haha Yeah I meant the others.

I've read a good majority of this thread, but I'm still not sure what you mean by "freeroll."

If a judge ruled that a certain person's playing was taxable, wouldn't they be on the hook for previous years as well as tons of interest?

no lawyers answered my question yet, does tax law differ in quebec compare to the rest of canada? ie: poker.

You would owe the taxes but you owed them anyway so you are no worse off.

You might be required to pay interest (likely) and possibly even some penalties (unlikely) but you'd also have the funds and between investment returns and inflation you'd be better off deferring taxes. This would be especially true if this went on for a long period and you managed to trigger the limitations period so walked away not pwing anything outside that period.

Has these cases been discussed here?

http://www.thor.ca/blog/2013/12/are-...nings-taxable/

Looks like 99% of Canadian poker players will not have to pay taxes?

It has and we've discussed it. Your assessment that it means 99% of poker players will not have to pay taxes is incorrect. If you read the decision it makes it very clear what CRA most argue to be successful -- this is something that was also present in previous cases that CRA was unsuccessful in.

So this is the current situation.

1) CRA has been told by the court that argument X will be unsuccessful and that if they wish to be successful they must advance argument Y.

2) CRA keeps ignoring this and continues to advance argument X.

As long as CRA continues to advance argument X 100% of professional gamblers will be successful against a claim by CRA that they are engaging in gambling as a business and thus required to pay income tax on their winnings.

If CRA was to change strategies and use the argument that the court has stated is necessary then most likely over 80% of multi-year winning players would be taxable. Realistically that number would be much lower because of the costs associated with making the argument exceeds what CRA would hope to recover. Pretty much only the biggest players would be worth going after.

The last point though could have changed with PokerStars becoming a Canadian owned company. No way to know unless CRA decides to go for it which I don't believe they will. Which I guess is the real answer and always has been -- poker is taxable for most people who play seriously but you'll never have to worry about it because CRA is incompetent and lazy.

I'm getting the sense that you're impatient on this.

Do you understand that tax - especially in this respect - is a very specialized area of law and, despite being a poker forum, it is somewhat unlikely that anyone here has this knowledge offhand?

I mean, you'd need a tax-competent lawyer, in PQ, happening across this forum. I'd doubt there are any here.

Most business lawyers understand the basics of tax with respect to transactions but personal income tax effects of gambling for a living?

Maybe go to a lawyer who can at least refer you.

The Quebec provincial income tax base generally tracks closely the federal income tax base. This means that if something is taxable income for federal income tax purposes, it will generally be taxable income for Quebec provincial income tax purposes.

If I make money playing a home game regularly and are able to support myself, I understand that I may chose to file taxes or not.

My main concern is that if I am purchasing assets (car, house, investments, etc) how do they distinguish that I actually made the money playing in home games?

I know that playing in home games with no rake are legal, but if the CRA decides to audit me, how would I prove to them I earned the money playing in a home game?

This is not how taxes work. Whether your playing with rake or not is completely unrelated. If you are making money at anything with consistency and predicatability then you legally owe taxes. Period. Whether that means selling coke on the corner, pimping out your grandma, working at mcdonalds, or selling pebbles from the beach.

If cra see's a discrepency between what your income can afford and what you spend then you'll be taxed at what they deem the difference is and it is up to you to argue the difference. Only problem is differentiating gamblers from pros.

I must have not communicated my concern correctly. The direction I was going more towards was, let's say someone was a drug dealer and made a living doing so. By paying taxes and claiming that he is a professional poker player at home games, does that absolve him of any wrongdoing tax wise? Does that legitimize his earnings? When the CRA comes with questions about his profession, how does he prove that he plays poker at home games to make money?

Cra doesn't have to... They estimate what they think you earned based on your expenses etc and tax you on that. It is then your concern to prove otherwise.

And yes, cra does not care if it is legitament or not. If you told them you made 50,000 by selling drugs they would say ok, declare you made 50k in a self employeed venture. They are not the police, they are only concerned with collecting taxes from
All business ventures...

That all said its unlikely that cra has you under a microscope analyzing your purchases.

