Canadian Online Poker Tax Thread

[Neonclaws]

Hi Tornado,

I'm also in the Vancouver area and would be interested if you found someone. In regards to negligence, I've gotten the opinion of my mom's accountant who says that at least while I'm in school full time (law school) that poker can be construed as my hobby rather than my occupation.

My questions about that are a) whether people agree and b) what can happen to me if the government doesn't? Thanks.

[Tornado69]

bump

[all_in_lam]

how does the 'student' factor play a role in all this?

and also assuming i have a 9-5 job for half the year, which makes equal or greater than my poker winnings, does this make poker not my 'primary' source of income?

im still a lil bit confused as to whether i shoudl file taxes

[mariachiinc]

I think one reason to declare would be if you are a full time player and wanting to get a mortgage or loan. If you're good enough, just buy your house with cash is a better way though... [img]/images/graemlins/wink.gif[/img]

[Warpe]

Article:

http://www.timcestnick.com/articles/admi...t_bet_on_it.pdf

Yes, the FTR Warpe [img]/images/graemlins/wink.gif[/img]

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TorontoCFE:

Your proposal for a corporation had left me wondering about several things, and quite worried as what you suggest seems to raise a lot of issues.

While I am strongly supportive of all of our rights to play online, I feel that your proposal can be incredibly dangerous for anyone who tries it out. I am strongly hoping you can prove me wrong on all of the following points:

1) Criminal Offence
A corporation like you describe, has a purpose of profit. Any location that you carry out business will immediately become a "common gaming house" for the purposes of the criminal code(s.197), as it is a 'place kept for gain to which persons resort for the purpose of playing games'. Place and kept are defined very broadly: it doesn't matter if they are used for a limited time or if it is shared with others (such as your residence is). Being a corporation provides proof of 'for gain', and 'game' includes a game of mixed skill and chance (ie: poker).
Not only is this a criminal offence(the corporation won't protect you), but you lose your expectation of privacy, warrants can be executed day or night, any property on premises can be seized and forefeited to the government, and on a search, any evidence showing ANY offence can be used against you.

2) Corporate Income
The income would be designated as investment income and not business income, either through the specified investment business rule, or based on the analysis of the activities proportionality between amount risked/received, use of money to get money, etc.). As investment income, it would be subject to Part IV tax, and it would lose the small business deduction that companies making under $400K normally make. The tax rate of the Corporation will NOT be 16.1%-21.1% depending on your province. It will be between 45.8% and 52.0%.

3) Dividends
In addition to the incredibly high tax rate listed above, you will also be taxed on the dividends you earn as your income.

4) Personal Liability
A corporation won't protect you from risky activity. All online wagers are made in cash (ie: paid upfront, not on credit). So what if you can't be sued, they already have your money. Any criminal and regulatory offences look right past the corporation. Having the company and all the paperwork just draws more attention to yourself.

5) Transfers to Children/Spouse will not save taxes
When you transfer shares to your spouse or minor children, YOU are taxable on the income from that property, not them: 74.1(1), 74.1(2) ITA. In addition, the kiddie tax (120.4 ITA) taxes earnings from dividends earned by the children at the highest federal tax rate from the first dollar.

6) You can't play on any sites anymore
All of the poker sites have a term in the T&C stating it is for personal use only. Using an account either as an employee or a business is considered commercial use.


I don't mean to be negative, and I appreciate you contributing to this debate just as I am. While it is natural for us to believe the best news about poker laws, it is very dangerous to do so, especially because MANY lawyers and accountants do not understand the issues.

[TorontoCFE]

Here is my off the cuff reply without piles of thought:
1. Criminal Offence: There is no activity that is legal if you do it and illegal for a corporation to do. This is not part of the corporation debate. Being a corpoartion is meaningless - it doesn't imply being "for profit" any more than you doing something without a corporate structure. How many people convicted of running gaming houses were set up asa corporate structure? I bet zero.
If the law attempts to come after you for running a gaming house, it will no matter how you are set up and you would face no different consequences whether you are a corporation or not.
As a side note, the reason countries try to limit access to sites and not shut them down is because it is hard to determine whose rules apply to internet transactions. There are cases where it was determined that the location of the server is where the transaction takes place (I’m thinking of GST rules here which may not apply generally). In this cases, where you happen to be is no issue and doesn’t create a gaming house for you.

2. Corporate Income: I’m not sure why people think poker income is specified business income. All income that comes from an adventure in trade is active business income unless it comes from a specified investment business or a personal services business.
A specified investment business is one that generates dividends, rent, income from property or royalties. Poker is none of this – it is an adventure in trade, with you putting up and risking your assets without certainty you will get them back so poker is not a specified investment business.
A personal services business may apply. This designation was created to stop employees from incorporating so that they get more deductions than they would as an employee.
In our case, we are entitles to the exact same deductions whether we incorporate or declare it as business income. We are also not in the situation where we are providing what would otherwise be employment services through the corporation – we are pursuing an adventure in trade in a corporate structure. There is no potential employee –type relationship to a customer so I feel strongly this doesn’t apply.
If neither specified investment business and personal service business apply, then the corporate income is active business income, subject to the small business deduction.

