So what about the lottery winner? They don't even listen to anything you have to say?

Lottery winner can call up the OLG and it easy enough to get documentation but the onus is on the winners to establish the source of the funds.

So what stops the poker player I described from saying "I'm not a poker pro, the law states only professionals expecting to win pay.. I just won a few poker tournaments (assuming they actually have and can show the documentation to prove the tournament scores.. to the extent where the winnings are large enough that they can actually explain their assets / lifestyle)"?

The onus is on the player to establish that and unless he can show documentation that the funds are from one big tourney he has zero chance of convincing CRA that the funds are not taxable.

Zero chance is a bold statement. People can go on 500,000 hand heaters in cash games. Higher stakes players often play only 20k hands in a month. I personally know a person who earned over $550,000 in 18 months, but is struggling this year big time. I think anybody who fought this in court would have a decent shot. The CRA set a precedent when the denied that lawyer turned poker pro a tax write off. I've read all your posts Henry and I know you take this hard line, but I've yet to see any hard evidence for this.

Did you just ignore the penalties/back-taxes in the above situation?

I think what Henry is saying is that all the CRA is going to say is "You have more stuff/money than you should have and you owe $_____ in taxes by our estimate." They're not going to care where it came from. They don't even ask you to explain. They just want to you pay and if you don't think you should have to the onus is completely on you to go to them (or court) and prove your case.

And unless you can come up with documentation that they will accept, they are going to go after you for those taxes. They would clearly accept documentation from a government run lottery but in the case of poker income it's going to have to be one or two actual windfalls.

@Henry:

If the CRA has decided a real recreational with a full time job that has luckboxed his way into +$10-$50k on the year playing cash games has too much stuff for their stated income, I'm assuming that there isn't much the player can do besides settle?

Since it's pretty much a guilty until proven innocent system and there really is no proof you as a cash player or consistent MTT/SNG player could offer to prove you're not a professional regardless of your skill and true expectation of income, wouldn't all players not falling under the sunday million final table category that are +$ potentially be labeled "professionals?"

If it is your only source of income then pay up. If it's not your only source of income then it's your choice. You could always send yourself a check and then cash it at moneymart, there won't be a paper trail that way.

You are confusing being able to convince CRA of something and reality. Yes it is possible for people to win substantial amounts over decent periods completely on luck. That doesn't mean you can convince CRA of that.

I have no idea what lawyer you are talking about but regardless it doesn't matter because it means nothing. The law on this is clear, CRA has issued an interpretation bulletin that makes it even more explicit, and there is case law on gambling including a case dealing specifically with poker. The only reason poker players haven't been forced to pay tax is because it is too small of a demographic to bother going after with a special team and the general CRA employees are lazy morons. Since I don't see the hiring practices of the public service changing people who gamble for a living have little to worry about. The only way a poker player will be required to pay tax is if he does something else that gets CRA's attention first.

JH1,

You can fight it but the onus is on you. If you won a tournament there should be some record of it that you can get. These lifestyle assessment cases happen often completely unrelated to gambling. I had a friend who got assessed this way because of his landscaping company. He was doing maybe as much as half his jobs as cash and CRA got wind of it. They assessed his unreported income much higher than what it was and if he wanted to he could have hired a lawyer and fought it but litigation is expensive and there are no guarantees so since he was just trying to reduce the amount and really couldn't deny there unreported income he felt it wasn't worth it and paid the higher amount. People do fight these all the time. You see a lot of them with people who are new in the country and come with wealth but then are very underemployed in Canada. These are easy enough to deal with without going to court since they can get records from their banks and home country.

There is an academic article coming out on this question in the next issue of the Canadian Tax Journal. Once the article comes out, it will quite plainly come to the attention of the folks in Ottawa.

Could you post link here when it comes out? Appreciate all your info in this thread.

Thanks

If the CRA is going to go after some recreational player for 50k or less I think you would have no problem getting a bunch of Canadian 2+2ers to help pay for all of your legal bills and take it to the courts. It would be ideal case to set a precedent without much risk for penalties/fees. In fact if somebody out there made around $10k the poker community should make it worth their while to try and push the CRA into a court battle.

I don't know why they don't just make it easy and say any net gains over like $10k or something is taxable regardless of the situation. Who in the country is so against lotto 6/49 winners not having to pay tax anyway?

