The key part of the judgment is at paragraphs 50 to 53 (this is a long block quote from the judgment at
http://www.canlii.org/en/ca/fct/doc/...2013fc916.html ):
[50] I recognize that it was the Applicant who first declared his poker winnings to be taxable income, and he paid tax on them and claimed deductions. He now says that CRA should not have agreed with him back in 2004, 2005, 2006 and 2007. Had the Applicant made an appeal to the Tax Court he might have succeeded. As the Federal Court of Appeal pointed out in Abraham, above, he now has “no entitlement to have the error corrected.” Recourse under subsection 152(4.2) of the Act is a request for an exercise of discretion and there is “nothing in subsection 152 (4.2) that requires the Minister to exercise [her] discretion in favour of the taxpayer if the taxpayer would be entitled to a tax benefit if he or she claimed within the regular re-assessment period.”
[51] Notwithstanding these caveats, upon reviewing the record as a whole, I have to conclude that the Applicant has made his case. The Minister’s exercise of her discretion under subsection 152(4.2) of the Act in this case lacks intelligibility and justification and, in my view, falls outside the range of possible, acceptable outcomes which are defensible in respect of the facts and law.
[52] I say this for the following reasons:
a) The Minister in this case relied upon the fact of winning and, in effect, conducted the kind of retrospective assessment warned against by Justice Bowman in Leblanc, above, as part of the assessment of reasonable expectation of profit;
b) The Minister concludes that the Applicant had a “system” but does not provide any meaningful explanation of what this system might be. It looks as though the Applicant’s simply playing online poker on his computer on an intense and regular basis over an extended period of time is equated with a system. This is bolstered by the Leblanc fallacy that, because he happened to win more than he lost during the three years in question, he must have had a system. I see no evidence of the Applicant applying a system in a way that would make this conclusion by the Minister intelligible or reasonable.
c) The Minister’s reliance upon Luprypa, above, is misplaced and unreasonable. I see no analogy between a skilful pool player who systematically applied his skills to make money from inebriated opponents and anything the Applicant did in this case where, essentially, his winnings were dependent upon chance, even though he had studied, practised and improved his skills in a way that most amateur poker players do. Everyone who competes in online poker wants to win and will attempt to narrow the odds in their favour in any way they can. But this does not mean they have devised a system if they do win; chance remains the predominant factor in whether they win or lose, as it did on the facts of this case;
d) The method of payment used was no indicator of a “system” or a reasonable expectation of profits. Everyone who wants to pay has to set up some kind of payment system, so this cannot be an indication of running a business. Paypal accounts are used in a variety of contexts where payment is required online;
e) The Applicant’s cutting back on other work and income while he won at poker is also no indicator of a system or running a business with a reasonable expectation of profit. A large gambling win could result in the winner quitting work entirely, but that would not mean he or she had been running a business. The luxury of being able to work less is one of the fruits of successful gambling, just as having to work more may be one of the results of unsuccessful gambling. Chance dictates the outcome in either case;
f) The use of winnings to finance a mortgage is no indication of running a business. Winnings can be used in a constructive way. The gambler is not obliged to play until he or she loses, and the use of winnings in this case was no indicator of a system or a business that was being run with a reasonable expectation of profit;
g) There is no indication that the monitors or other equipment which the Applicant used to gamble in this case were anything special or that the Applicant had made capital investments for the purpose of running a business or earning a profit;
h) The Applicant’s record keeping was minimal and entirely consistent with the need to prove the source of funds for tax purposes. They were not business records in any meaningful way, and did not even correlate to CRA’s own criteria.
[53] There are other points of concern but, generally speaking, I think this is enough to conclude that there was nothing in the Applicant’s case to set him apart from the usual enthusiastic and ever-hopeful poker player engaged in a personal endeavour. The factors relied upon by the Minister to conclude otherwise render the Decision unreasonable within the meaning of paragraph 47 of Dunsmuir.
JUDGMENT
THIS COURT’S JUDGMENT is that
1. The application is granted. The Decision is quashed and set aside and returned for reconsideration in accordance with these Reasons.
2. The Respondent shall pay the Applicant’s costs in this application in the amount of $1,550.00 to cover the cost of tax advice, Court fees, photocopying and income loss to be at the hearing, together with post-judgment interest until paid.
