Taxes
It's tax season in Canada and I've been wondering. Do professional gamblers have to pay taxes on their earnings?
Money won is not taxed in Canada correct? So do gamblers not have to pay taxes? But since you are designated as "professional", one would think that you would have to pay taxes and are condsidered self-employed. Also, if you do pay taxes, then are your buy-ins, re-buys, add-ons, books, etc, etc all tax deductible as a business expense?
Money won is not taxed in Canada correct? So do gamblers not have to pay taxes? But since you are designated as "professional", one would think that you would have to pay taxes and are condsidered self-employed. Also, if you do pay taxes, then are your buy-ins, re-buys, add-ons, books, etc, etc all tax deductible as a business expense?
Comments
Yes.
Although gambling winnings are not taxed in Canada, if it is your primary source of income then Revenue Canada no longer views it as gambling... it becomes taxable.
Yes. Anything that was a reasonbaly justifiable business expense would be deductible.
Now, having said all that... how many professional gamblers actually declare their income? I doubt it is very many. In the U.S. there are two things that significantly help Uncle sam: (1) Tournaments record income earned -- if you win money the casino issues a W2G form and "tells" the goverment how much you won; and (2) if you cash more the $5K in chips at a single time at the cage they also have to fill out a form for that.
The more interesting question, to me at least, is the tax consequences in Canada of being a profitable, non-professional player. Someone who, for instance, consistantly makes money playing poker but still makes most of their money from traditional sources. My feeling is that there is no tax consequences to such a situation. It would be fairly common for a person to win a major poker tournament and be able to show a profit for the year. That would be, tax-wise, the same as winning a lottery I think.
Codicil: Don't rely on my advice in this area -- talk to an accountant.
It is clearly stated in the Income Tax Guide that lottery winnings are not taxable as income. However, I found only one reference to "lottery" or "bet" (and I tried seaching for other words) in the Income Tax Act, and this reference was vacuous since it refers to a *repealled* section of the Criminal Code (Sec. 205).
Clearly one needs to consult with a tax professional about concerns with gambling winning/losses, or the prospect of becoming a professional poker player.
My *intuition* on the current tax law is that (and please don't take the following as having any kind of legal substance)
1. Winnings at poker are not taxable in terms of personal income tax.
2. Expenses incurrered related to poker are not deductible claims from personal income tax.
Some gray areas are:
1. Can you designate yourself as self-employed with "playing poker" as your business?
2. Can you incoroprate a business of "playing poker"?
3. Can/should you designate poker profits/losses at taxable capital gains/losses? Loosely speaking, is wagering on poker a form of investment?
ScottyZ
Interestingly enough if you are a losing business then there is no way that they will go for the deduction.
For instance, I start a business (a magazine for instance) and despite my best efforts I lose money. That business loss can be written off against my personal employment income. You could not, however, "declare" yourself to be a professional poker player then post a losing year and claim that loss against your personal employment income.
So, the only way that you can be a professional player and write off losses is to ACTUALLY be just that. Win over the course of the tax year. If you fill out a tax form and pay a bunch of taxes to Revenue Canada they will probably be pretty happy about getting anything out of you.
The professional Canadian players that I know simply designate themselves as self-employed and keep a thorough log and receipts and then declare their income and pay tax accordingly.
I have had some consultations with U.S. tax accountants who assure me that the IRS operates this way -- they know that they can't get much out of someone who's income is shrouded in secrecy. If they get anything they are pretty happy.
This also relates to why the U.S. withholds 30% when you win a poker tournament in the U.S. Canada does not tax that money and there is no tax treaty between the two countries. The U.S. says "Somebody will tax this money and if it is not Canada then we will."
I don't think I'll be becoming a Professional Poker Player, I'm making a decent living doing what I do, but I hate playing taxes.
I always wondered if they had a special exemption to the taxes rules because it is gambling winnings, and joked around about quitting my job to pursue a professional gambler career, ala Brunson
I think the whole 'primary source of income' stipulation is a little fuzzy, and if anyone can clarify it further, I'd appreciate it. My tax strategy has been, and is, to stop playing poker at high levels as soon as my winnings come anywhere near the amount I earn from my 'real' job in the course of a year. Is this a safe way to go? Any accountants out there?
