Taxation of Poker Winnings in Canada
Anyone who's interested, this is a lengthy, well-written (imo), recent article by a U of T tax professor:
Exploring the Source Concept of Income: The Taxation of Poker Winnings in Canada by Benjamin Alarie :: SSRN
To summarize, to be taxed in Canada on poker winnings, you have to:
1. Play full-time for several years and be profitable making money at similar (and/or increasing) annual levels.
2. Not have any other paying occupation.
3. Be a student of the game and constantly strive to improve through systematically training, taking courses, studying, etc.
4. Hold yourself out to the poker community as a professional. Poker endorsements and writing poker books would be contributing factors.
5. Play not only online but also live.
6. Online, be selective in table selection, finding weak players with large bankrolls and avoid strong players.
There have been no legal cases since the 1950's that have established poker/card players as carrying on a business (and thus be taxable). Because the other side is that losses would be deductible - a slippery slope for the CRA for sure.
I'm guessing Mr. Alarie is a poker player.
Exploring the Source Concept of Income: The Taxation of Poker Winnings in Canada by Benjamin Alarie :: SSRN
To summarize, to be taxed in Canada on poker winnings, you have to:
1. Play full-time for several years and be profitable making money at similar (and/or increasing) annual levels.
2. Not have any other paying occupation.
3. Be a student of the game and constantly strive to improve through systematically training, taking courses, studying, etc.
4. Hold yourself out to the poker community as a professional. Poker endorsements and writing poker books would be contributing factors.
5. Play not only online but also live.
6. Online, be selective in table selection, finding weak players with large bankrolls and avoid strong players.
There have been no legal cases since the 1950's that have established poker/card players as carrying on a business (and thus be taxable). Because the other side is that losses would be deductible - a slippery slope for the CRA for sure.
I'm guessing Mr. Alarie is a poker player.
Comments
If it was considered a business, you would be entitled to all the normal expenses that go along with running a business from home - internet, cell phone, home office, supplies, travel, meals and entertainment, accounting fees, etc. So the answer is generally yes.
The main theme of the article, however, was that it is very difficult for the CRA to make your winnings taxable. It would be a simple mathematical exercise to prove whether you're better off financially not paying taxes versus reporting the income as a business and claiming the expenses and paying taxes on the net. I would think you're better off not paying taxes. But there's a bigger question regarding showing an income to qualify for a mortgage, make RRSP contributions, etc. to consider.
Im gonna read the whole article soon just wondering if this is what you were getting at asxn?
IT334R2 - Miscellaneous receipts
Paragraphs 10 and 11 cover gambling profits. One of the other concepts / tests is the "reasonable expectation of profit" mentioned in the IT bulletin and that Meistro brought up. Many of the cases cited in the first article discuss the fact that while every poker player expects to win (as does every gambler in general), it is not 'reasonable' due to the amount of chance in the game. Many of the cases the CRA won were against people profiting from gambling where they have an edge that the other players don't. In the case that Meistro mentioned, the CRA won against a snooker player who practiced all week and only bet against drunks after 11pm. They taxed his gambling winnings because they believed he had an edge and had an 'expectation of profit'.
My main point of raising this is that the issue is not a slam-dunk that you are taxable in Canada. I think one of the biggest factors that might go against you is #4 - holding yourself out as a professional in the poker community and being sponsored, especially by a company like Pokerstars. Personally, I would hold off as long as possible before calling myself a pro for tax purposes - the CRA really has a hard job proving that you are carrying on a business, and that is the only way they can tax you. I would also suggest weighing how much a sponsorship like from Pokerstars is worth if you lose your 'amateur' status and have to pay taxes on everything.
Man told casino losses not tax deductible | Toronto & GTA | News | Toronto Sun
My favourite line: "I could have won this case if I had a lawyer".
Do not attempt to fight the government in court without a lawyer.
Two thumbs up for using the "degree in mathematics, including probability theory" to claim you have special skill as a gambler. That'll help you beat an Ontario lottery/slot/casino game
On top of the 1K court fees, whatever University that is from should probably revoke his degree.
