poker winnings and the tax man
i am new to this whole poker thing and have recently cashed out $600 from party poker . is this money taxable income ? i imagine some of you big winners will know the situation with this . thanks for your help , this is a great site for a newbie like me .
Comments
There isn't really a simple black and white answer to your question.
ScottyZ
If you are talking about $60,000 and up, then that's something to be a bit more cautious on. See an accountant.
In between, it's a little dicey.
Of course, I'm assuming you have some regular income and $600 would just be a fly on an elephant's ass in proportion to your income.
For lotteries specifically, this is correct. For other types of gambling winnings, the tax law is unclear.
This is because lottery* winnings are mentioned specifically in the Income Tax Act as nil in terms of taxable capital gains (Income Tax Act, Sec. 40 (2) (f)).
Also, lottery winnings are mentioned specifically in the Federal Tax Guide as something to not include in taxable income.
I could find nothing regarding gains or losses from forms gambling other than lotteries in either the Income Tax Act, or any Tax Guide.
Even though lottery winnings are not taxable in Canada, we can not draw any conclusions about the tax implications related to other forms of gambling solely on the basis of how lotteries specifically are treated.
(This is not legitimate tax/legal advice, etc, etc)
ScottyZ
*Lottery as defined in Criminal Code, Section 205.
i wonder if there is a fine line between sanctioned gambling (ie casinos who pay taxes etc...) and these $10,000 first prize trnys ran by individuals?
As far as taxes go, this has all been covered in other threads. But the bottom line, IMO, is that the law as it is written is waaaaaaaaay too vague. When you read it, you don't know if you're going to be taxed or not--it mostly comes down to whether or not the government will deem you to be a 'professional'. The criteria for this is vague, as well, so the best idea is to consult a tax lawyer come taxtime. I am simultaneously looking forward to and dreading this eventuality.
I suppose that my (and all_aces') point: that current Canadian tax law simply doesn't cover this sort of thing clearly for non-lottery gambling.
I agree with this apart from taxation. However, with respect to taxation only there seems to be no line at all. Legally aquired gambling income may or may not be taxable. Illegally aquired gambling income may or may not be taxable.
ScottyZ
If someone holds another job, or is a full time student, but makes a significant amount of income from poker, do you think the "I'm not a professional line" i.e plead ignorance will have any merit?
if and when you do consult a tax lawyer or whatever, please share your findings with this group.
No harm in asking of course, but I doubt that you would get permission from said tax lawyer to post his/her intellectual property (i.e., his/her tax advice) on a public internet forum.
ScottyZ
You could always paraphrase...
Because interpretations haven't been tested in court, they are up in the air and depend on the agent you are dealing with.
Saying you must report the income but they don't expect you to pay taxes on it is one of those fallacies like saying you only have to pay taxes on the income earned in Canada.
It's not true - the issue is clear - if it is a "windfall" suchas a lottery win, then it is nontaxable, otherwise it is taxed (like all income not specifically deductible) at your normal marginal rate.
Another misconception is that gambling wins are automatically taxfree.
That is not true. Gambling wins become taxable if they are not a windfall - which is:
Factors indicating that a particular receipt is a windfall include the following:
(a) the taxpayer had no enforceable claim to the payment,
(b) the taxpayer made no organized effort to receive the payment,
(c) the taxpayer neither sought after nor solicited the payment,
(d) the taxpayer had no customary or specific expectation to receive the payment,
(e) the taxpayer had no reason to expect the payment would recur,
(f) the payment was from a source that is not a customary source of income for the taxpayer,
(g) the payment was not in consideration for or in recognition of property, services or anything else provided or to be provided by the taxpayer, and
(h) the payment was not earned by the taxpayer as a result of any activity or pursuit of gain carried on by the taxpayer and was not earned in any other manner.
The factors above are based on those set out in the decision of The Queen v. Cranswick, (1982) CTC 69, 82 DTC 6073 (F.C.A.) and the current version of IT-213
That said, poker earnings would often not meet the windfall conditions b,d,e,f or h.
The onus would be on you to prove that these conditions did apply, but it would be difficult I think if you are a consistent winner and there is proof - like regular bank deposits.
Of course, each situation is unique, but here are the criteria they look at:
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.
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 (IT-33R2)
To answer your questions, gambling earnings that are consistent would likely be taxable. In an audit, you would need to somehow prove that the income was just luck and not a income that you count on as regular and use a system to earn.
Since this is a new concern, it really is up in the air as to how an individual case will look, as it also comes down to the facts of the case.
My instinct is to report it and, since it would be business income, to be aggressive with looking for offsetting deductions (internet costs, travel expenses, Card Player subscription, etc.)
I've seen that approach work in the past with a client. You avoid tax evasion risks since you are declaring the income and can minimize the taxes payable. perhaps to nothing. It may trigger other issues like quarterly tax installments if the poker winnings are high enough. If its 2,000 / year, then you can take a chance but anything over 10,000 / year and you're playing with fire.
Let me know if you have any other questions or advice specific to a situation. I can cite cases if useful.
Just to let you know, this is my overall opion on this subject and any specific advice would depend on the person's specific situation.
Thought I'd add this link to a 2+2 thread on the subject. TorontoCFE... thanks for the information both here and in that thread.