and haven't won a penny at in 5 months?

I'd be interested in any comments. I've found this thread helpful and informative.

Edit: oh, and I was auditted about 3-4 years ago for an old business and had to pay $50k. that's only really relevant because it guaran-f'ing-tees I will get auditted again if I don't do anything about it and keep claiming more-or-less $0.

[Pog0]

It probably goes without saying, but I'm very interested to hear what your accountant has to say.

I'm also wondering, are there even any somewhat relevant court cases that we can refer to when trying to figure this out?

[AAxxCracker]

[ QUOTE ]
It probably goes without saying, but I'm very interested to hear what your accountant has to say.

I'm also wondering, are there even any somewhat relevant court cases that we can refer to when trying to figure this out?

[/ QUOTE ]


The following link is not about poker but the court case is of the Leblanc brothers who gambled millions over time on sports lotteries. Their "hobby" grew so big that they had to hire runners to go to different lottery outlets as these outlets could only accept a certain number of bets. Canada argued that it was a business with employees and it was run in a systematic way to have an expectation of profit. These brothers had a computer program to help them with their picking. Anyway, there are some interesting points in this case about what is gambling and what is a business and what is a hobby. Verdict: NOT GUILTY.

http://decision.tcc-cci.gc.ca/cgi-bin/si...g&langue=en (http://decision.tcc-cci.gc.ca/cgi-bin/sino/disp.pl/en/2006/html/2006tcc680.html?query=gambling&langue=en)

I haven't used a link here before so if it does not work copy and paste this: decision.tcc-cci.gc.ca/cgi-bin/sino/disp.pl/en/2006/html/2006tcc680.html?query=gambling&langue=en

[bmxicle]

the HUGE difference is that canadian sports betting is government run, and all those government run gambling things (lotteries etc) are generally non-taxable. I think that was a huge part of that case.

[sumdumguy]

[ QUOTE ]
[ QUOTE ]
It probably goes without saying, but I'm very interested to hear what your accountant has to say.

I'm also wondering, are there even any somewhat relevant court cases that we can refer to when trying to figure this out?

[/ QUOTE ]


The following link is not about poker but the court case is of the Leblanc brothers who gambled millions over time on sports lotteries. Their "hobby" grew so big that they had to hire runners to go to different lottery outlets as these outlets could only accept a certain number of bets. Canada argued that it was a business with employees and it was run in a systematic way to have an expectation of profit. These brothers had a computer program to help them with their picking. Anyway, there are some interesting points in this case about what is gambling and what is a business and what is a hobby. Verdict: NOT GUILTY.

http://decision.tcc-cci.gc.ca/cgi-bin/si...g&langue=en (http://decision.tcc-cci.gc.ca/cgi-bin/sino/disp.pl/en/2006/html/2006tcc680.html?query=gambling&langue=en)

I haven't used a link here before so if it does not work copy and paste this: decision.tcc-cci.gc.ca/cgi-bin/sino/disp.pl/en/2006/html/2006tcc680.html?query=gambling&langue=en

[/ QUOTE ]

And you know what is really cool about this case: The extra effort the judge makes to distinguish, irrespective of effort and organization, simply beating the odds vs. gambling with positive EV.

[48] This conclusion is consistent with the case law on gambling. The appellants are not professional gamblers who assess their risks, minimize them and rely on inside information and knowledge and skill. They are not like the racehorse-owner, who has access to the trainers, the horses, the track conditions and other such insider information on which to base his wagers. <u>Nor are they like seasoned card players or pool players who prey on unsuspecting, inexperienced opponents.</u> Rather, they are more accurately described as compulsive gamblers, who are continually trying their luck at a game of chance.

[pyedog]

Pog0, thanks for doing that analysis of the tax code and how it applies to you. I think your analysis is quite reasonable, but you might be biasing your points towards the conclusion that you desire. Then again all legal arguments are done this way.

I have a similar situation to you except that I have a full time job instead of being a student. I am also curious if anyone receives more concrete advice from an expert accountant or if anyone has ever been forced to pay taxes on poker winnings. I don't want to just pay taxes like a sucker if it is debatable and avoidable.

[SlightlyMad]

There are no known cases where a poker player has been forced to pay that didn't get turned over on appeal (see the Canadian Tax Thread in the Zoo for more information on the Russian dude from Hull).

Since most of you aren't going to pay (in spite of my arguments for why I think you should consider doing it), I hope that you don't get audited and you may want to consider keeping your bankroll out of your bank.

