Knowingly not reporting income is not subject to a time limit. The question would be did a poker player know -- or should he have reasonably known -- that he was suppose to report his poker winnings as income? If the answer to that is yes then they can go back as far as they want. If the answer is no then they can only go back six year (not three).

In Epel the audit was in 1999 and pertained to income for the years 1992 to 1998. It appears that in that case CRA stayed within the six year rule. CRA did apply penalties for under reporting his income for years 1992-1995. They did not apply penalties other than the usual late failing penalties to years 1996-1998 because Mr. Epel choose to not file income taxes at all so did not under report his income for those years.

Henry17, I think you're overstating the case for taxability based on my reading of the case law and the legislation.

In principle, there should be symmetry in Canadian income tax law between taxing winnings and allowing the deductibility of losses.

As far as I can tell, there has not been a single case where gamblers have been able to deduct losses, and no reported cases for 50+ years where card players have been found to be in the business of gambling (as a player, that is, rather than as the house).

I nevertheless agree with you that a professional is subject to income tax on winnings. The nub of the issue is when a player goes from casual to professional.

There is symmetry because the situation is no different than disallowing business losses for businesses that are set up in such a way that it is extremely unlikely to make a profit. The vast majority of gamblers have no reasonable expectation of profit so can't claim losses but likewise someone engaged in any business that had no reasonable expectation of profit would also be barred from claiming the loss.

The situation would only be interesting when you have an individual who for multiple years has been required to pay income tax and then has a losing year. That situation has not presented itself as far as I know but when it does he should be allowed to claim the loss. If he continues to lose though in the future at some point the losses would no longer be acceptable as deductions since he could no longer be judged to have a reasonable expectation of profit.

RC4409 deals with keeping records and has not bearing on my claim, however I am mistaken. It is four years and not three as claimed originally. According to
IC 71-14R3t Thank you for pointing out my error.

You are right. You are allowed to carry over business losses in Canada. If your poler playing is a business, that is if your poker income is taxable, then your losses are deductible and can be carried over.

I think you somehow missed the very important decision of the Supreme Court of Canada in Stewart v. Canada, [2002] 2 S.C.R. 645, 2002 SCC 46, 2002 SCC 46 (2002), which held that the REOP test has no place in the application of the Income Tax Act once a taxpayer has shown that they have been conducting an activity in a sufficiently commercial and business-like manner.

Stewart is past my area of expertise but from what I do know about it there is no reason to assume it would apply to poker. Stewart is limited to activities that are purely commercial in nature. Since poker has can easily be constructed as having a personal element -- many people play for the enjoyment of the game -- reasonable expectation of profit matters.

It's not past my expertise, and it's relevant in that contributes to the reluctance a court would have in characterizing someone as being a professional player.

This is a post of mine from another thread (lightly edited) that I think may be helpful here.

Henry17 and I agree on two central aspects:
1. in principle, a professional poker player is subject to Canadian income tax
2. in practice, it has been (and will continue to be) difficult for the CRA to prove (and to even want to prove) that someone is a professional

The first point is crystal clear as a legal matter. The second point is rich and interesting. It is a mistake to allow the admitted legal clarity on the first point to lead one into thinking that the second is simple.

In the two cases in which the CRA has prevailed with respect to gambling, the gamblers were observably professional-grade players (one involves a golf pro, the other a billiards player).

In poker, it's extremely difficult in the short-medium run to determine whether someone is a pro or lucky. Because of the Stewart decision, in my view the appropriate thought-experiment is whether _ex ante_ from time to time the CRA would agree that a player is +EV and playing in a sufficiently serious way for both gains and losses to be considered to be from a business.

Thought of another way, the question is whether the government is going to be willing to be a "silent partner" of an individual player, such that they share in all gains at the taxpayer's marginal effective tax rate and allow a deduction of all losses, also at the player's marginal effective tax rate. If I were making the calls in the CRA, I would be very hesitant to essentially silently stake a poker player; in the absence of a clear (very clear) track-record of +EV playing, I would steer clear. I would probably look for 2+ years of a high level of activity and considerable financial success. This is apt to be close to the sweet spot for a tax administration endowed with the legislation and case law we have. The goal is to optimize the making of Type I and Type II errors (they cannot be avoided entirely, obviously) in the diagnosis of +EV players. Things are made more complicated by the reality that the same player may be +++EV in many situations, but ---EV in many other situations, depending on the opponents, their fatigue level, what's happening personally, etc.

The law on the books, as stated by judges and applied in the relevant case law, accords with this. This story explains the CRA's seeming conservativeness and passivity in pursuing the imposition of income tax this area in a more satisfactory manner than the explanation that they and the judges are idiots. It also explains why the courts have been more comfortable in finding that expert golfers (Dowling) and billiard players (Luprypa) are taxable--they can more clearly be seen and verified to be experts. It also explains how the courts are so moved by experts testifying on behalf of taxpayers that the taxpayers were just lucky (they find reference to profits unsatisfactory as a way to prove propensity to profit, and the Minister understandably finds it extremely difficult to prove +EV without referring to profits).

