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Old 12-16-2007, 01:19 AM   #201
Neonclaws
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Re: Canadian Online Poker Tax Thread

I'm glad this thread got going again, its definately the most important thing on the forums for me.

I hope I haven't allready asked this way back when but what's the worst thing that could happen, should you not pay and the CRA doesn't say anything for a few years but then wants money? I heard 17% interest a few posts back, is that basically the risk one would be looking at? I know plenty of people think taxability is a slam dunk but could penalties be avoided if it was held there was at least a good arguable case for not paying and that it was somewhat of a gray area? In other words, that you had reasonable cause to believe you didn't have to pay?
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Old 12-16-2007, 08:21 AM   #202
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Re: Canadian Online Poker Tax Thread

With respect to the limitations on what can be done with corporate funds in a sole owner, sole director, sole employee corporation I don't feel comfortable answering. Law school was nine years ago and this class was mostly taught in a pub. There are limits. I clearly remember Welling stating that you can't use company funds on hookers and blow. It is actually something I'd like to know as well so I'm going to re-read my notes from his class after Christmas.

One thing that is important though is to avoid credit. A corporation can have it's own credit separate from your personal credit. It might be tempting to use this since if you are claiming minimal personal income you might not qualify for much or any credit of your own. Once you start having corporate credit the fiduciary relationship to the corporation becomes much stricter so it is best to avoid it.
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Old 12-17-2007, 01:42 AM   #203
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Re: Canadian Online Poker Tax Thread

KingGordy: I will be paying for the first time this year as well. Previous years I always worked another job and I could more easily say my poker income was a windfall. This year I consulted 2 accountants and both advised me simliar things: It is very clear that I should be paying tax and that they would not be able to defend me in court if I chose not to pay and was audited.

My family accountant also advised me to pay but noted that up till now they haven't gone after poker players and there is a reasonable chance they will NEVER come after you. I think it's only a matter of time though and with a very clear paper trail of where money is coming from I think it will not be too long before poker players start getting nailed.

Also you could be hit with much more then just a 17% intrest not to mention whatever fees they tax on. You could be hit with Tax Evasion and possibly face fail time.

I also plan to encorporate early this year just like KingGordy.

ps also curious about company funds.
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Old 12-17-2007, 02:50 AM   #204
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Re: Canadian Online Poker Tax Thread

Well, I figure I'll throw my two cents in on this. I'm not an accountant or a lawyer or anything. You should check with someone who is.

If you have a corporation, you're going to face some sort of double tax. If the corp. pays you as an employee, you'll be taxed significantly. If the corp pays you dividends as a shareholder, you can claim a dividend tax credit. This will probably be the most savings you can get. If the corp pays for your car or tv, then it's a taxable employment benefit, and would generally be taxed the same as any other employment income. Either way, an accountant is best in this situation

But with all things considered, I think the advice given to incorporate is given by someone without a view of the bigger picture. Incorporation brings certainty to the situation where a lot of tax lawyers are unclear. Since there isn't a lot of work in this area tax lawyers don't often have a grasp of the law, such as the specific differences between windfall and gambling gains. By incorporating, it becomes an obvious situation: the income is taxable as business income.
The problem is that a tax pro may not realise that incorporation will lead to a much bigger problem. The corporation is a seperate legal entity. In addition to extra paperwork, taxes, etc., you are no longer making bets for yourself, you are making bets on behalf of the corporation. Even if authorised by the bylaws, it is an illegal act, contrary to 203(a) of the criminal code. Any real property owned or leased by that corporation could also be considered a common gaming house, in violation of 201 of the code.

If I were you, I would go back to the lawyer ASAP and get confirmation on these points, as it is possible that by following his advice, you are committing a CRIMINAL act.
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Old 12-17-2007, 03:03 AM   #205
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Re: Canadian Online Poker Tax Thread

For me, the million-dollar question is just what sanctions I will face if I get audited and the CRA determines that I SHOULD have paid taxes on my winnings.

