Canadian Taxes for students

[ahnuld]

I earned 30k+ last year and will not be paying any taxes

10 hours of courses a week is a light but full time load. I challengye anyone to take that load, pass and maange a job at the same time. Not doable.

[SirBobSaget]

A full time student being exempt from taxes regardless of earnings doesnt make sense. It opens up too big a loophole.

For example someone earning 1 million / year can enroll themselves in a community college course for a non intense diploma program like cooking, bartending whatever, something they might have a mild interest in. Put in the minimum amount of time and effort, just enough to not flunk out and save themselves hundreds of thousands in taxes?

given that school year is maybe 25 weeks, putting in 10 hours of class and work time a week, thats 500k savings for 250 hours. Pretty good rate.

[TorontoCFE]

I got my degree working 30 hours a week and taking 10 hours of lectures a week. Hard but doable.

Being a student is totally irrelevant.

There are plenty of students working part-time - are they all tax empt because they go to school? Nope - they may not earn enough to pay much in tax but they still declare and pay.

If you don't declare the income, that is fine but you may still end up paying tax if you come to the CRA's attention for some reason and they decide to be difficult.
The standard penalty for 1st time tax evasion is the tax owed plus an equal amount in penalties.

I for one would pay $100 to be in the court the 1st time someone stands up and says they are tax exempt because they go to school.

[TorontoCFE]

How much time you spend to earn whatever you do or how you spend the rest of your time is absolutely meaningless in tax.
I went to high school with a guy who took his part-time job earnings and made over 900k in the stock market. Spent 1 hour a week charting stocks.
By the time he graduated, he was worth over $1m.
The CRA didn't pat him on the back and send him on his way.
They got their cut.

This is a red-herring. End of story.

[Mig]

Hi TorontoCFE, I read most of your posts and I am glad you are still sticking around. From what I understand, if you are in the industry of gambling you have to pay taxes on your winnings right? What I find is in a grey area is the definition of being in the industry of gambling.

[ QUOTE ]


Gambling Profits

10. Profits derived from bookmaking or from the operation of any gambling establishment (carried on legally or otherwise) constitute income from a business. In addition, an individual may be subject to tax on income derived from gambling itself, if the gambling activities constitute carrying on the business of gambling; see the decision of MNR v. Morden, (1961) CTC 484, 61 DTC 1266 (Ex. Ct.). 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.

It is clear from various decisions of the courts that earnings from illegal operations or illicit businesses, such as illegal gambling and fraudulent business schemes, are not exempt from tax. (See for example, the decisions in The Queen v. Poynton, (1972) CTC 411, 72 DTC 6329 (Ont. C.A.) and MNR v. Eldridge, (1964) CTC 545, 64 DTC 5338 (Ex. Ct.).) Hobbies

11. In order for any activity or pursuit to be regarded as a source of income, there must be a reasonable expectation of profit. Where such an expectation does not exist (as is the case with most hobbies), neither amounts received nor expenses incurred are included in the income computation for tax purposes and any excess of expenses over receipts is a personal or living expense, the deduction of which is denied by paragraph 18(1)(h). On the other hand, if the hobby or pastime results in receipts of revenue in excess of expenses, that fact is a strong indication that the hobby is a venture with an expectation of profit; if so, the net income may be taxable as income from a business. The current version of IT-504, Visual Artists and Writers, discusses the concept of "a reasonable expectation of profit" in greater detail. Where a hobby consists of collecting personal-use property or listed personal property, dispositions should be accounted for as described in the current version of IT-332, Personal-Use Property.

[/ QUOTE ]

I don't see how playing poker from your home would be considered as carrying a business of gambling from these definitions. Would you mind to explain this to me please.

I personally contacted people from the governement taxes 2 times and each time they had the same answer that it would be a windfall.

I'm planning on contacting a tax lawyer anytime soon, he should be better to enlighten me. But I still find it pretty strange that none of the people I contacted regarding this issue at the governement thought it was taxable...

Thanks.

[DavidNB]

I certainly hope you got it in writing from them. If not its not much good.

The issue with income is its got to be declare, or big fines. Even if you sell drugs, you got to declare it as income or they can charge you you for avoiding taxes.

[TorontoCFE]

Here is the Canadian tax system in 1 easy lesson:

You only pay tax on "income" from the following sources that the ITA defines:
1. Eomployment / office
2. Business
3. Income from Property (interest, dividends, rent)
4, Capital gains

That is why gambling income and hobby income is not taxable - it is not specified in the Tax Act.

However, poker (and most other hobbies like coin collecting or model building) can fall under the definition of business income, if it meets the criteria you posted. Indeed, a capital gain becomes business income if your intent was to make a quick profit going in (as opposed to hold for awhile).

When looking at when it becomes a business (and thus taxable), the factors you copied are what the CRA looks at.

If you look at all of them and they point to a business on the total balance, then the income is taxable.
The idea is if you intend to pay the bills with poker earnings, approach it in a business-like manner (work to reduce risk, maximize earnings) and it is an ongoing activity, then it could very well be a business and thus taxable.

The issues come about through the fact that all of the criteria can be subjective (even though the law considers this a simple issue of fact).
All are open to some determination and thus can can only be sure of what is the correct interpretation through judge's rulings and there have been few so no one knows where the line is drawn.
Once there are a few cases and people see where judges put emphasis on the different factors then the cloudiness goes away.

Again, 98% of poker players would not be taxable (though that is going down).
It is the people who use poker earnings to pay daily living expenses and rely on it, approach it as a business with recordkeeping, multitabling, regular practice, etc.
that should be paying taxes and may one day get a rude awakening from the government.

[Mig]

Thanks for the answer. I was wondering since it is in such a grey area, would the penality be that huge if someone was caught by an audit and they determined he had to pay taxes on his winnings?

[TorontoCFE]

There would likely be no criminal charges.

Standard fine for first time would be the amount of the tax (plus the tax itself) and interest if it went to court.

If it was resolved before getting that far (at the reassessment stage) then there really would be no penalties other than interest. This would depend on how the CRA reads your knowledge and motives.

[Mig]

Would you happend to know if there were any case of online poker winning that has been presented to court yet? If so would you happen to have the id of the case so we could take a look at it?

Thank you.

Mig