Canadian Online Poker Tax Thread

[4thstreetpete]

Hi guys, there seems to be a lot of confusion when it comes to paying taxes on online poker in Canada. Please keep all discussion regarding taxes in Canada in this thread for Canadian players (as well as people from abroad who may be contemplating moving to Canada or just interested in this subject).

First, I like to say that I am in no way qualified to give legal advice. From reading the various forums and researching with CCRA I have a few things to add.

I see a lot of posters here vehemently declaring that there are no taxes on gambling in Canada and that you don't have to pay taxes on gambling winnings. Trust me, I would like nothing better than to believe that this is true. However this only partially correct.

After reading the official website for the CCRA, (looking under "other types of income, ie gambling) they do bring up the subject of "reasonable expectation of profit". This is a very gray area, and is very vague. You can be taxed on carrying the business of gambling, as well as placing bets and wagering. A poster in the another thread stated that it does not necessarily have to do with how much you won but by the frequency of your activity. This is absolutely correct.

What does this all mean? Basically, if you're a for lack of a better term 'recreational player' then it's a fair assumption that you won't get taxed. However if you play very frequently and show a consistent profit for an extended amount of time, then you will fall into the dreaded category of "reasonable expectation of profit" and be deemed a professional gambler.

As far as I know no one has ever been busted for this, I could be wrong. However that doesn't mean that this won't happen in the future. Please remember that professional gamblers get taxed for their winnings and you're hardly unique in what you are doing.
If you make any considerable amount of money in poker and it seems like a lot of us in this forum do, it's best to consult with a qualified tax attorney to give you all the answers before you think about not paying your taxes on poker winnings.

If anyone have anything to add please feel free.

I know this is a sensitive subject but I would like to know of any canadian players who have paid taxes on their winnings in the past or have seeked legal advice on this subject, it would be of great help. Thanks.

[Malone Brown]

I don't understand how the government could distinguish between professional and recreational players. Couldn't a person who plays for a living state that he got lucky in a tournament and won $x and is living off that, thus being a rec player that got lucky once? Your playing habits cannot be tracked can they? I'm curious about this too because I am a Canadian playing for a living while overseas.
Malone

[Equal]

Good thread. I am several of my friends are in this very precarious position - being pro players (i.e. having no other source of income) in Canada.

I recently talked to a tax lady as I filed my 2003 return. While she had not heard of someone playing poker online, she had handled professional gamblers before.

She referred me to:

Rev Canada link - Miscellaneous Receipts

Sections 3, 10 and 11 appear to have relevance to us.

The phrase "reasonable expectation of profit" seems to be the key phrase.

I have a couple questions:

1 - Since I have been making withdrawals from neteller straight into my Canadian Bank account I am leaving a paper trail of income. Does this mean I should declare this?

2 - I have made a couple withdrawals by using the Neteller Debit card - is this trackable by Revenue Canada?

3 - How would I convince Revenue Canada that poker winnings are a "windfall" and do not suggest a "reasonable expectation of profit"?

4 - Do I need to go to a tax attorney?

5 - Davidross, can you comment on this subject?

[Adam Stewart]

Interesting, thanks for posting this as I've been wondering myself.

I'm by no means an authority on the subject, but I always thought that lottery (and casino) winnings were NOT taxable in Canada.

I recently heard in the news that Dalton McGuinty (<-- liar, broken promises, liar, ...) said that he was going to try to tax (live) casino winnings. This leads me to believe that, currently, casino winnings are NOT taxed. And I further do not see how a disctinction would apply between "live" and "online" casinos.

After all, poker is merely a "game of chance," right? [img]/images/graemlins/tongue.gif[/img]

Anyway, let's see what our authority has to say.... David Ross????

[GrinningBuddha]

I'll eat my hat if anybody at Revenue Canada can prove beyond a doubt that any player has a reasonable expectation of profit from online gaming. Unless you're bringing in over $100K per year, I can't see them bothering with tracking you down.

Once I get to that point, I can hire someone to tell me how to protect my winnings. [img]/images/graemlins/smile.gif[/img]

[sumdumguy]

[ QUOTE ]
A poster in the another thread stated that it does not necessarily have to do with how much you won but by the frequency of your activity. This is absolutely correct.

[/ QUOTE ]

That wasn't exactly what I said. Frequency is also, in and of itself, not the determining factor - despite what the taxman would like you to believe. Rather, I believe frequency is the tip off to cause them to investigate your winnings... [img]/images/graemlins/smile.gif[/img]

---------------------------

What is a business?
- Need to figure out what business income is and separate it from windfall gains.
- Subsection 248(1) defines business to include “profession, calling, trade, manufacture, or undertaking of any kind whatever and…an adventure or concern in the nature of trade but does not include an office or employment” (not exhaustive).

- case law has established that it is an organized activity carried on with reasonable expectation of profit.

The definiton of business is broad and encompasses more than what is traditionally refered to as a "business". Organization is a fundamental component of business...

Graham v. Green (Inspector of Taxes) [1925] T.C.
Facts:
- appellant betting on horses, large and sustained scale and made an income (means of living), was assessed to income tax and this was appeal

Issue:
- are winnings on bets “profits or gains”? or assuming the winnings themselves aren’t, are the aggregate of his winnings? Are the profits or gains a “vocation” or possibly a trade or adventure?

Held:
- mere receipt by finding an object of value or mere gift is not a profit or gain
- bet is merely an irrational agreement that one person should pay another on the happening of an event (no relevance between the event and acquisition of property), event doesn’t really produce it at all
- a bookmaker carries on a taxable vocation (calculates odds and quotes them), organizes an effort
- man who bets with the bookmaker is a mere better, he is not organizing an effort in the same way a bookmaker does
- habit of betting, there is no tax on a habit, not profits or gains, appeal allowed

Decision in favour of appellant (Good Citizen). Establishes that frequency of betting is in itself not a determining factor. Important criteria is "organization", which was lacking in this case.

