Well I don't know anything about him but he told the Globe and Mail that he has been playing professionally for two years and supporting himself for two years. I don't have the article in front of me but that is what I remember.

To be a winning tournament player over multiple tournaments requires skill but to win any one tournament not so much. A casual player with luck can win and given that the number of casual players is greater than the number of pros at many of these events.

Most provinces require 3 consecutive months minimum living there to be legally a resident for purposes of health care ect. Is it really different for tax?

Yes.

By your logic the windfall profits of a factory worker who hits it lucky dabbling in penny stocks shouldn't be subject to CG tax because the factory worker isn't a professional stocktrader.

Rupert

The problem with your argument is that the grinder is working poker as a full time job which makes him a pro. If a guy plays one poker tournament on a week off from work and gets taxed on it, he's now paying taxes twice to the province; and that is unfair.

Capital gains are a different type of income. The distinction is only for business income.

It is hard to come up with a business income example but say you had a farm or even owned real estated that you rented. If you had multiple years of losses CRA could turn around and look at your business and decide it is not a business but instead a hobby. The only wa gambling is special is that it starts as a hobby that might become a business while other businesses start as businesses but can be designated hobbies if you have no reasonable expectation of profit.

No problem there, because it is a capital gain by definition on the acquisition and disposition of a security. There is a strong argument that it should be taxable fully as an "adventure or concern in the nature of trade," but this is made irrelevant by an election in subsection 39(4) in the Income Tax Act.

Moreover, I would point out that lottery winners might be caught by the same logic of having a capital gain on the purchase and disposition of a lottery ticket at a large gain but for a provision in the Income Tax Act that expressly states that they do not have a capital gain.

And if he takes little or no time off work to dabble in penny stocks and hits it lucky then it's totally fair to expect him to pay his taxes "twice" just so long as the poker "amateur" doesn't get dinged too?

Actually everyone pays once, there may be multiple different sources of income but it all goes on the same tax return. My best friend's girlfriend will love you though - by your logic she should pay taxes only on her day job as a dispatcher, while both her wages AND tips on her evening job as a waitress ought to be tax-free on the grounds that to tax those would mean she'd have to "pay twice."

I could make the same argument for the factory worker who dabbles in penny stocks in an online account he set up at the Royal Bank that you just made for the factory worker who dabbles in poker in an online account he set up at Pokerstars. Both could be called hobbies, both are gambling, and so far as I am concerned if both of them hit a windfall they should be treated exactly the same for tax purposes.

If lottery winners are not caught up but for explicit exemption then what exactly protects "amateur" poker players? Is the provision that protects lottery winners valid for me should I cash in a tournament, or profit in a ring game? Would the buy-in not be my purchase and the cashout not be the disposition of my seat? How is it then that poker cashes are exempt from CG's in Canada?

As far as I know, there's nothing in principle to prohibit that kind of legal theory being advanced as a basis for taxation. Although the lottery exemption would not apply directly, a court might reason by analogy to say that the buy-in / cash out gain should also not be subject to partial inclusion in income as a capital gain. Also, if the buy-in / cash out are both less than $1,000, they would each be deemed to be $1,000, hence yielding no capital gain on "personal use property," which is what it would be if that legal theory was indeed advanced.

You don't get it.

Capital Gains are not Business Income. They are different and have different rules and different first principles.

The Canadian tax system is based on taxing income from sources.
These sources are employment, business, property and capital gains.

Anything not from one of these enumerated sources is not taxable. Windfalls are not from any of these sources and is thus not taxable.
Poker is normally a windfall (meaning you had no right to any money and could not reasonably expect to receive anything) and is thus not taxable.

Poker is not unique - various activities can move between sources or between a source and not a source (and thus have different tax treatment is different situations).

The intent was to lighten the administrative burden and the potential tax abuse of people. The government does not want tosubsidize people's hobbies that they would do even without tax breaks.

The system is mostly fair and easily understood and far less complex than some countries' tax codes.

There are shades of gray though that can lead to "unfairness" but the example of a penny stock is covered by the Tax Act and clearly understood (though this too can move between capital gains and business income).

I do get it. And I think it is wrong.

Is it because (as I suspect) you believe that an amateur cashing in the ME is every bit as +EV as a grinder? If so, then at least we can agree that this is the source of the apparent disagreement.

I'm afraid not - I never claimed to believe an amateur is +EV. But unless he's a complete idiot, an amateur who makes the FT of the ME is going to take out far more from the game than he'll ever put in. And I think the non-poker-playing public expects he should be taxed on those earnings - less any money he put into the game elsewhere of course.