PogO, let's just say that I disagree with your assessment:

(a) Why does using PT and PAHud be considered as making the game more fun? Because you can be more *profitable* when using them? A system that keeps track of players' tendencies so that you can EXPLOIT them in later hands sure sounds like organization to me. Do you have a logbook of deposits and withdrawals? Are you systematically depositing for every single bonus? (Some low-limit bonus whores such as myself would say "Yes" to this, but you probably earn too much to chase that stuff.) Organization isn't necessarily about setting yourself a schedule.

(b) Read sumdumguy's response on the decision from the judge. My guts tell me that you are a "seasoned card player ... who prey[s] on unsuspecting, inexperienced opponents" rather than a random chucklenuts. Should we read your posts on this message board and figure out whether you're giving/getting advice on how to play hands? Is anyone thanking you for your insights?

(c) If you have no other money coming in, how do you intend on buying food? By purchasing stuff from your gambling wins. If you could somehow justify that your expenses can be accounted for WITHOUT any gambling income, I'd buy this argument. However, since you have no other income coming in, this feels like crap.

(d) You're not doing it full-time, that's good; you're working on school work most of the time, and only doing this part of the time. If there is any part of this that is likely to fall in your favour, it's this one. (However, it is important to note that your log of how many hours you have been betting shows "organization".) I play about 3 hours/night, but I work 9 hours a day.

My employment $ &gt;&gt; poker $, I have a full-time job, and that's why I'm not paying. But if it ever became clear (from a Revenue Canada ruling) that I *do* have to pay, and pay on previous years (instead of a ruling that applies going forward), I would voluntarily adjust my previous years' tax returns to pay, because I squirreled most of the winnings away! If I luckboxed my way into a WSOP Main Event win, my poker $$ &gt;&gt; employment $$, and I would pay Canadian tax on my tournament victory. (However, before I did that, I would probably sit down with Revenue Canada officials and try to get an official ruling on tournament poker since it would mean a $4-$5 million tax bill.) Screwing the Canadian government out of tax revenue is highly -EV.

[TorontoCFE]

That only applies if you have been evading tax.
A lawyer can go to the CRA and haggle a settlement of your liability.
You then pay this settlement and avoid criminal prosecution (unless that'S part of the settlement).
You may get a discount on the total bill, but you still pay.
All deals are off if they start investigating you on their own before the deal is final.

[Pog0]

Pyedog,

I definitely wrote my interpretation with extreme bias. I want to be right here and I don't want to pay taxes, but I don't have any intention of cheating the government if I find that I have to pay. I wrote my interpretations with the hopes that someone would refute them from the other point of view and we could all come to a better understanding of what the taxcode really means.


SlightlyMad,

your critique of my analysis is very good. I appreciate you taking the time to do that. What I think is the biggest difference between my interpretation and yours is the definition of a few key words.

For (a), you say,
[ QUOTE ]
Organization isn't necessarily about setting yourself a schedule

[/ QUOTE ]

Yes that's true. Maybe it's not. But if it is, then I've got a strong case against a. It's all in what they mean by the word 'organization'.

For (b), we're disagreeing on the term 'element of chance'. I'm saying that I don't reduce the variance, keeping winrate irrelivant. Although, if you start looking at the longrun, winrate seems to lower the element of chance, so I may have some trouble proving that point, even if I were convincing in claiming that "reducing the element of chance" has nothing to do with "increasing the chance of winnings". So then I'd have to rely on the definition of "special knowledge" and claim that I don't know anything that isn't publically knowable, and I believe this is true.

If I learn something from a book that's for sale at amazon and most book stores, is this special knowledge? Is I learn something from a publically accessible forum, is this special knowledge? If I learn something through trial and error by simply playing a lot of hands, is this special knowledge? I don't think my knowledge is all that special at all.

(c) I'd probably have to conceed this point since I am gaining a livelihood through gambling at the moment. However, once I have a business with which I can support myself, then I can get this point turned back to my favour. I'd still argue that I gamble for pleasure and hope that that somehow makes (c) work less against me.

(d) Again, for this point, I don't think the pursuit of other activities is at all relevant. It shouldn't be any different if I'm a full-time student and I play poker 10 hours a week or if I watch movies and play computer games all day and then play poker 10 hours a week. The terminology here doesn't seem to apply (number and frequency of bets), so at the very least, this point can't work against me, but I hope it works for me whether I'm a student / have a full-time job / or none, as long as I'm only playing poker a few hours a week.

