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A poster in the another thread stated that it does not necessarily have to do with how much you won but by the frequency of your activity. This is absolutely correct.
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That wasn't
exactly what I said. Frequency is also, in and of itself, not the determining factor - despite what the taxman would like you to believe. Rather, I believe frequency is the tip off to cause them to investigate your winnings... [img]/images/graemlins/smile.gif[/img]
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What is a business?
- Need to figure out what business income is and separate it from windfall gains.
- Subsection 248(1) defines business to include “profession, calling, trade, manufacture, or undertaking of any kind whatever and…an adventure or concern in the nature of trade but does not include an office or employment” (not exhaustive).
- case law has established that it is an organized activity carried on with reasonable expectation of profit.
The definiton of business is broad and encompasses more than what is traditionally refered to as a "business". Organization is a fundamental component of business...
Graham v. Green (Inspector of Taxes) [1925] T.C.
Facts:
- appellant betting on horses, large and sustained scale and made an income (means of living), was assessed to income tax and this was appeal
Issue:
- are winnings on bets “profits or gains”? or assuming the winnings themselves aren’t, are the aggregate of his winnings? Are the profits or gains a “vocation” or possibly a trade or adventure?
Held:
- mere receipt by finding an object of value or mere gift is not a profit or gain
- bet is merely an irrational agreement that one person should pay another on the happening of an event (no relevance between the event and acquisition of property), event doesn’t really produce it at all
- a bookmaker carries on a taxable vocation (calculates odds and quotes them), organizes an effort
- man who bets with the bookmaker is a mere better, he is not organizing an effort in the same way a bookmaker does
- habit of betting, there is no tax on a habit, not profits or gains, appeal allowed
Decision in favour of appellant (Good Citizen). Establishes that frequency of betting is in itself not a determining factor. Important criteria is "organization", which was lacking in this case.
Walker v. M.N.R. [1951] Exch. Ct.
Facts:
- farmer who attended horse races, earnings from owning horses and gained through betting
Issue:
- do gambling activities constitute a business?
Held:
- crucial point is was he betting for a hobby, pure amusement or systematically carrying on with a view to making money?
- Factors are he had an interest in several race horsed, had inside information from jockeys etc., for 10yrs he systematically attended all races, this constitutes a business or calling and monies are therefore taxable
Decision in favor of respondent (Evil Tax Man). Establishes factors of "organization", including financial interest, systematic approach, inside information (risk minimization).
M.N.R. v. Harry Edgar Morden [1961] Exch. Ct.
Facts:
- minister appeals from decision where income tax appeal board allowed respondent’s appeals from reassessments in relation to net gains from gambling activities
- owned a hotel, for a period the operation of hotel was not his only or main business interest, owned a racing stable and owned horses, trained and raced horses and placed bets
- his gambling activities up to 1948 were so organized and occupied that if continued through years in question it would have been income from a business
- submitted that in years in question his gambling was only occasional and nothing more than hobby
Issue:
- are these gains part of the respondent’s taxable income?
Held:
- to be taxable the gambling gain must be derived from carrying on a “business”
- casual winnings or occasional race bets are not subject to tax
- test is to look at intention, to conduct enterprise of a commercial character or to entertain himself (Lala Indra Sen)
- here no evidence that during years in question it was of commercial character
- while his bets were high sometimes and gains substantial no evidence of carrying on a business (was a hobby)
- appeal dismissed
Decision in favor of respondent (Good Citizen). Establishes that Dollar Value is not relevant. Intention, hobby or business is critical factor. Further establishes that it is possible to be in the business of gambling at one time, and in the hobby of gambling at another!
Epel v. Queen and Luprypa v. Canada I've provided a link to in the US thread.. here's a partial reproduction:
There is the case Epel V. Queen [2003] Tax Court Of Canada decided in favour of the Good Citizen. The Evil Tax Man was unable to demonstrate professional conduct, as Epel (our hero) did not study, practice, take notes, seek favorable playing conditions, access advantageous or priveleged information, and was drunk most of the time. And also the case Luprypa v. Canada [1997] where the Evil Tax Man did manage to demonstrate professional conduct. Included in the reasons for judgement in the Luprypa case:
a) He carefully managed the risks.
b) He was a skilled player.
c) He played Monday through to Friday each week.
d) He spent his afternoons playing snooker to perfect his skills.
e) He played inebriated opponents after 11:00 p.m. to minimize his risk.
f) He won most of the time earning, approximately $200.00 daily.
g) He drank alcoholic beverages only on weekends when not playing pool to give him a sober advantage over his inebriated opponents.
h) He was calculating and disciplined.
i) It was his primary source of income and he relied on this steady income.
Material was taken from these sources. (italics above are my own non-professional interpretations):
http://www.google.ca/url?sa=U&start=...doc&e=7781
and,
http://decision.tcc-cci.gc.ca/cgi-bi...amp;bouton.y=5
Clearly, there exist situations where it is absolutely clear the individual's conduct cannot possibly be classified as a hobby - therefore cannot be a non taxable windfall.
It appears, of themselves, frequency and dollar value are not determining factors; whereas, being organized and systematic with a reasonable expectation of profit are primary factors in the determination of "being in the business".