Canadian Online Poker Tax Thread

[jimmyfingers]

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I'm not answering from any level of tax expertise, just common sense.

If you report your winnings at the tables as your income, yes rake is deductable, and you've ALREADY deducted it. If you sit at a table with $50, and leave with $60, I would call that $10 profit. If I paid $2 rake during that session, I actually made $12 before the rake. I've effectively deducted the rake already. Since I've deducted the rake, it only makes sense to me that rakeback would be taxable.

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right, that all makes sense if you're in a situation where your winnings are taxable. in that situation i agree that winnings + rakeback should be taxed.

however, what if your poker winnings aren't taxable? should your rakeback payments be taxable then? and as a follow up, since we didn't deduct rake as an expense against our winnings, can we now deduct it against rakeback?

[Bobo Fett]

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I'm not answering from any level of tax expertise, just common sense.

If you report your winnings at the tables as your income, yes rake is deductable, and you've ALREADY deducted it. If you sit at a table with $50, and leave with $60, I would call that $10 profit. If I paid $2 rake during that session, I actually made $12 before the rake. I've effectively deducted the rake already. Since I've deducted the rake, it only makes sense to me that rakeback would be taxable.

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right, that all makes sense if you're in a situation where your winnings are taxable. in that situation i agree that winnings + rakeback should be taxed.

however, what if your poker winnings aren't taxable? should your rakeback payments be taxable then? and as a follow up, since we didn't deduct rake as an expense against our winnings, can we now deduct it against rakeback?

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I wouldn't think rakeback would be taxable if your poker winnings weren't, but I couldn't say for certain.

You calculate your winnings without deducting rake? In other words, you add your rake paid back in to your winnings?

[jimmyfingers]

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I'm not answering from any level of tax expertise, just common sense.

If you report your winnings at the tables as your income, yes rake is deductable, and you've ALREADY deducted it. If you sit at a table with $50, and leave with $60, I would call that $10 profit. If I paid $2 rake during that session, I actually made $12 before the rake. I've effectively deducted the rake already. Since I've deducted the rake, it only makes sense to me that rakeback would be taxable.

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right, that all makes sense if you're in a situation where your winnings are taxable. in that situation i agree that winnings + rakeback should be taxed.

however, what if your poker winnings aren't taxable? should your rakeback payments be taxable then? and as a follow up, since we didn't deduct rake as an expense against our winnings, can we now deduct it against rakeback?

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I wouldn't think rakeback would be taxable if your poker winnings weren't, but I couldn't say for certain.

You calculate your winnings without deducting rake? In other words, you add your rake paid back in to your winnings?

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what i do practically isn't necessarily relevant when it comes to taxes.

the reason i'm asking about deductions and things is i'm wondering if there's a difference between the following two scenarios from a tax standpoint (again assuming the player's winnings aren't taxable):

1) player has a deal to pay no rake on a site.

2) player pays rake, but gets 100% of his rake back at the end of the month.

to me, the scenarios should be the same, meaning if the 100% rakeback payment is taxable then we should be able to deduct our rake as an expense so that it's equivalent to scenario 1). does that make sense?

[Bobo Fett]

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what i do practically isn't necessarily relevant when it comes to taxes.

the reason i'm asking about deductions and things is i'm wondering if there's a difference between the following two scenarios from a tax standpoint (again assuming the player's winnings aren't taxable):

1) player has a deal to pay no rake on a site.

2) player pays rake, but gets 100% of his rake back at the end of the month.

to me, the scenarios should be the same, meaning if the 100% rakeback payment is taxable then we should be able to deduct our rake as an expense so that it's equivalent to scenario 1). does that make sense?

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OK, I see where you're going with this now.

I think what you're missing is that the rake is already deducted from your winnings. Let's run a scenario through your two examples. Let's say you play for an hour, joining a table with $50 and you make $12, and that the rake for this time period worked out to be $2.

1) You pay no rake, so you leave the table with $62, and should be paying tax on your $12 profit.

2) You pay the $2 rake, so you leave the table with $60, giving you $10 to pay taxes on. You also get 100% rakeback of $2, so you are paying tax on $12 (10+2).

There is no need to deduct the rake, it came off your income in the first place. You pay the same tax in each scenario.

[jimmyfingers]

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OK, I see where you're going with this now.

I think what you're missing is that the rake is already deducted from your winnings. Let's run a scenario through your two examples. Let's say you play for an hour, joining a table with $50 and you make $12, and that the rake for this time period worked out to be $2.

1) You pay no rake, so you leave the table with $62, and should be paying tax on your $12 profit.

2) You pay the $2 rake, so you leave the table with $60, giving you $10 to pay taxes on. You also get 100% rakeback of $2, so you are paying tax on $12 (10+2).

There is no need to deduct the rake, it came off your income in the first place. You pay the same tax in each scenario.

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notice i mentioned the player does not pay tax on his winnings. meaning in the first case, he pays nothing.

in the second case, he definitely does not pay tax on the $10... what i'm wondering about is the $2.

[Bobo Fett]

Well, I'll defer to an actual tax expert on that part, but it's hard for me to imagine a scenario where rakeback would be taxable while poker winnings would not be. Not only that, but you're getting rake back...IE you're simply getting back something that you already paid.

[DonkEEE]

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Hi TorontoCFE,

My poker profits from last year were in the 7 figure range, about half online, and half from live tourneys. I just got an opinion from a 2nd tax lawyer here in Ottawa, and they have both said after reviewing all of my facts, and making many comparisons to past cases, that I should not be taxed. Also, since I have their written opinions, I can never be charged with negligence.


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I'm curious if anybody, particularly TorontoCFE, has a response to this as I've had three differing opinions myself. Two of those from tax lawyers.

[TorontoCFE]

Were you taxable, then the amount that would be income would be the difference between what you started with and what you ended with. If you start with $100 and end the year with $500, you have income of $400.

Non-cash items like free travel shuld be included in income at a fair market price, however you could also deduct them if they were related to the income producing activity so the net effect is 0 and you might as well not worry about it.
If you were such a high roller you were given a free car say, then it would be techically taxable if you "earned" it as a pro.

Rakeback is the same. It is taxable in the sense that if it helps you leave with more money, the extra money from rakebak would be taxable as additional income.

[TorontoCFE]

It depends on each unique set of circumstances.

I think most tournament winnings would be exempt unless you were a full-time circuit player.
Cash game earnings are entirely dependent on facts - I have always said 98% of players would not be taxable.

[TorontoCFE]

Rake back is always figured as part of your net results.

What you look at is how much you start the year with and how much you end the year with (adjusted for any deposits and withdrawals). How it got there doesn't matter.

Few people are taxable but those that are would have a taxable income based on their net results, bottom line.
Rake is automatically deducted as an expense. Rakeback if you get it then gets added to your final result.

It makes no difference whether you win $12 or win $10 and get $2 rakeback. For a taxable person, you pay based on $12 income.