I went to my accountant last year and laid my cards on the table, so to speak, and said to him: "Listen, if I get audited, and the CRA tells me that I SHOULD have paid taxes, I have absolutely no problem paying the back taxes + whatever interest is customary. But under no circumstances do I want to face any CRIMINAL sanctions over this."

He understood my situation, although conceded to me that he had no particular expertise in this area, but gave me his opinion that I would nearly certainly only face back taxes+interest; after all, the CRA doesn't want me in jail any more than I want to go to jail. That was good enough for me, but I am starting to re-consider for fiscal 2007.

The bottom line is this: Just what criteria does the CRA use in determining whether a decision NOT to pay taxes (which it determines were rightfully owed) was *reasonable* (in which case you'd only face back taxes+interest), or whether it was *unreasonable/negligent/criminal* (in which case you'd face criminal charges). That, for me, is a FAR more relevant question than whether I actually do owe taxes on the money. And, I think, something for which there must be a very well-established CRA standard / test (unlike the issue of taxes on internet poker, for which the law is obviously still very undeveloped.)

If someone would like to PM me with the name of an Ontario-based tax lawyer they have consulted in the past (and who you would recommend), I am all ears. Please PM me.
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Old 12-17-2007, 03:36 AM   #206
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Re: Canadian Online Poker Tax Thread

AFAIK, there's two main differences between criminal tax evasion and tax non-payment. First, for criminal tax evasion, the act must be done wilfully. That means you avoided paying tax that you knew you had to. Given the circumstances, it would be nearly impossible for the CRA to prove that you knew you owed taxes. Most lawyers/accountants can't figure it out.
Second, the criminal offence requires them to prove the issue beyond a reasonable doubt, which is many times more difficult to prove than tax non-payment.

Your options to protect yourself through certain schemes or which lawyer would be best for you depends on what city you're in and how much you're making per year. It's really impossible to recommend one without knowing that.
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Old 12-17-2007, 05:59 AM   #207
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Re: Canadian Online Poker Tax Thread

Okay I'll add some things.

atom_new,

From what I understand double taxation does NOT occur in this instance, although I'm basing this solely off what my Mom (accountant) has told me. If double taxation did apply then incorporation would clearly be a horrible idea, and I doubt my tax lawyer (who I have faith is competent) would reccomend it. I also believe that's what Toronto CFE was reccomending earlier in this thread, and he seemed like a pretty smart guy. You're correct when you say the dividends tax credit is the main benefit to this, that's what I was reffering too when I mentioned that 24K tax free annually. Also approximately half your taxes until you take the money out of the company I'm guessing this would have positive implications on investment gains?

With regards to taking the grey area out of windfall vs. business income I completely agree with you, but I don't see how this matters anymore now that I've decided to pay taxes anyway.

As far as the criminal aspect of what I'm doing (corporation betting) I had never thought about that. Does the law state that corporations are not allowed to engage in betting or gambling under any circumstances? My counterargument to that would be that since I've filed as a professional, my bets are no longer gambles and my poker playing is a skilled trade as opposed to a gamble. I would have to read the specific law you're referring to though to confirm the validity of this counter though.

To all: In my opinion online gambling profits in Canada are clearly taxable for people like us, meaning players who are obviously profitable long term and can expect to yeild consistent revenue from online poker play. You can break down the letter of the law word by word and invent justifications as to why you're not taxable, but I think anyone who looks at the law objectively will see that it was obviously meant to apply to people just like us.

Now the likelihood of being apprehended by the CRA for evading gambling taxes, or the ability of the CRA to win a court case over this matter is definately questionable. So while I think consistently winning gamblers are clearly supposed to be paying taxes, whether or not it's in your best interest is a personal decision based on many factors, such as ethical concerns, legal risk tolerance etc. Also your chances of getting caught vary greatly depending on the details of your situation. Eg. Young person with limited employment history making 6 figures and living extravageant lifestyle clearly has a higher likelihood of getting looked up then a middle aged person who has maintained a legitimate career throughout their adult life, socking away 30K on the side while living fairly modestly.