*

Yes, I know my interpretations are extreme, but I don't think I need to win all of these battles in order to win the war, since "no one factor may be conclusive"

Your interpretations are completely reasonable and it all really comes down to the definitions of a few key words and phrases. Mainly,

organization
special knowledge / inside information
element of chance
number and frequency of bets

Rereading "(c) the taxpayer's intention to gamble for pleasure as compared with any intention to gamble for profit", I see that the word compared between the two essentially means that you have to show which was more important to you: the pleasure or the profit. If you can show that the pleasure was more important, than you win c. I don't think I can win c.

[2218]

[ QUOTE ]

(c) If you have no other money coming in, how do you intend on buying food? By purchasing stuff from your gambling wins. If you could somehow justify that your expenses can be accounted for WITHOUT any gambling income, I'd buy this argument. However, since you have no other income coming in, this feels like crap.

[/ QUOTE ]

What if I argue that I'm not working because of the money I have rather than the money expect to make? As long as I don't blow [censored] loads of money, my essentials will be covered. So why can't I give myself a vacation from work?

Obviously this argument could only last so long...

[Pog0]

[ QUOTE ]
[ QUOTE ]

(c) If you have no other money coming in, how do you intend on buying food? By purchasing stuff from your gambling wins. If you could somehow justify that your expenses can be accounted for WITHOUT any gambling income, I'd buy this argument. However, since you have no other income coming in, this feels like crap.

[/ QUOTE ]

What if I argue that I'm not working because of the money I have rather than the money expect to make? As long as I don't blow [censored] loads of money, my essentials will be covered. So why can't I give myself a vacation from work?

Obviously this argument could only last so long...

[/ QUOTE ]

Wouldn't work if the money you have came from gambling though, would it?

[Our House]

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(c) If you have no other money coming in, how do you intend on buying food? By purchasing stuff from your gambling wins. If you could somehow justify that your expenses can be accounted for WITHOUT any gambling income, I'd buy this argument. However, since you have no other income coming in, this feels like crap.

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What if I argue that I'm not working because of the money I have rather than the money expect to make? As long as I don't blow [censored] loads of money, my essentials will be covered. So why can't I give myself a vacation from work?

Obviously this argument could only last so long...

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Wouldn't work if the money you have came from gambling though, would it?

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Yes, it would...

You can hit the lottery for $5 million, pay no taxes, and live off that money tax-free. You can also decide (by your own choice) to keep buying more lottery while living off that gambling win. No one's expecting to hit the next 5 mil, but they can always choose to keep trying. /images/graemlins/smile.gif

I can see why there's not much of a case against the non-taxpaying poker player. As we (2+2ers) know, people can have all the organizational systems they want for lotteries (following previous winning numbers, recording wins and losses, etc.) but they will NEVER be winning professionals. Until the skill level of poker is absolutely proven, there's nothing concrete to use as precedence.

[Pog0]

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(c) If you have no other money coming in, how do you intend on buying food? By purchasing stuff from your gambling wins. If you could somehow justify that your expenses can be accounted for WITHOUT any gambling income, I'd buy this argument. However, since you have no other income coming in, this feels like crap.

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What if I argue that I'm not working because of the money I have rather than the money expect to make? As long as I don't blow [censored] loads of money, my essentials will be covered. So why can't I give myself a vacation from work?

Obviously this argument could only last so long...

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Wouldn't work if the money you have came from gambling though, would it?

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Yes, it would...

You can hit the lottery for $5 million, pay no taxes, and live off that money tax-free. You can also decide (by your own choice) to keep buying more lottery while living off that gambling win. No one's expecting to hit the next 5 mil, but they can always choose to keep trying. /images/graemlins/smile.gif

I can see why there's not much of a case against the non-taxpaying poker player. As we (2+2ers) know, people can have all the organizational systems they want for lotteries (following previous winning numbers, recording wins and losses, etc.) but they will NEVER be winning professionals. Until the skill level of poker is absolutely proven, there's nothing concrete to use as precedence.

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Also, for b, special information is more than likely referring to someone who's cheating.

[teh_mewse]

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I can see why there's not much of a case against the non-taxpaying poker player. As we (2+2ers) know, people can have all the organizational systems they want for lotteries (following previous winning numbers, recording wins and losses, etc.) but they will NEVER be winning professionals. Until the skill level of poker is absolutely proven, there's nothing concrete to use as precedence.

