Canadian Online Poker Tax Thread

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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.