Anyways, I'm still not 100% sure incorporation was my best move, I just went with the advice of people who seemed to know what they were doing, in retrospect I maybe should have looked into the details a bit more. A lot of educated people seem to think this was my best move though.

FWIW I'm considering going to school in a country where online gambling is clearly not taxable to avoid this situation.
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Old 12-17-2007, 06:04 AM   #208
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Re: Canadian Online Poker Tax Thread

The problem with consulting a lawyer is that they are bound by the code of professional conduct so can't talk about some of the beneficial options further they are also concern over liability so will error on the side of conservative advice with respect to the topics they can discuss with you.
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Old 12-17-2007, 06:08 AM   #209
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Re: Canadian Online Poker Tax Thread

Quote:
FWIW I'm considering going to school in a country where online gambling is clearly not taxable to avoid this situation.
Make sure you read what CRA considers residency. They are discussed in this topic at some point. Going to school outside of Canada would do nothing for you unless you also do a few other things to cut ties to Canada.
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Old 12-17-2007, 06:18 AM   #210
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Re: Canadian Online Poker Tax Thread

Quote:
Originally Posted by Henry17 View Post
Make sure you read what CRA considers residency. They are discussed in this topic at some point. Going to school outside of Canada would do nothing for you unless you also do a few other things to cut ties to Canada.

ty, I will definately look into it. I know you have to sell any property you own in order to rid yourself of recidency, but I'm clean there since I don't own anything. I'll have to see if there's anything else that needs to be done.
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Old 12-17-2007, 06:40 AM   #211
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Re: Canadian Online Poker Tax Thread

Spend less then 182 days in Canada. Close out any CDN bank accounts. Stop renewing things like drivers licence, health card etc. Massive hangover and law school was a long time ago so those are the only things that I can think of now.
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Old 12-17-2007, 09:49 AM   #212
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Re: Canadian Online Poker Tax Thread

Quote:
Originally Posted by Henry17 View Post
Make sure you read what CRA considers residency. They are discussed in this topic at some point. Going to school outside of Canada would do nothing for you unless you also do a few other things to cut ties to Canada.
I personally think this is unnecessary b/c once you're a full-time student, you have a plausible argument to make to the CRA that you are not treating online poker as your profession. There has been some mis-information in this thread saying that if it's your SOLE source of income, then it's a no-brainer. As tempting as that argument sounds, it's incorrect, based on my reading of the CRA provisions. The issue is whether you TREAT it as a profession. And if you're a full-time student, it's a straight-forward argument that you're not treating it as a profession, and it's clearly no more than a hobby, even if you're clearing a substantial amount.
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Old 12-17-2007, 10:39 AM   #213
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Re: Canadian Online Poker Tax Thread

Except in his case the only reason he is choosing to study outside of Canada is because he has Incorporated and started treating poker as a business.

Quote:
And if you're a full-time student, it's a straight-forward argument that you're not treating it as a profession, and it's clearly no more than a hobby, even if you're clearing a substantial amount.
Actually no. The question is if you have a reasonable expectation of profit. That he is a student or has a job beyond poker is irrelevant to the criteria of the test. The only reason a second source of income matters is because of evidentiary issues.
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Old 12-17-2007, 11:01 AM   #214
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Re: Canadian Online Poker Tax Thread

Quote:
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Except in his case the only reason he is choosing to study outside of Canada is because he has Incorporated and started treating poker as a business.

Actually no. The question is if you have a reasonable expectation of profit. That he is a student or has a job beyond poker is irrelevant to the criteria of the test. The only reason a second source of income matters is because of evidentiary issues.
I'm not sure I agree. My understanding, Henry -- and feel free to correct me if I'm wrong -- is that the *ultimate* question is whether the activity is being treated as a business, and the "reasonable expectation of profit" ("REOP") is only one of several factors that informs a determination of that issue.

