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Old 10-04-2004, 10:13 PM   #1
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Canadian Online Poker Tax Thread

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.
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Old 10-04-2004, 10:45 PM   #2
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Re: Canadian Online Poker Tax Thread

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.
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Old 10-04-2004, 11:10 PM   #3
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Re: Canadian Online Poker Tax Thread

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?
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Old 10-04-2004, 11:38 PM   #4
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Re: Canadian Online Poker Tax Thread

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?

Anyway, let's see what our authority has to say.... David Ross????
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Old 10-05-2004, 12:24 AM   #5
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Re: Canadian Online Poker Tax Thread

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.
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Old 10-05-2004, 12:59 AM   #6
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Re: Canadian Online Poker Tax Thread

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.
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...

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

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=10&q=http://clubs.law.uwo.ca/SUMMARIES/documents/incometax_223_edgar.doc&e=7781
and,
http://decision.tcc-cci.gc.ca/cgi-bin/sino/srch.pl?langue=en&database=en&method=simpl e&query=gambling&context=full&bouton.x =15&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".
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Old 10-05-2004, 01:06 AM   #7
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Old 10-05-2004, 01:16 AM   #8
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Re: Canadian Online Poker Tax Thread

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.

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.
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Old 10-05-2004, 01:30 AM   #9
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Re: Canadian Online Poker Tax Thread

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


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?
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Old 10-05-2004, 01:32 AM   #10
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Re: Canadian Online Poker Tax Thread

You're right sumdumguy, there's lots of determining factors that go into it. That's why is so darn confusing.
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Old 10-05-2004, 01:41 AM   #11
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Re: Canadian Online Poker Tax Thread

Quote:
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 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?
I'm pretty sure Revenue Canada can access your neteller transaction history if they wanted to. Whether they do that or not is up in the air. If they do question you, you will have to explain it. On your bank statements it does link back to neteller and besides Neteller is a publically traded company located in Canada.

If you're pulling in say $500 a week on a consistent basis, I think you're going to have a pretty hard time convincing Rev Canada that it is a 'windfall'.

Which leaves me wondering. Would it be better to say cash out a huge amount say $50,000 every 6 months and try to claim that as a windfall? or you're better off cashing out a few hundred every week?
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Old 10-05-2004, 01:50 AM   #12
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Re: Canadian Online Poker Tax Thread

"3) Your primary source of income is NOT poker."

Is Primary defined strictly by monetary amount? Or say I work full time at McDonald's and make 15k a year. However, I made 16k at poker during the year. Do I have to pay taxes on poker (assume here poker winning are taxable)? Or is primary perhaps defined by time?
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Old 10-05-2004, 01:52 AM   #13
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Re: Canadian Online Poker Tax Thread

Thanks for the great info SDG!

Perhaps can you edit the links so the page doesnt expand right?
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Old 10-05-2004, 05:15 AM   #14
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Re: Canadian Online Poker Tax Thread

Article from The Toronto Star.

Credit for finding this article should go to David Ross.. I'm just the copy/paste grunt.

Gambling for an online poker rush
Millions being bet in virtual games

Opponents critical of offshore sites


SAN GREWAL
LIFE WRITER

For more than a century, men have gathered around tables to play "the cheating game." Poker.

Today, the adrenaline high that hits when dealt a pair of bullets (aces) on a big glimmer (money) pot, while masterfully picking up all the tells (physical cues) around the table, is just as commonly felt in front of a computer, while playing online poker.

As you can see, poker has its own language. For some, it's a religion. And in the past year, since maverick online player Chris Moneymaker, with alligator blood running through his veins, came out of nowhere to win the $2.5 million (U.S.) World Series of Poker tournament in Las Vegas, online poker has exploded.

Figures from the five largest online poker sites, all of which operate offshore, suggest more than 50 million people around the world now play regularly. Operating online gambling sites in Canada is illegal, but offshore sites are accessible here. National anti-gambling groups, such as Viva Consulting, have called for investigations into the legality of offshore sites operating in Canada.

Projected revenue from online poker operations this year is expected to be more than $1 billion (U.S.), compared to just over $300 million a year ago.

The target-market is 19- to 34-year-old males, and Canadians are second only to their southern neighbours when it comes to filling tables at worldwide online poker games.

The game's come a long way from its roots on Mississippi River gambling boats, when confidence men could smell a fish (bad player) from the other side of the delta to the recent celebrity profile of A-list Hollywood players such as Ben Affleck and Christopher Walken.

What may come as a surprise is that you get the same rush from a pair of cowboys (kings) at a casino table as you do online.

"If you know what you're doing and you know your opponents better than they know themselves, you can do well," says 31-year-old Greg Macklin of Toronto.

He's sitting in front of a laptop that's on a boardroom table at a public relations office where he's been invited to play at one of the largest online sites in the world, http://www.pokerroom.com.

The Swedish-based site was started in 1999 by two 27-year-old med school buddies who dropped out after realizing they could make more money playing poker at casinos around Europe — until they were banned from most of them for counting cards, a common technique not allowed at most casinos. The site has 2.5 million registered players worldwide.

Macklin is one of about 150,000 pokerroom players from Canada, which produces one of the largest number of professional tournament players worldwide.

"I started playing last winter. It's so much more convenient than driving two hours to and from a casino, and it's a lot less intimidating."

During the winter, when he does almost all of his playing, he spends four or five nights a week on the site, for three to four hours during the evening or, if he's feeling really lucky, in the middle of the night.