CRA is not the police -- they do not investigate Criminal Code violations. All CRA cares about is collecting income tax owed. If they pass any information to other authorities like the police I don't know but simply having unexplained income is not sufficient to create a reverse onus situation where you would need to establish that you are not a criminal.

Not under a microscope is a huge understatement. I have pushed the boundaries of this to an absurd level and I get a slight pushback from CRA but really nothing. That said I do know people who have had their lifestyle analyzed and assessed with a lot less spending. I don't know what triggers cause CRA to go after one person and not another.

Thanks Henry and YouSureSir.

Would it be because of assets such as cars, homes, etc? As in if I report a 50k/yr income but own a million dollar mansion and a Ferrari, that's a massive red flag for them to suspect me of under reporting?

I don't have a large enough sample to even guess at what makes CRA focus on some people and not others but if I was forced to guess I'd say having someone rat you out is the most likely reason. I also think if you have a business or report income on T4002/T2125 then that increases the chances.

When it comes to owning assets for most consumption nobody is reporting it to CRA -- when you buy a car the dealership doesn't call up CRA and tell them. Housing and investments get a little more complex because their is either a government agency that knows about it or even CRA can get a reasonable estimate by reverence engineering it from data they do have. I'm not really aware of how much communication is legal between government agencies and if legal how much actually happens.

Well ya, I think if you have these things its more likely you may get audited. Mind you the average price of a house in my city, vancouver, is a mil so it might not flag much. But somehow there is a trigger and only they know how. I would say taxes paid on cars and boats and other things would probably be the biggest trigger, but that is speculation.

Consumption taxes don't get reported. They are collected by the business doing the sale and then grouped into a total. The business then subtracts any HST they paid from that amount and the remainder is submitted to Revenue General either quarterly or yearly depending on the volume of sales. At no time does the government know who paid the HST to the business selling the product.

The only way CRA would know you had an expensive car is if they checked with DMV (in which case they are already on to you) or if someone ratted you out.

So if I were to report my earnings for my winnings next year, I would be able to consume many things such as food, clothes, luxury goods, alcohol, etc. except very large purchases such as a car or house, before I report it and there really is no way of them knowing that ever existed? An would I able to deduct gas from my home to the casino as a business expense? Or would I have to register as a business before I can start deducting expenses?

Nobody is monitoring consumption.

If you use electronic payments or have banking records that show large consumption they can reconstruct that after the fact but that would only happen if you were already being investigated.

If you live mostly in cash then there is no way for consumption to be tracked.

You don't need to have a registered business to deduct expenses. The reason you would consider some form of registered business would be for strategic reasons and that would depend on the situation.

While you could deduct expenses used for the purpose of earning money from the business of gambling I'm not sure if gas to the local casino would count -- I'm 99% sure it would not. If you drove or flew to various casinos for tournaments or following soft games you could deduct those travel expenses including gas and car expenses. If you just drive to the same local casino(s) all the time that would not count as a deductible expense.

If I decide to declare the income as gambling or windfall instead, are there implications for doing so over a long period of time, or even large sums of money?

As for online, it is easy to show records of one having actually played in the games and made money directly from poker. However, since I am a live player, I fear that it would not be easy to continuously report income as "gambling" and that they will challenge my claim.

I refer back to Radonjic vs CRA, and that I would be able to defend that playing poker repeatedly as not being a business, but rather a hobby that everyone enters with the objective of making money. If this case set the precedent, I would imagine poker players across Canada would be able to claim their winnings as gambling winnings.

However, playing in home games there are no records of whether I win or not. How do I prove to the CRA that I actually won the money if they actually decide to inquire?

I am glad you are aware of my case. That's all you need. Keep an excel chart of your poker playing, plus any evidence you have to support it (like a receipt for a coke you bought at the casino, etc).

That will be enough.

OMGClayBacon,

You are really confused and you should just stop thinking about this since you don't have anything to be concerned about.

You don't declare windfalls when filing taxes. The only time you'd need to this is if you were subject to a lifestyle assessment and had to explain why you are able to spend more money than you reported as income. That is it. If you plan to treat your gambling winnings as windfalls then you just file your taxes as if the winnings did not exist.