Walker v. M.N.R. [1951] Exch. Ct.
Facts:
- farmer who attended horse races, earnings from owning horses and gained through betting

Issue:
- do gambling activities constitute a business?

Held:
- crucial point is was he betting for a hobby, pure amusement or systematically carrying on with a view to making money?
- Factors are he had an interest in several race horsed, had inside information from jockeys etc., for 10yrs he systematically attended all races, this constitutes a business or calling and monies are therefore taxable

Decision in favor of respondent (Evil Tax Man). Establishes factors of "organization", including financial interest, systematic approach, inside information (risk minimization).

M.N.R. v. Harry Edgar Morden [1961] Exch. Ct.
Facts:
- minister appeals from decision where income tax appeal board allowed respondent’s appeals from reassessments in relation to net gains from gambling activities
- owned a hotel, for a period the operation of hotel was not his only or main business interest, owned a racing stable and owned horses, trained and raced horses and placed bets
- his gambling activities up to 1948 were so organized and occupied that if continued through years in question it would have been income from a business
- submitted that in years in question his gambling was only occasional and nothing more than hobby

Issue:
- are these gains part of the respondent’s taxable income?

Held:
- to be taxable the gambling gain must be derived from carrying on a “business”
- casual winnings or occasional race bets are not subject to tax
- test is to look at intention, to conduct enterprise of a commercial character or to entertain himself (Lala Indra Sen)
- here no evidence that during years in question it was of commercial character
- while his bets were high sometimes and gains substantial no evidence of carrying on a business (was a hobby)
- appeal dismissed

Decision in favor of respondent (Good Citizen). Establishes that Dollar Value is not relevant. Intention, hobby or business is critical factor. Further establishes that it is possible to be in the business of gambling at one time, and in the hobby of gambling at another!

Epel v. Queen and Luprypa v. Canada I've provided a link to in the US thread.. here's a partial reproduction:

There is the case Epel V. Queen [2003] Tax Court Of Canada decided in favour of the Good Citizen. The Evil Tax Man was unable to demonstrate professional conduct, as Epel (our hero) did not study, practice, take notes, seek favorable playing conditions, access advantageous or priveleged information, and was drunk most of the time. And also the case Luprypa v. Canada [1997] where the Evil Tax Man did manage to demonstrate professional conduct. Included in the reasons for judgement in the Luprypa case:

a) He carefully managed the risks.
b) He was a skilled player.
c) He played Monday through to Friday each week.
d) He spent his afternoons playing snooker to perfect his skills.
e) He played inebriated opponents after 11:00 p.m. to minimize his risk.
f) He won most of the time earning, approximately $200.00 daily.
g) He drank alcoholic beverages only on weekends when not playing pool to give him a sober advantage over his inebriated opponents.
h) He was calculating and disciplined.
i) It was his primary source of income and he relied on this steady income.

Material was taken from these sources. (italics above are my own non-professional interpretations):
http://www.google.ca/url?sa=U&start=...doc&e=7781
and,
http://decision.tcc-cci.gc.ca/cgi-bi...amp;bouton.y=5

Clearly, there exist situations where it is absolutely clear the individual's conduct cannot possibly be classified as a hobby - therefore cannot be a non taxable windfall.

It appears, of themselves, frequency and dollar value are not determining factors; whereas, being organized and systematic with a reasonable expectation of profit are primary factors in the determination of "being in the business".

[pokerpromo]

[4thstreetpete]

[ QUOTE ]
Interesting, thanks for posting this as I've been wondering myself.

I'm by no means an authority on the subject, but I always thought that lottery (and casino) winnings were NOT taxable in Canada.

I recently heard in the news that Dalton McGuinty (<-- liar, broken promises, liar, ...) said that he was going to try to tax (live) casino winnings. This leads me to believe that, currently, casino winnings are NOT taxed. And I further do not see how a disctinction would apply between "live" and "online" casinos.


[/ QUOTE ]

Casino and lottery winnings are not currently being taxed here in Canada. The finance minister shot down the idea of taxing casino winnings basically because reports show that the amount of money collected from casino profits would barely put a dent on the defecit, it was too insignificant and wasn't worth their time to put all this in place. For Canada it just doesn't make sense, but for the U.S. that's a totally different story, there's too much money there to be made.

There is a BIG difference between live and online play. With live play it's almost impossible to prove how much you won or lose, with online it leaves a paper trail. If your bank notices something fishy, they may report it to the CCRA.

The term 'reasonable expectation of profit' leaves so much room for interpretation. You ask ten diffent people and would most likely get ten diffent answers. Remember, it's just guideline that is in place in the tax code and is not binded by the statutes of the law.

As always, it's best to get some legal advice.

[4thstreetpete]

[ QUOTE ]
Revenue Canada doesn't have to prove anything. YOU have to prove you are not a professional gambler.

1) That you have a job other than poker.
2) You have a source of income other than poker.
3) Your primary source of income is NOT poker.
4) Your primary activity in your job is not poker



[/ QUOTE ]

The term primary source of income pops up quite a bit. Now there's lots of people here that work a full time job, yet they make considerably more from playing poker (ie, those of us that play high limit games), how does that work then?

Would your full time profession be deemed your primary source of income and how what will they view your six figure poker winnings as?

[4thstreetpete]

You're right sumdumguy, there's lots of determining factors that go into it. That's why is so darn confusing.