It is perfectly acceptable, is it not, to have a REOP without the income being taxable? If I'm a full-time school-teacher (getting a $40,000 / yr salary), but also an excellent high-stakes poker player who enjoys a few hours of high-stakes poker every night (for which I clear $200,000 / yr), it's not subject to CRA income taxes, correct? It seems like you're giving too much weight to the issue of profitability when you say that BECAUSE he has a REOP, then it is conclusive evidence that he is treating it as a business. I don't recall the name of the case, but wasn't there recently an important opinion in a sports-betting case involving two brothers who cleared something like $1M over a few years, and the court wrote that it wasn't simply the amount they won, nor the fact that they expected to profit, but rather the fact that all evidence pointed to them TREATING the concern as a business (e.g. extremely high degrees of organization, strategy, etc.)
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Old 12-17-2007, 11:23 AM   #215
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Re: Canadian Online Poker Tax Thread

Question:

How is playing poker seen as a skill and not buying lotto tickets?

I of course know the answer, but couldn't an argument be made that a person who has won multiple lotteries and spends 10 hours a day charting the stars and moon patterns in the sky to pick her numbers along with buying every book every printed about picking winning lottery numbers is along the same lines as playing poker for 10 hours a day and reading poker books?
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Old 12-17-2007, 01:11 PM   #216
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Re: Canadian Online Poker Tax Thread

Quote:
activity is being treated as a business, and the "reasonable expectation of profit" ("REOP") is only one of several factors that informs a determination of that issue.
It is a four part test

1. Reasonable Expectation of profit
2. Uses a skill or special knowledge
3. Organized behaviour
4. Extent / Frequency

I feel that #2 isn't even a question. CRA can establish poker is a game of skill fairly easily. #4 is also a given for anyone making significant money. With your example if someone enjoys a few hours every night that is going pass #4. The only way to make signficant money and not play enough to pass the extent test is to either luck out on a large tournament or to play vary rarely but at very high stakes.

That basically leaves #3 and #1. I think #3 is easier for CRA to establish than #1 so I feel #1 is the most significant. I'm pretty sure any record keeping would be enough to qualify as organized.

---------

Quote:
How is playing poker seen as a skill and not buying lotto tickets?
The only way CRA could attempt to argue that buying lottery tickets is a skill would be to establish the legitimacy of psychic abilities. With poker it is actually relatively easy to establish the game is a skill game. There is a big list of experts on pretty much any subject. CRA consults the list and gets a relevent expert to come and testify. They probably wouldn't even need to do that since poker has already been found to be a game of skill by other jurisdictions and referencing that would probably be sufficient in Tax Court.
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Old 12-17-2007, 01:57 PM   #217
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Re: Canadian Online Poker Tax Thread

Quote:
Originally Posted by Henry17 View Post
It is a four part test

1. Reasonable Expectation of profit
2. Uses a skill or special knowledge
3. Organized behaviour
4. Extent / Frequency

I feel that #2 isn't even a question. CRA can establish poker is a game of skill fairly easily.
Ironic, isn't it, that while our neighbo(u)rs to the South are busy trying to establish that it's a game of skill in order to get a UIGEA carve-out, we'd be well-served by showing just the opposite!

Quote:
#4 is also a given for anyone making significant money. With your example if someone enjoys a few hours every night that is going pass #4.
Source? This one I find very hard to swallow -- a few hours / night? Really?? The same amount of time that most couch potatoes spend catching up on reality TV? Can you find a single instance where an individual came home from a 9-5 job, spent a couple hours on an activity and it was deemed to satisfy #4? Not a chance, IMHO

Quote:
The only way to make signficant money and not play enough to pass the extent test is to either luck out on a large tournament or to play vary rarely but at very high stakes.
Playing 2 hrs / day, 5 days / week (eminently reasonable) can easily result in 150,000 hands in a year >> well over $100,000 for someone playing 5/10 or above. I don't think these are crazy assumptions.