This is not a concern as it is fairly easy to establish poker as the source of the income given how many people are witnesses and the lack of any alternative source being more likely. If you owned a landscaping company or some other business where working for cash is a big issue and you were claiming gambling windfalls with no support you might have an issue but otherwise you don't have anything to worry about.

No. First Radonjic is admin law not tax law although it does give insights into tax law and fits with the previous case law. All the case law establishes that CRA will lose if they attempt to establish that a successful poker player was engaged in the business of gambling by looking at their behaviour away from the table. I didn't agree with this at first but having thought about it more I do agree with the courts on this now. The problem is that people are interpreting this to mean that poker winnings are not taxable income and that is absolutely incorrect. Poker is taxable but the method by which CRA must establish that a particular player is engaged in the business of gambling involves more than establishing that they are a winning player. If CRA wants to win a poker tax case they need to present evidence about the player's behaviour at the table and their behaviour surrounding he table. CRA has never done this in a modern gambling case but if they do they will be successful. In this respect it is much easier for CRA to establish that a online player is taxable would be easy while for a live player where it would be near impossible

After spending the last several years of my life examining this particular question, I can say the following four things with confidence:

1. The case law clearly supports the proposition that personal gambling losses are not deductible.

2. The case law clearly supports the proposition that personal gambling winnings are not taxable.

3. The case law clearly supports the proposition that the CRA has to scrutinize carefully claims by taxpayers that apparent boosts to net worth are coming from personal gambling winnings.

4. The case law clearly supports the proposition that commercial gambling operations are taxable on profits and may deduct losses.

Any debate in the thread above essentially comes down to whether poker players are covered by proposition 2 or proposition 4. In the absence of something truly extraordinary about a player's situation (cheating, software backdoors, etc.), my view is that all the accumulated case law points clearly and compelling to the courts finding that just about any given poker player will be covered by proposition 1 (almost all) or 2 (the winning few).

This is where TaxGuru and I disagree. While it is true that the final decisions have concluded that CRA has not established that the player's winnings were from a taxable source the reasoning has always included direction to CRA on what they would need to be successful.

The current situation is that CRA presents an argument along the lines of establishing Player was a winning player, that Player took engaged in activity to increase his chance of success, and lastly that Player made decisions such as quitting his job / not working that indicated he has an expectation of winning.

The courts correctly point out that all players engage in activity to increase chance of success and that someone who is delusional about their future success would behave the same as someone who actually is a professional player. This leaves CRA with an argument that winning = professional and the courts won't accept that.

I thinking if CRA presented a statistics based argument about winning over a long enough period they might have a chance of being successful but they have never done this and I don't think it would have more than a ~20% chance of being successful.

What CRA has to do to be successful is make a case based on the behaviour of Player while the person is actually engaged in the process of playing poker. So this is the kind of evidence CRA would need to present:

1) Hand analysis -- basically hire an expert to analyze the way Player plays hands and establish that there is a difference between the game play of Player and other players.

2) Table selection analysis -- easier to do that #1 but here CRA would need to hire an expert to look at how Player chooses his tables and seat. How often does Player change seat and are those seat change requests based on a specific pattern of trying to position oneself in a certain order relative to a bad player? Does the player use specific criteria when selecting tables to play at? How strict is he about this criteria?

I'm not a big poker player but the people who are could make a better list. Basically what CRA has to do to be successful is use statistical analysis to establish the stuff professional poker players do while playing that is different from what non-professionals do. From what I understand of short-stacking strategy this would be a fairly simple thing to do if CRA went after a professional short-stacker but for someone who plays normally it would be much harder.

I personally don't think CRA is ever going to bother with this given the issue of getting the data and more importantly the high costs associated with getting an expert. When you factor in the uncertainty this would only be worth it for the most successful players. At those levels there is a lot a player could do to reduce tax or the simplest eliminate it completely by moving to a jurisdiction that doesn't tax gambling. Because the process needs to be done for each individual CRA wants to pursue I can't see how this would ever be worth it for CRA except maybe for people like short-stackers who have a very clear and simple algorithm based play.