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I don't know if i agree with this or not (but i know very little on the subject). I would agree that if you claimed innocence, it would be very difficult for the government to prove otherwise. But isn't that the complete opposite case here? In canada, aren't you innocent until proven guilty EXCEPT with taxes? Aren't you guilty until PROVEN innocent? If thats the case, it would be equally hard to DISPROVE their accusations. Thoughts?

[Pog0]

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I can see why there's not much of a case against the non-taxpaying poker player. As we (2+2ers) know, people can have all the organizational systems they want for lotteries (following previous winning numbers, recording wins and losses, etc.) but they will NEVER be winning professionals. Until the skill level of poker is absolutely proven, there's nothing concrete to use as precedence.

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I don't know if i agree with this or not (but i know very little on the subject). I would agree that if you claimed innocence, it would be very difficult for the government to prove otherwise. But isn't that the complete opposite case here? In canada, aren't you innocent until proven guilty EXCEPT with taxes? Aren't you guilty until PROVEN innocent? If thats the case, it would be equally hard to DISPROVE their accusations. Thoughts?

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Tough question.

I'm not sure how it works normally (I think you're right) or how it would work in this situation (I think it may be different).

If I own a business and the government says 'we have reason to believe you owe $10m more', then it's probably on me to show them they're wrong.

If I play poker and the government says, 'we see $100k in deposits that you did not report on your taxes' and you respond, 'oh, that was untaxable gambling winnings', is it back on them?

[Mig]

I met a fiscalist/lawyer from a big firm where I live and he said that they could have a strong case against that being taxable, in the case it went to court.

I don't remember all of his arguments but for 1 he said that since the law regarding that issue is so unclear and it is mainly a state of facts, that makes it difficult for the CRA to come after the winners. Since the winners they would want to see taxed are probably only the big ones and that they compose like maybe 5%-10% of the total gambling pool and the rest or marginal winners or losers, it would be hard for them to tax the winners... The point is that under these 4 items stated in posts above, a big losers (who won for a while and then lost a big chunk of his winnings and more) could try to write off his losses and I'm sure the CRA wouldn't want that to happen. Basically you see that situation all the time, a bad player climb the ladder and keep winning for so long and bust his ass and even more at the top. So first year he would have to write off as a winner and then he could write off big losses for 2-3 years? I dunno if it makes sense the way I wrote it but when we talked about it (2 hours session) I thought he could be right.

Sorry for my bad English, if there is anything that you can't understand feel free to point at it, I will try to re-explain my point.

[2218]

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I met a fiscalist/lawyer from a big firm where I live and he said that they could have a strong case against that being taxable, in the case it went to court.

I don't remember all of his arguments but for 1 he said that since the law regarding that issue is so unclear and it is mainly a state of facts, that makes it difficult for the CRA to come after the winners. Since the winners they would want to see taxed are probably only the big ones and that they compose like maybe 5%-10% of the total gambling pool and the rest or marginal winners or losers, it would be hard for them to tax the winners... The point is that under these 4 items stated in posts above, a big losers (who won for a while and then lost a big chunk of his winnings and more) could try to write off his losses and I'm sure the CRA wouldn't want that to happen. Basically you see that situation all the time, a bad player climb the ladder and keep winning for so long and bust his ass and even more at the top. So first year he would have to write off as a winner and then he could write off big losses for 2-3 years? I dunno if it makes sense the way I wrote it but when we talked about it (2 hours session) I thought he could be right.

Sorry for my bad English, if there is anything that you can't understand feel free to point at it, I will try to re-explain my point.

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Just to be clear, are you saying that the government could make a strong case for poker being taxable, but it wouldn't bother because of all the complications it entails?

[pyedog]

The thing is that smart people who don't play poker just can't understand how it could be possible to beat it consistantly in the long run. Have you guys ever told other smart people that you're a winning poker player? They tend to look at you funny. I know that two years ago I would have refused to believe it, and to be honest I'm still a bit skeptical even after two years as a winning player at low limits. I still can't comprehend where all the money is coming from, especially for higher stakes players.

So how is a judge going to rule that there is a winning system possible in poker and that it can beaten through being "organized"? Unless he has played a lot of poker how will he know that these earnings aren't just due to luck? For example in my case I've played for two years and never had a losing month. But that alone isn't proof that I'm a winning player. It could just be a statistical anomoly and I'll end up losing for 24 consecutive months. In fact if the games get tougher and all the high stakes regulars decide to move down to my games as a lark then I'll be certain to lose.