Regards,
all_aces
if poker winnings are treated the same way as lottery winnings, then they should not be taxable, regardless of whether you make more money from poker or from your job.
Considering the lottery, obviously if you win the super7, then you earn more from "professional lottery play" than from any other source of income, yet lottery winnings are never taxable in Canada.
I'm hoping that this is in fact the case, as I'm a grad student, and it doesn't take much winning to make poker my "primary" income source.
Any thoughts?
This is from a thread I posted a while back, called 'shorthanded poker and cashouts'...
Hope that helps, I know it's not a definitive answer. FWIW I emailed the "legal" columnist at CPP a month or two ago, asking him to answer some general gambling tax questions in an upcoming issue... hope he does. There are so many questions on forums, etc... about gambling taxes in Canada, and I have yet to see a conclusive answer. I suspect that this is because the rules are vague, and apply differently to each individual person, but I'm not sure.
Regards,
all_aces
That being said, the government is reluctant to deem people as having a reasonable expectation of profit, because once they do you pretty much have carte blanche to deduct your entry fees, travel expenses, books, etc.. They do not want to deem you a professional just because you won one tournament, because then you could write off your gambling expenses for years afterwords. There are a lot of people trying to write off expenses for leisure activities, or hobbies, and the government doesn't want to allow that, so they err on the side of caution.
No doubt you high rollers should seek the advice of a tax professional on this.
Hands down, the best advice regarding taxataion of poker winnings I have ever seen, or would ever expect to see, on a poker forum.
ScottyZ
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.
It is clear from various decisions of the courts that earnings from illegal operations or illicit businesses, such as illegal gambling and fraudulent business schemes, are not exempt from tax. (See for example, the decisions in The Queen v. Poynton, (1972) CTC 411, 72 DTC 6329 (Ont. C.A.) and MNR v. Eldridge, (1964) CTC 545, 64 DTC 5338 (Ex. Ct.).) Hobbies
was pretty close, but not quite there. Thanks for posting the actual regulations.
How would the government look at me in terms of the criteria that Iron posted? How would it look at you? As Iron said, it's best to check with a professional.
Regards,
all_aces
Anyone who makes a profit from a source in which it reasonable to expect a profit must (but as David said in early posts often don't) report it as income earned for tax purposes. That being said earnings from poker are handled differently than regular employment earnings. Poker earnings would be treated as business earning and will be able to claim business expenses against that income.
Specifically to your situation Ace you need to put yourself in the eyes of an auditor. Would you consider poker playing as a reasonable means to earn income? If so you should probably be reporting income and EXPENSES at income tax time.
If you do decide that you want to claim your poker income for tax purposes make sure you seek a respectable tax accountant (preferrably some one with experience in poker income) as they will be more able to help figure out what your allowable expenses are. There will be many that you may or may not that are or are not allowable so seeking professional help is not even an option it is the only reasonable way to go about claiming your income in my opion.
I probably can help out a little more. Let me know if you have any other questions.
Jamie.
Thanks for the help Jamie, much appreciated, I have PM'ed you so I can harrass you further.
Regards,
all_aces
If there is any interest in reading this report, post so, and if the site moderators can allow it to go up, it would be useful.
HG
I don't have a pipe dream - I just want to use the playbook all_aces put together off of his own bad beats - to double my income. Instead, I am a reduced to a piece of rag. There is no justice.
ie. maybe you as a fulltime poker player is just "retired". Yet you pull no income from you assests in the bank. You pay no taxes then. You just killing time as a retired person playing poker. And manage to not take money from your assests. Yes there is a big grey area but you are safe.
STILL FILE YOUR TAXES. You just claim NIL as income. Also noted that you may want to NOT calim GST credit, this way you are not asking the goverment for money, they won't care. But you are intitled to it none the less. AcComp Business services, is there name if you want help.