Quote:
That basically leaves #3 and #1. I think #3 is easier for CRA to establish than #1 so I feel #1 is the most significant. I'm pretty sure any record keeping would be enough to qualify as organized.
Really? ANY sort of record keeping? Absent a source, I again have to disagree. If you use PokerTracker is that record-keeping? What if you keep a spreadsheet of your results? Surely, there has to be SOME threshold in determining whether there was *enough* organization.
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Old 12-17-2007, 02:24 PM   #218
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Re: Canadian Online Poker Tax Thread

teddy: Obviously every point can be debated however I know that for myself I fall under every single catagory and I would wager that anyone whose winning a substational ammount and playing 150k hands a year does too.

The question more so is will they come after you and if they do can they prove these things. It seems remote right now but regardless my gut feeling says to pay.

Sure theres going to be lots of people who fit this bill and decide not to pay and thats their decision. Obviously some of these people are going to get caught and we won't really know the extent until it happens. I choose to err on the side of ethics and what I feel is right.
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Old 12-17-2007, 02:28 PM   #219
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Re: Canadian Online Poker Tax Thread

KingGordy:
Just to clarify, "double taxation" isn't meant to imply that you pay twice the taxes, just that the money is taxed twice- once at the corporate level and once at your own level. Depending on several different factors as well as tax credits, etc., that amount may be the same or just slightly higher than what you would pay normally.

The reason it's criminal is that the law prohibits organized gambling. While you're allowed to bet in casinos or lotteries, you're not allowed to get paid by someone to bet for them, even if that someone is a corporation that you completely own.
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Old 12-17-2007, 02:35 PM   #220
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Re: Canadian Online Poker Tax Thread

teddyFBI: To be honest, the law doesn't make it too hard to make out the test for business income. If you know what BB/100 hands is and how it applies to you, part 1 of that test would indicate it's a business income.

All in all, the law is not unclear. Poker playing for fun is not taxable, poker playing for profit is. The murkiness comes when trying to figure out and prove in court through admissable evidence, which category any one individual falls into.
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Old 12-17-2007, 02:44 PM   #221
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Re: Canadian Online Poker Tax Thread

Quote:
Originally Posted by atom_new View Post
teddyFBI: To be honest, the law doesn't make it too hard to make out the test for business income. If you know what BB/100 hands is and how it applies to you, part 1 of that test would indicate it's a business income.

All in all, the law is not unclear. Poker playing for fun is not taxable, poker playing for profit is.
OK, so you're of the opinion that Dr. Widget, a well-known Toronto neurosurgeon, who works 60-hour weeks at the hospital, but enjoys getting in a few thousand hands / week of high-stakes poker (at which he happens to be very skilled) and clears $100,000 / year (on top of his $125,000 salary) DOES owe taxes on that 100K??
I disagree.
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Old 12-17-2007, 02:55 PM   #222
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Re: Canadian Online Poker Tax Thread

Under the law, it really doesn't matter what else someone does. There's a test to determine if they are generating business income, and it doesn't look at other employment. It comes down to specific facts about Dr. Widget. Does he keep track of his winnings and losses? Does he consistently win(ie: over a sample of 20K hands, does he always come out on top)? He probably SHOULD be taxed on that money.

That being said, the issue is proof in court. There are so many rules of evidence as well as rules restricting what the CRA can and can't investigate, constitutional protections, etc. All of these together make it very difficult to PROVE that someone should be paying taxes on poker income.
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Old 12-17-2007, 03:01 PM   #223
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Re: Canadian Online Poker Tax Thread

That Dr Widget makes $125k in salary wouldn't even be a consideration. I'd say there is a 99% chance that Dr Widget would legally be required to pay income tax on his poker winnings.
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Old 12-17-2007, 03:13 PM   #224
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Re: Canadian Online Poker Tax Thread

How does live play factor in to all of this? Do live pros just declare whatever they feel like? If I make 1OOK online and lose 50K live how would I prove this was the case (or how would the CRA prove that it wasn't).
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Old 12-17-2007, 03:29 PM   #225
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Re: Canadian Online Poker Tax Thread

Same way any cash business operates. Live pros declare all their winnings and and losses. Sure, they could lie and say they lost more than they actually did, the same way ANYBODY could lie on their income tax returns.
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