However, that said, if any online poker player with an upper middle class salary gets investigated by the CRA he probably won't be able to afford the legal fees to try to fight this case and argue these points. I know that if I get hassled I'll probably just pay the taxes instead of trying to hire a lawyer, which will probably end up costing more and might fail anyways.

[Mig]

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Just to be clear, are you saying that the government could make a strong case for poker being taxable, but it wouldn't bother because of all the complications it entails?

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No, what I meant was, the lawyer/fiscalist I spoke to said he had a lot of arguments to defend the position that poker is not taxable.

I wonder if it would be possible and even best for the Canadian community to have a lawyer go into court and ask for a statement from the court. You know what I mean ? It's clear to me that in the near future someone will have to face the CRA with that question and it's kinda unfair to that 1 individual to pay for all that... It's such a grey area. Half people say white and the other half say black, who has the right answer...

[TorontoCFE]

They can't go to Court to clarify without knowing a specific set of facts.

The taxability of poker is entirely dependant on individual circumstances.

[TalentedTom]

BTW - anyone who lives in TO, can you PM me (and) or post the name / number of a good accounting firm / person* Scarbrough area perferred if possible*

[TorontoCFE]

The CRA could say "we think they are taxable so please send us 50k" or they can say "maybe they are profits from money laundering so unless you show us otherwise, we want 50k and we'll call the criminal investigation people".

Then it is back in your court

[TorontoCFE]

Special information can be someone who knows more about a given sitation (odds, insider info, advance knowledge or computer program that does the analysis) than other people would.

[Mig]

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Special information can be someone who knows more about a given sitation (odds, insider info, advance knowledge or computer program that does the analysis) than other people would.

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This point is pretty thin in my opinion. Knowing the odds is simple maths, a 7 years old kid could figure it out. And since I don't know what the other guy cards are I don't think I have special knowledge...

By the way TorontoCFE, do you know if there is anything in court right now or there will be something in the near future regarding that issue ?

[2218]

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Special information can be someone who knows more about a given sitation (odds, insider info, advance knowledge or computer program that does the analysis) than other people would.

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This point is pretty thin in my opinion. Knowing the odds is simple maths, a 7 years old kid could figure it out. And since I don't know what the other guy cards are I don't think I have special knowledge...

By the way TorontoCFE, do you know if there is anything in court right now or there will be something in the near future regarding that issue ?

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I agree. A person who knows the odds is more informed than a person who doesn't, but knowing the odds should in no way be considered special information.

As Pog pointed out, it seems like the special information clause is really to target things like sports or race track betting. I think special information is more along the lines of information not easily obtained by others. In this case, poker, IMO, doesn't have any special information whatsoever. Odds are easily accessible to anyone, for one. And the big thing that makes a strong poker player is just highly developed analytical thinking. That few people are such great analytical thinkers does not make it any more special though.

[TorontoCFE]

The definition of something legally speakin is not alwayswhat you would think when it is intrepreted in law.

I know of a few cases being reviewed but not really close to court yet. Even if case were decided in court, you have no definite way of knowing where you stand unless you had the exact set of circumstances.

[TorontoCFE]

Years of experience can consititue special knowledge since it is not something someone can easily get an be on even term with someone who has it.
Special knowledge isn't defined so you'd have to hope a judge agree with you if you were selected as a test case.

[DavidNB]

I always thought that special knowledge could also loosly be viewed as skill. For example, a skilled blackjack player has an advantage over a non skilled one.

Of courser I only wished I had the problem of too much poker income (LOL)

[myst1]

Hey guys, I posted in an older thread but I lost track of it. I'm in the same situation as most of you, only I'm probably a bigger target for the CRA. My profits last year were around $1 million, and this year a little over $2.5 million. There are my first 2 years of professional play, and most of it is easily trackable because they are live tournament winnings.

I contacted a well known tax lawyer here in Ottawa, and gave him all of the details, and he concluded that I should not be taxed. That should stop me from ever being charged with negligence, is that correct?

Also, my financial advisor told me to incorporate myself, which I did, and we moved all of the funds into my business account, and then into my current investment portfolio. We are submitting our case to the CRA, so that we get a decisive ruling right away.

My financial advisor has tried to assure me that even if they decide to tax me, I will end up having to pay very little taxes, after making investments in flow-through shares and other tax-credit investments.

I'm still a little worried though. Does anyone with knowledge in the field see any holes in my plan? My last resort would be to detach myself from Canada and become a non-resident for 6 months plus a day, and then my earnings for 2007 would be non-taxable. Is there a minimum number of years I would have to stay out of Canada before I could return?

