Canadian Tax Question, unusual

[bigbb33]

Hi guys,

This is a question about Canadian taxes in regards to poker - not the usual 'do i qualify' post, but a different one.

Say that I start with a 10k online bankroll. At the start of the first month of the fiscal year (whatever it may be), I lose $500. Month 2 the same, another $500 loss, same for all the months except for the final month. At the final month I've lost $500 * 11 previous months for a total loss of $5500 so far, leaving my BR down to $4500 (I don't deposit). However on that final month I make a monthly profit of $10.5k, bringing my bankroll up to $15k at the end of the fiscal year.

Filing my taxes my poker playing is considered taxable and so on, but what amount do I pay taxes on? Do I pay taxes on my NET WINNINGS OVER THE ENTIRE FISCAL YEAR, which would be 5k (I went from 10k in the first month to a final BR total of $15k at the end of the year), or do I have to pay taxes by the month, so I don't pay taxes on my losses in the first 11 months (or do I?), but I have to pay taxes on my $10.5k final month profit?

Basically the question is: Are my taxable poker winnings determined as the sum profit over the entire year, or over each month, each week, or each session? If it's over anything but the entire year, then swings will kill me. Ie I lose $5000, then gain $5000 the next month. But the $5000 in my positive swing is taxed down to $2500, so I in fact lose over the sum of those two sessions, instead of breaking even?

People who have actually paid taxes on their poker winnings in Canada, hopefully with the help of clarification of a tax attorney, are preferred as responders, so I know that your response is actually valid and not just 'my opinion' or 'I think this is how it is, but I'm not sure'.

Additional notes: I'm 20, live in Ontario, Canada. Assume I am considered taxable for poker winnings.

[SlightlyMad]

I did not pay taxes on my winnings last year (since employment income from a full-time job >> poker income from hobby play), but my financial planner/tax accountant explained what I would have to do if I did.

If you want to treat your poker playing not as a hobby but as an occupation with an expectation of profit, you are taxed on the profit over the course of the year. Think of yourself as a self-employed consultant as far as the tax law goes. To show the net profit you've earned, you must be able to prove expenses. For example, if you paid $100000 in tournament fees, and won $500000, you should only be paying tax on the net profit ($400000), but Revenue Canada may ask you to pay $500000 if you can't prove the tournament expenses (through receipts et cetera). Reasonable travel expenses (if travel is required to attend tournaments) are deductable as well, but don't think you can deduct the cost of food while sitting in your parents' basement, or the rent on your apartment/condo (unless you have a part of the house set up strictly for business with a door et cetera ... assume you will be audited the first year you attempt to deduct that, and don't attempt that without professional advice)

A PokerTracker database, or a series of itemized transactions through Neteller would be of help for the Internet pro. Remember that Revenue Canada will have access to every deposit to your bank, and ask you where the money has come from (if they're interested in auditing you).

Hope that helps and congratulations on your big score from poker this year.

[bigbb33]

Thanks for the above reply!

I have a few questions, though: I understand how things work with tournaments, as you explained above, but does it work the same with cash games? Supposing that my original analogy (the 10k to 15k bankroll one) was purely about cash games, does the 'overall profit over the entire year' still hold? Meaning if I went from 10k to 15k over the year, like in the original analogy, would the government only consider the net gain of 5k taxable, even if I made say 10.5k in a month while losing in the rest?

Also what records are required (for cash games)? A simple poker tracker database in which I load all my hands, and then pay taxes on the net positive change? Or do I need hand histories printed from every table I sat at?

Thanks

[SlightlyMad]

Ring games or tournament play shouldn't matter for that purpose; it should be paying tax on the amount that you had at the start of the year versus the amount that you had at the end of year.

The major issue is that for ring games (or Internet tournaments), you will have virtually no expenses ... you can just keep track of what's in your bankroll. Big money live tournament play is where you can get a lot more in terms of expenses.

If you assert to Revenue Canada that all of your buy-ins and cashouts go through Neteller, an itemized list from Neteller over the course of the last twelve months should be sufficient as proof of your taxable income. If you have a PokerTracker database that shows a similar profit rate, you may want to put it aside at the end of the year in case someone asks.

Another important thing to remember is that IF you are paying more than $2000 in tax ... they may ask you to submit tax in instalments the next year, and assign penalties to you if you pay >= $2000 at the deadline year after year. Tax sucks enough ... but extra tax due to not paying instalments regularly over the year sucks more.

If you have any other questions, feel free to PM me.

Hope that helps!