The lawyer also went from being a recreational player to a "pro" with no history of winning (and thus no reasonable expectation of profit) and never having paid tax and then declaring losses.
CRA takes a long look at all kinds of people in all kinds of "businesses" who all of a sudden want to claim losses on occupations they have never paid tax on and who have other sources of income to use the losses as shelter for.

This was not unique to gambling income.

Was he not also drawaing salary continuance at the same time and still presenting himself as a lawyer? CRA isn't that dumb - he guy was going to claim to be an amateur if he won and a pro if he lost.

CRA assesses you that you owe X If you don't agree, you can file an appeal.
You informally submit to the appeals department at the CRA your evidence that the assessment is wrong. If the CRA still doesn't assess you at what you think is correct, then you have the option of appealing it further to the court system, likely the informal process but possibly the formal trial process.
Still not satisfied and you are basically out of luck. If you lose at tax court, you might get stuck paying the CRA's legal bills as well.

I know this. My point is that 90%+ of all new businesses fail in the first year or two, even though a good majority of them had a reasonable expectation of profit. I know, my wife is in business to business sales. Most businesses can write off their loses. Poker players on the other hand can have really good luck for big long stretches of hands and end up with an extremely bloated idea of their EOP. Just like in a normal business the lawyer studied the competition, put together a strategy based on the the "market" but failed from lack of experience. This will be true for most people taking a shot at full time poker. Many people have very sound knowledge of the game but lack the emotional stability play a theoretically correct at all times. Many people with sound understanding of poker theory fail because they lack experience. This is also a primary reason for normal traditional businesses failing. The business plan was sound, the persons knowledge of the market was sound, but they simply didn't have enough experience.
I'm simply saying the CRA is extremely biased and unfair in their treatment of full time poker players. They want to have their cake and eat it.

Makes me so sick this extortion.

You make 6 figures a year through poker, but rent your housing, and don't have an expensive vehicle or extravagant lifestyle. You get randomly audited. You have a large bank account. Is your situation, or audit, any different with minimal assets besides cash? Is the initial audit assessed solely on the appearance of your lifestyle, or will they have access to your bank account details?

Yeah that's kind of what I was thinking. I have a friend who managed to save a ton of the housing portion of her student loan in university by living off of Kraft Dinner and salad and spent the money on a trip to New York and somehow the CRA found out about it. She somehow managed to convince them she was legit and then was brilliant enough to do it again the next year and go to Mexico, only to end up audited again.

How exactly would the CRA find out about some of these more obscure things besides being tipped off by an acquaintance? What kind of access do they have to different paper trails (bank balances, cc purchases etc) besides the $10k bank deposit report unless they are specifically looking at someone?

Okay you're comparing a student loan to gambling winnings, they're not the same.

No, I'm not comparing anything. I just was inquiring as to how they manage to find out about these things regardless of where the money comes from.

My mistake then. When my sister got loans from OSAP, they found out through a girl that heard about her misappropriate spending. People in Canada usually report these things. If you're disliked by anyone the chances of reporting going up goes up substantially. Probably why drug dealers never get caught anymore.

The lawyer failed because he didn't completely give up all other income and because the courts had no reason to think a random person could decide one day to be a professional gambler.

There is a difference between baking as a hobby and then opening your own bakery and all of a sudden deciding to be a professional at a field that is notoriously hard to succeed at.

Let's not forget that CRA is not the final word here - the courts are and the guy still couldn't convince a judge even though the judge seemed willing to consider the possibility.
Recently the courts have come down hard on the CRA for a wide range of abuses of power and judgment so it is not like the CRA is a all powerful ruler in these matters.

In my experience (300+ cases), the CRA has not be unreasonable in how they treated poker players.

At least if you win, the CRA might be paying your legal biils.

More than 90% of reviews are the result of tips from neighbours and other parties that know you. Most of the rest is referred to them from law enforcement, when they have looked at someone and decided to pass on a tip.
The CRA does not have access to you bank or cc records without already being tipped off about you and going through the trouble of getting judicial permission.
What they have access to are things like border records, FINTRAC filings, liens, mortgages, titles on real estate, press about you and other public records.

You are most likely to come to their attention (if they aren't tipped off) by claiming unusual amounts or types of deductions on your tax return or declaring you are involved in an unusual business or occupation.
Filing a large number for capital gains when you never report income might do it, as will saying you are involved in any activity that deals with cash mostly, or saying yes when they ask if you have more than 10k offshore when you have never reported much income.

Much like poker, if there are inconsistencies in your story, they might look at you.