I beleive strongly that, rather than the corporate setup drawing negative attention, it may actually be useful for proving that you take it seriously as a business and are trying to do the right thing. You will be treated far better than the people who do not declare their poker income would be if audited I assure you and minor issues will more likely be overlooked because of it.

3. Dividends – the corporation pays the favourable tax rate on the income and you would get the dividend tax credit to reduce the double taxation. While you do pay tax, the other benefits can outweigh the small costs.

4.Personal liability – the benefit is not in protecting you from liability in gaming.
Any criminal or otherwise behaviour will likely come back on you as the sole owner/employee. The benefit can come from what you do with the earnings. You can use income to buy a car or property in the corporation’s name and then any liability from use of that property will be protected. The use of the corporation to hold assets is a more indirect but useful and possibly significant advantage, depending on the dollars involved and what you do with it.

5. Income in kids/spouse hands – It is true that the law was changed since I wrote this and the benefits of this greatly reduced, but there are still some. As I’ve mentioned above, it can be what you use your earnings for. You could use the corporation for estate planning, pre-dividing (I think I just made that word up) assets among kids , through the corporation or providing limited liability for things like cars, etc.
The attribution you mention is true and can hurt you but attribution only applies to the first generation of the income. The dividends that get attributed back to you can be used to invest and produce other, 2nd generation income. That would not attribute back to you, so if you plan on investing earnings then it can make sense to have future income taxed in kids’ hands.

6. I doubt any sites will ban you for playing and then paying tax through your own business. This Term is intended to stop groups of people from playing in association. You are still playing as an individual and have no affiliation with others so the only reason sites would invoke this is if they had other reason to ban you. All accounts would still be in your own name, and, from a cynical point of view, they have no way of knowing your tax organization since all they see if your name in all dealings with them.


This is just a quick outline of how I would approach these issues. I’m not trying to represent legal or tax advice applicable to any given situation.

[QBert80]

To other Vancouver players: I spoke with a local accountant who was recommended through a locally-based poker internet forum. She indicated that income from gambling, including poker, is not taxable unless it is your only or primary source of income, as determined by the number of hours you spend working for your taxable income. I told her I work 27 hours a week in addition to playing and she said it was close enough to full-time that I could claim my poker winnings were windfall rather than taxable income.

This advice is contradictory to what has been offered in this thread, however I am inclined to take it since it is beneficial to me and it is the only "official" advice I have received.

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Torontocfe:
Very good points. My work is all on the law side of this, not on the accounting.
I agree with point 6, and the point 5 as you clarified it.


I agree completely that personal services business would not apply, that's why I didn't suggest it in the first place.

Why I think it is a specified business income is because the income is related to property directly.
Sportsbetting is the most clear example. It is as you described: You put up your assets and risk getting nothing back. However, with labour remaining constant, an increase in property creates an increase in income, which is one of the tests CRA uses. So for example, it takes the same amount of work to make a $10 bet as it does for a $1000, but a $1000 bet will make 100 times as much back if it wins. The same can be applied to poker, although there are slightly more complications(Skill of players and limit).

Answer 1, I am sure you are wrong on though. Your argument about a corporation can do legally what a person can do is irrelevant. The important thing for a 201 charge is that there are now TWO persons involved. The elements of a 201 offence for requires proof of 3 elements beyond a reasonable doubt.
1) That the accused "keeps" the place, which includes ANY ofwning,occupying,assisting an owner,appearing to be an owner,having care of, having management of,using with or without consent, temporarily or permanently, a place.
2) That the place is used by persons for playing games.
3) That there is a purpose of profit.

Having a corporation provides proof of the 3rd element, and having multiple persons involved(corporation plus individual) satisfied the requirement of persons.

If you have a home game with your friends, that's fine. It's not a for profit game(no rake, etc.). If you play at home, it's also (arguably okay). But if you have a place that OTHERS use for playing games for your profit, THEN it becomes criminal.
That is what a corporation does.


That all being said, there has been no actual cases on playing online games, and very little case law on the topic at all.. less than 5, and it all dealt with companies hosting online casinos. The law is very uncertain in this entire area.

However, that also makes a big difference. If you've ever worked as or for a prosecutor, the first case in a field is always crucial. They badly want a conviction to set precedent, so they look for two things: Where the accused conduct was wrong, and where a lot of evidence is available. While voluntarily paying taxes in a corporate structure does make you look better, you are also creating piles of evidence which could work against you.

As TorontoCFE said, this isn't legal or any other kind of advice that anyone should rely on. I am just saying that I would tread very carefully in this area. The last thing anyone wants is to draw significant attention to themselves, especially when the government has been taking a "sit back and wait" approach.

[TorontoCFE]

My opinion on the legal aspect is simply that it is not an issue I think will ever come up.

I don't think anyone would ever be charged with keeping a gaming house through online play. I don't think it is easy enough to prove (as I mentioned, I am of the opinion that the gaming activity takes place where the server is , not where the player is)
The effort/reward of taking these types of cases in is not there in my opinion so I think this not is not a concern.

I would be comfortable arguing that poker is business income and not proerty income. I see the fact that the asset (cash) is comverted to something else before a return is realized as key.

Of course, with the dearth of cases, we'll have to see.