I gave a longer response in the other topic but basically the Cole's Notes edition.

I agree when it comes to B&M / disagree with respect to online because of the existence of hand histories.

CRA's big advantage is that people will likely just pay rather than litigate once they get to the stage of being accosted by CRA.

but how would they get those hand histories?

From you.

When CRA does a net worth assessment all they have to establish is that your lifestyle does not match your reported income. CRA doesn't care if you play poker or sell blow (which is also taxable income) all they have to establish is that your net worth and lifestyle can't be explained by what you are reporting as income.

If you want to fight CRA's assessment the onus is on you to establish an explanation for where your stuff came from. If you are going to claim online poker they are going to want some evidence.

couldnt you just say you won a big online tournament years ago and you've been cashing out ever since?

I think they would probably require that you prove that somehow.

You'd need to establish that it happened on the balance of probabilities which is a lower standard but not so low that -- I won a major tournament but there is no record of it and I've been strangely cashing out in smaller amounts for no logical reason -- would work.

lol alright.
but there's got to be someway so that you can prove where the money came from without letting them know that you play poker 60 hours a month?

Yes but then we have left the realm of not declaring income on a source where the rules are confusing enough that it could be an honest mistake and moved into money laundering and tax fraud which is probably a very bad idea for most people.

Since poker is taxable, some believe that you should be able to write-off your losses.
How does that work? Would you write off every losing session throughout the year er what?

You would only owe income on your profit. I'm not sure but reading your post it seems like you mistakenly believe that you owe income tax on your winning sessions with no regard to losing sessions which would be a very strange approach. The income is based on what you profited in a calender year minus any reasonable expenses inured for the purpose of earning that income.

Players who are net losers for the year don't get to claim the loss.

Income is based on when you play and has nothing to do with cashing out. If you never cash out but increase your bankroll by $100k you have still made $100k.

This is over-stated.

Net losers may claim the loss if they are professional gamblers. This is going to be difficult to prove, however, if one has losses. It's possible that if someone is once a professional (and declares net gambling gains as income under subsection 9(1) of the Act) that going forward they are presumed to be professional players with income and loss from the business of poker and can therefore deduct losses under subsection 9(2) of the Act.

There is some support for this from some early case law (in obiter dicta in the 1950s), but the courts have not yet had to address this point head-on recently.

Yes. I meant people who have never been winning players. If someone has been deemed a professional before when they were a winning player they should be able to deduct loses. As far as I know this situation has never presented itself but that is what makes the most sense.

It is very unlikely that they would be able to deduct losses in perpetuity though. After a certain number of consecutive losing years they would be deemed to no longer be in the business of gambling and revert back to hobby status.

This case : http://decision.tcc-cci.gc.ca/en/200...008tcc601.html really lowers my opinion of the fairness of the CRA and makes me wonder what lengths they would go to on poker players if they could figure out how to go after players if the CRA is willing to go to these lengths in this case.

Essentially, a disabled guy who owed 86k to the CRA had his mother cash his disability benefits for him. The CRA then swooped in and said the tax debt was on his mother now because she had received a transfer from the debtor of assets (a valid tax provision but grossly misapplied). The CRA argued that there was no consideration given back (crazy) and that consideration was a contract law issue and not related to tax anyways.

Luckily the tax court rebuked the CRA and said the government had no business taking it to trial and that their position made "no sense".

Makes me think the CRA will doggedly pursue those they are after no matter the strength of their case and also question their ability to administer the tax laws with reasonable fairness.

i think it's up to the individual auditor who's assigned to a bunch of files to decide how far to pursue this. some of those auditors just don't know how to spot cheaters so they would go after someone like that disabled guy coz they're desparate to meet their quotas. this case's auditor would not last long in that job.

i had an accounting teacher who got audited three years in a row over medical expenses. and the cra made back a total of 50 bucks out of this only because she lost a receipt. who the **** thought they could make money back from a chartered accountant's personal tax claims?!?

the people they hire are not very bright and probably don't understand the meaning of opportunity cost.

It also goes beyond the auditor to the collections department and the CRA lawyers defending the assessment in court. Someone should be recognizing that this goes beyond using the letter of the law and fairness.

have a somewhat sticky situation, and would like some advice:

ive been playing full time for approx 3 years. i have not paid tax on these winnings.
i have a girlfriend of 8months who im serious with. she is a U.S. citizen who i sort of "sponsored" so she can stay on a vistor visa in canada for 6 months. we want to apply for common-law so she can extend her stay.
the problem with this is, they want the last 12 months of my employment income. pay stubs and the like.

obviously i dont want to do this...
whats my play?