Unlike Macklin, who still considers himself an average part-time player, Rob Baillie represents the growing number of Canadians who approach online poker much more seriously.

"In September I'm up about $1,700 (U.S.)," says the 35-year-old who lives in Toronto. "I used to play for a living at a live card room here in Toronto. I gave that up when online poker came around."

And he adds the income is very "tax advantageous."

Canadians have to declare all income generated from online gaming, but according to Revenue Canada, income from online gaming is not taxable as long as it remains a hobby.

Baillie is now registered on more than 20 sites and plays up to 250 hands an hour. "That's a big advantage of online poker, the speed and the number of hands you can play. I usually jump around from table to table chasing the fish.

"When you play online professionally, you keep a book on all the players you come across so you know who the weak ones are."

He's only playing about three hours a day right now because he's looking after his 18-month-old daughter, but says he usually plays about six to eight hours a day. "Right now my daughter's my full-time job and online poker is my part-time job."

Back in the boardroom, Macklin has signed in and is playing a hand, looking for telltale tells — how long it takes the other online players to make their bet, whether they fold early, or always see a hand through etc. — you realize this is no longer a virtual world for him. It's very real.

And that's what worries Sol Boxenbaum, co-founder of Viva Consulting, a national non-profit organization based in Montreal that operates as a gambling watchdog.

"We're not anti-gambling," says the gambling critic. "Online poker has become a very, very big problem on campuses among university students."

He says his organization is particularly concerned with the inability to regulate offshore gambling sites. "Young people are emulating what they see on TV — they're playing poker on the Internet at home and at school.

"Even if the sites claim they don't let minors register, how can you regulate that online — anyone can register."

Which is true. For example, to register on http://www.pokerroom.com, players only have to scroll through a list of terms and then click a button.

When Macklin first signed up, he began winning right away. "After a few early losses when I started, I won about $500 (U.S.)," Macklin says. "I cashed out my account and got a cheque in the mail a week later."

He says other than the convenience, he appreciates the lack of showmanship, something that tends to intimidate a lot of players who try casino poker.

"I don't think I'm good enough right now, but I could see myself approaching this as a part-time job. There's a lot of money out there."

The site makes its money off what's called the rake, a very small share, 1 or 2 per cent, of the pot. It also makes money from tournaments that are constantly being held, which cost anywhere from $5 to $50 to play in. Prizes include money and entry into some of the largest poker tournaments in the world — which is how Moneymaker got his paid entry into the World Series of Poker last year.

Recent criticism alleges that online gaming sites are plagued by a new phenomenon called "bots." These card-playing robots, which can play dozens of games simultaneously, are allegedly being used by some sites to routinely beat players of all levels.

And though such allegations could seriously hurt the red-hot online poker industry, players such as Baillie are convinced the sites are fair.

"With all the money they are making, I doubt sites would risk a misstep that could ruin them. Word would spread very quickly — the online poker community is very close knit."

Rob Davies, a 29-year-old online poker novice agrees.

"At first I was a bit apprehensive," the Torontonian says. "Giving out your credit card over the Internet has a negative connotation and you're not sure if the game is completely random. But I've had no problems. All the verification of the practices can be read right on the sites."

Like Macklin, Davies says the convenience of online poker, being able to log on any time any place, is one of the main draws. "My problem in the past is I wouldn't know when to stop, foolishly playing when I was tired. Sometimes you have to know when you're not getting the cards, but it's hard to pack them in, especially when it's so convenient."

The inability to know when to stop — the addiction — is something that Patrik Selin, an executive with pokerroom.com, says the online poker community is aware of.

"We are linked to organizations that provide support for gamblers with a problem and we actively encourage our members to play safely. There's no doubt it can be a serious problem."

He's speaking by phone from Thailand, where he's vacationing, but lives in Sweden. Asked about the growth potential of online poker, he says, "Well, we have 25,000 new players coming online each week. I don't know how big this could get."

As for the popularity in Canada, he chalks it up to our climate and "a more sophisticated history of poker, similar to the U.S.

"Canada is our second-largest market."

And with prizes such as expense-paid entries into the World Series of Poker, every player's fantasy, Selin says the online game will probably get much, much bigger in Canada.

As for Macklin, it's a dream, like his playing style, that he tries to keep in check.

"I'm not good enough right now," he says. "I'll play online all winter and see how I'm doing. It's getting to the point where I can read hands fairly well, but it's too bad you don't get many tells off people playing online."

As soon as he says that, he adds, "Come to think of it, no one can read some of my tells either, I don't even know what half of them are. Maybe that's why I like playing poker online."

In the end, poker isn't about where you play, or who you're playing with, it's all about the cards.
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Old 10-05-2004, 08:29 AM   #15
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Re: Canadian Online Poker Tax Thread

Great article, thanks.

Quote:
In September I'm up about $1,700 (U.S.)," says the 35-year-old who lives in Toronto. "I used to play for a living at a live card room here in Toronto. I gave that up when online poker came around."

And he adds the income is very "tax advantageous.

Canadians have to declare all income generated from online gaming, but according to Revenue Canada, income from online gaming is not taxable as long as it remains a hobby.



So if you win $1700 a month every month, that still constitutes it being a hobby? I hardly think so. I just wished Rev Canada would make it more black or white. Either you tax it or you don't. For the record, I think taxing gambling winnings is absolutely ridiculous.
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