Sorry for the long post.

[atom_new]

I figure I might as well comment on everything said here.

First off, I'm not a lawyer, I'm a law student. I can't give any legal advice. However, as a student I have access to tons of legal information all for free, as opposed to lawyers who pay $250/hr to get the info. I also have more free time and an interest in the area, so I've done tons of research in this field. In my files I've got info on pretty much all of the case law in Canada, every article ever written for professionals, and copies of pretty much all gaming laws ever passed going back to the 1500s.. Since I really enjoy poker I've taken a lot of time to learn the materials.
That being said, I don't have the accounting experience that someone like TorontoCFE has. Looking at his stuff though, everything seems to be right, but he is missing a few things. In areas of accounting and how things work in practice in that field, I'd defer to him as the expert.

Anyway, here are just a number of things which stood out for me:

Large winnings in bank accounts
A reminder: Under Canadian law, any transaction of over $10,000 or several smaller ones in a short period of time that add up to $10,000 will be reported by the bank to the government under the Proceeds of Crime and Terrorist Financing Act: http://lois.justice.gc.ca/en/P-24.501/index.html. However, this info is held by FINTRAC, not the Canada Revenue Agency, and it can not be given directly to the CRA(It can through the RCMP or CSIS though)

Innocent until proven guilty
Doesn't apply in tax situations. That's a maxim regarding criminal law. In taxation issues, if the CRA makes a determination, you would have to show that it's not true.

Leaving Canada to terminate residency
Residency is a much more complicated issue. Many many factors are considered than simply your physical location. Everything such as licenses, magazine subscriptions, property owned, etc. are all considered.

Taxability of online poker
Unfortunately, I don't have good news here. I know you all want to hear good news, and people who are trying to sell you their services want to give you good news.
The income of most people here would be taxable in online poker, for a few different reasons. Poker is a game of skill, and online poker is more so, due to the massive number of hands that you can play(See: Law of large numbers). The PPA constantly argues that it's a game of skill, and if it were a game of chance, it would be illegal in Canada.(Without getting into technical debates about mixed skill and chance, which I can if people want a bit more info). Playing with pokertracker or PAHUD also gives evidence that you're organized. The fact that you seek out advice, constantly improve your game, etc. also contributes to it being taxable.

You also can't just look at windfall vs. expectation of profit. There's a lot of history as to why windfalls aren't taxed, mostly through old UK law regarding the idea that gambling is an irrational activity and the money that is won doesn't flow from a source.(The same probably can not be applied to poker).

That being said, WILL poker players be taxed?
CRA and the government has made a conscious decision to avoid taxing most gambling gains because it is not worthwhile for them to do so. When you compare all the money won by all Canadians to all the money lost by all Canadians, the net amount is so small that it is not worth the effort to tax it. This is the main reason that the system is as it is now.

Incorporating to avoid taxes
Very dangerous IMO. Incorporating is great to minimise taxes, since you're paying at a lower rate, but the fact you've incorporated shows you're carrying on a business, and that you should be paying taxes.

Moral Issues
There is a fundamental right in the Canadian tax system: Everyone has the right to rearrange their finances in order to minimise taxes, but can not evade taxes. Putting anything under someone else's name, trying to conceal the source, etc. is one of the worst things you can do.

Anyway, hopefully this helps. Feel free to ask more, or point out where you think I'm wrong. I don't have all my documents here but when I get back to them I can either back some of this up or point out where I may have missed something.

[TorontoCFE]

All of this is true and doesn't go against anything I have said.

[Mossberg]

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Large winnings in bank accounts
A reminder: Under Canadian law, any transaction of over $10,000 or several smaller ones in a short period of time that add up to $10,000 will be reported by the bank to the government under the Proceeds of Crime and Terrorist Financing Act: http://lois.justice.gc.ca/en/P-24.501/index.html. However, this info is held by FINTRAC, not the Canada Revenue Agency, and it can not be given directly to the CRA(It can through the RCMP or CSIS though)

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I want to withdraw about 20k combined from 3 different sites within the next month or two, mostly because of the rising Canadian dollar. I've never made a deposit &gt;10k, and I play poker as my sole source of income (I'm a student). So the bank is going to report me - what does this mean though? Am I going to be getting a phone call from the gov't? Am I going to be audited next year?

Thanks in advance for the help.

[TorontoCFE]

The answers are only "maybes".

All it means is that FINTRAC will be notified and the transactions logged.
The odds of an audit go up, but that may mean going from 1% chance to a 5% chance.