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.
This is a strict quote from the CRA's IT Bulletin. The CRA argued every single point in the 'Leblanc' case about the two guys from Quebec who played sports lotteries in Ontario and Quebec (see page 28 of Mr. Alarie's paper). The CRA lost. The main reason the CRA lost is that the Court found that, regardless of the amount of activity and volume (they were betting up to $13 million per year), it still amounted to luck. They did not have an edge (ie. they were cheating) that amounted to a 'reasonable' expectation of profit.
On page 29 of Mr. Alarie's paper, the judge's decision is quoted, basically saying that the CRA can't suck and blow at the same time - if it's a business and taxable, then losses are deductible. Mr. Alarie's paper in general points to where the CRA has won - the taxpayers either had an edge or were cheating - and where the CRA has lost - in absense of an edge or cheating, there is no 'reasonable' expectation of profit, and therefore it cannot be a source of income from a business. Oh, and the house is always taxable.
Income in Canada is taxed from a 'source'. There are 4 sources that are taxed - income from an office, from employment, from property, and from business. There is a 5th source in Canada and that is from capital gains. If profits from playing poker fits any of these sources, it is only as income from a business. However there has been no reported case in Canada ever that has matched profits from playing poker to any one of these four/five sources. And that is the main point of Mr. Alarie's paper. imo.
Im not going to name individuals but theres a very well known online player that lives in Toronto that works a single 4 hour shift a week at Tim Hortons.
Not Pro. Easy Game.
So? Ask him how much is in an XL next time you hit the drive through, okay?
Stewart v. Canada, [2002] 2 S.C.R. 645, 2002 SCC 46
This case was an appeal of a ruling against a taxpayer where the lower courts used the 'reasonable expectation of profit' test to deny losses. The SCC was asked to rule on the following issues:
"1. Is the “reasonable expectation of profit” test set out by the Court in Moldowan the test for determining whether the taxpayer has a business or property source of income under the Act? If not, what is the test?
2. Did the courts below err in disallowing the appellant’s interest expense deductions pursuant to the provisions of s. 20(1)(c) of the Act on the basis that there was no source of income?"
The SCC here threw out the "reasonable expectation of profit" test, and introduced the following test:
"(i) Is the activity of the taxpayer undertaken in pursuit of profit, or is it a personal endeavour?
(ii) If it is not a personal endeavour, is the source of the income a business or property?"
In any event, the CRA hasn't updated their Interpretation Bulletin IT-334R2 to remove the REOP test. Just more ammunition to fight the good fight.
This case is at the Federal Court of Appeal (FCA) level and is quoted here:
CanLII - 2012 FCA 30 (CanLII)
Some of the pertinent facts are:
(a) By day he was employed as a Bell technician, but after work and at the weekends he spent most of his time gambling. He said that gambling is his calling
(b) he had books and records of his gambling activities. But he had prepared them for the purpose of supporting his submission that he was engaged in a business. Consequently, they were of little value in proving that he was conducting a business.
(c) he testified that, while he liked to win, he gambled, win or lose, because he loved the thrill of gambling.
(d) he had little by way of a systematic method for gambling and spent no time practising his skills, especially after he switched his principal gambling from horse racing to slots and the casino
In his reasons for decision, the (Tax Court of Canada) Judge relied on Stewart v. Canada, 2002 SCC 46 (CanLII), 2002 SCC 46, [2002] 2 S.C.R. 645, for the proposition that, when an activity has elements of a hobby or personal venture and a business it is necessary to ask whether the activity was conducted in a sufficiently commercial manner, that is, with the subjective intention of making a profit and objective evidence of business-like behaviour.
Every poker player has the "subjective intention of making a profit", but not necessarily the "objective evidence of business-like behaviour". Note that there is no reference to a "reasonable expectation of profit".
So if you are going to declare yourself as a business, certainly cover off what this guy did wrong.