The apparent source of disagreement is that people seem to think on account of archaic provisions of the tax code, the incomes of Mr. Duhamel and Mr. Jarvis should be treated differently despite the substantial portions of both being earned exactly the same way. People appear to think Mr. Duhamel should have to pay taxes in Canada, but Mr. Jarvis should not, despite the fact they both paid the IRS. I disagree. I think that is wrong.

The current tax code predates the poker boom. It was written at a time when the most prominent legal gambling activity was the lottery - a pure game of chance with the state itself acting as the counterparty. Since the state profits directly from the holding of a lottery, and since there is essentially no winning strategy to playing a lottery, it was thought right and proper (not to mention good marketing) to make the winnings tax free.

Poker is unique in the sense that it is considered gambling but the state does not act as a counter-party directly - it only profits through the collection of rake (at least in the case of B&M games in this country). It is also unique due to its prominence compared to other activities that can, as you say, move between sources. It may happen elsewhere, but in this case everyone can see that Mr. Duhamel and Mr. Jarvis both made alot of money doing exactly the same thing. And now people have been told that only Mr. Duhamel has to pay taxes on his poker earnings, while Mr. Jarvis does not have to pay taxes in Canada, and that it would have made no difference if it had been Mr. Jarvis who had won. Indeed, had Jarvis won he would have gotten a bigger tax exemption than the whole 8th place prize.

I do believe the current law was not written with this situation in mind.

Poker fell through the cracks then obviously. The current code invites just the opposite - if I work a part time job and grind 60 hours a week online then are my winnings still windfall? I could certainly make them appear so!

Which is why lotteries are tax free - most people would not play against the state if they got dinged tax on the winnings too. But gamblers will play poker against each other whether the winnings are taxed or not.

I would agree more or less, but poker currently is an exception that sticks out like a sore thumb.

The tax code is meant to change with changing times - remember capital gains once upon a time were untaxed. A fair solution would be to distinguish between games of chance played against the state (like lotteries, roulette or even blackjack the way that game is played here) and games of skill played against one another (like poker), with winnings in the former being tax free and earnings in the latter being taxed, perhaps beyond a modest threshold.

Rupert, what you say is reasonable, but what this thread concerned, I thought, is the effect of Canadian income tax law on poker winnings, not what people think the law should be in this area. Your protests are normative in nature, while the rest of us are focused on positive law.

Perhaps I should start a new thread then. I thought with a Cdn pro and a Cdn amateur at the ME FT it was a good time for a debate. What I want above all is the assurance that everyone at the same table is playing by the same rules as myself.

I think it is an interesting debate but I don't get what your thinking is. Why do you not like the business vs hobby distinction?

Take someone like myself. If I won the WSOP ME in 1998 i likely would be taxed. If I won it now I would certainly not be taxed. If Phil Ivey stops playing poker and gets a job after a long enough absence he would be viewed as a hobbyist if he only played a negligible amount. The division is based on what I think is a very valid principle -- are you running a business or engaging in a hobby. You seem to be fixated on the amounts but the amounts don't matter. Someone who plays some ridiculous micro stakes online and grinds out $5k a year in profit putting in 2000 hours of play is running a business while some guy who plays poker a couple of times a month and makes $50k/year is not.

Because while I hate paying taxes as much as the next guy, we all have to so let's just get on with it. I can tolerate paying taxes so long as my neighbor is paying his share too. When does poker stop being a "hobby" and start being a "business"?

For that matter, when did income from hobbies become tax free? Income from hobbies is only tax free if you don't bother to report it - if I were to sell arts and crafts for cash under the table I would technically be breaking the law. Of course people do in fact do that and the law rarely prosecutes them but it doesn't make that actvity legal.

As Phil Ivey is American his "negligible" winnings would be taxable (perhaps over a certain amount I don't know US tax law) regardless of how often he plays.

Well I have to disagree on the validity of the principle. Is a retired millionaire widower who spends four or six hours a day at the table engaged in a hobby? Is a part time burger flipper who spends eight hours a day grinding micros engaged in a hobby? What about if it's only six hours? Four hours? Every other day? There's too many grey areas for a sound "division".

While a basic exemption of a grand or two of poker income might make sense for practical purposes beyond that the amounts don't matter.

And what if he plays ten times a month, 300 hours per year and makes $15K? Soemwhere you have a grey area with the potential for an ugly legal scrap under the current system.

As for the guy making $50k if he is truly an amateur he likely lost the $50k in previous years of course he should be able to claim that.

When and where have there been legal cases in Canada involving alleged poker pros?

http://www.taxwiki.ca/file/view/taxwiki_ebook_1.pdf

Thank you - I see that is a recent publication.

So the answer to my question appears to be "not in the last 50 years" - interesting.