It would be up to CRA to acquire the data and they can compel you to provide records but there are limits on that and I don't know enough about that process.

For the sake of poker I doubt that CRA would attempt to proceed without having the ability to get records from the sites themselves. That is why on the news of PokerStars becoming a Canadian company one of the first things that occurred to me is the consequences of that on tax cases.

Something to take note of is that it is common practise for CRA to request documents that they can not compel you to handover. They ask anyway hoping people won't know any better since even though they can't compel them -- if you foolishly hand them over voluntarily CRA can use them.

The reason CRA's request overreach is important is that it could be something that would happen during a lifestyle assessment. CRA has the ability to just assign an income to you without any need to determine the source -- it could be poker, it could be working for cash, it could be selling coke makes no difference. CRA only has to establish you can't afford your life on your reported income. Once they do that the onus switches to the individual to establish that either CRA's assessment is wrong or that the difference comes from a non-taxable source. For most poker players who have done nothing to prepare for this the obvious answer is to say it is from casual poker play. The burden of proof is balance of probabilities which is really low so you should be able to establish it with bank statements showing the funds. This is where you need to be careful about how much information you give over to CRA. You have to provide enough that you can establish that you won at poker but nothing more. You don't want to help them should they decide to proceed with a professional player case. They might be able to compel you to hand over information regardless but I wouldn't want to do it voluntarily because they simply asked.

I also don't work as a tax lawyer although I did take an unusually high number of tax courses in law school and have had a very vested interest in this topic for 15-16 years.

Henry is saying that in theory, poker is a business, but the CRA has never brought an example forward and figured out a way to argue it, so effectively it's not a business.

I'm saying that a future case could certainly overturn the case law because up to this point, the CRA has never brought forward an example of a poker player operating as a business and argued it properly. But that doesn't mean that there isn't one out there.

That's the fun thing about stare decisis. You can have what appears to be the same situation, and all you have to do is distinguish your case from the case law on just one material fact and then it's wild blue yonder.

This happens in novel cases. That's what makes them exciting for lawyers. 5 years ago Dunsmuir basically overturned 150 years of administrative law in one swoop. Crazy ****. Maybe that will happen for poker players, and the longer the CRA keeps trying to get someone, the more likely it is that it will eventually happen.

If I were you I'd play it conservatively - assuming you're not like Cohen or any other example. Either pay or invest in liquid low risk securities.

But obviously consult a professional in whose advice you can take reliance.

It is even easier than that. The decisions set out what CRA needs to do so it wouldn't be overturning previous case law.

The current situation is that the courts have said repeatedly that CRA needs to establish A + B + C and they will win. CRA keeps establishing A + B and not doing C so they keep losing. If CRA decides to do C they will be successful -- the court has been very clear on that.

CRA doesn't want to put in the effort to establish C because it is difficult and expensive so they just keep arguing A + B.

Going forward there are three options.

1) CRA will just give up. There is absolutely no point in arguing poker cases with just A + B as the courts have made it clear that is insufficient.

2) CRA will argue A + B and supplement it with a statistics based argument that A + B should be sufficient for the courts. CRA has never done this. It might work / it might not. I think it should but I don't expect a court would agree.

3) CRA will attempt to argue C. If they were going to do something like this they would probably be better off targeting a short-stacker as that method of play would make establishing C really easy. Reality is it can be done for any type of play. Everyone has a system and all systems can be extracted from data with varying degrees of difficulty.

In theory there is a 4th option and that would be CRA keeps arguing just A + B and keeps losing but that doesn't seem like a good plan. The more often they lose the more it creates a reasonable argument for players to say they had a good faith belief that gambling income was not taxable.

My expectation is that CRA goes with option #1. If you look at the past cases most of them were forced on CRA either because the gambler was front page news after a stripper stole $100k or they ran a business where there is an industry tendency towards unreported cash transactions and it was during a lifestyle investigation that poker was revealed. You don't really see CRA putting a lot of effort into hunting down gamblers. Allowing professional gamblers to get away without paying income tax is a really small leak compared to donated art scams or HST scams. Guarantee that at the peak of the HST scam people were scamming more in a few weeks than all income tax payable on poker winnings combined.

Henry17... the thing is CRA might be forced into your 4th option because of their own doing. If they continue to not give tax-paying poker players their money back, poker players will continue to take them to Court and win.

This is a much better articulated version of what I was trying to say - and absolutely my word choice of "overturned" was bad.

I wouldn't put it past the CRA to just hope a bunch of players don't file for adjustments on taxes already paid.

For the record, I have sought legal advice which resulted in me paying taxes in the past, and has led me to re-file back in March. I'm currently in the process of being audited.

What you say is here is really interesting to me. I've always thought of the law as something that is immutable, true, and absolute. And now, I'm forced to reconsider that position. The reason for that is that it seems impossible for me to ever know "for sure" whether or not the law says I'm taxable. Here's what I mean by that.

The CRA could give me a green light, accept my adjustments, and yet only be doing it because they don't think they could win in court.

I could go to court and win or lose, and have future rulings cast doubt on whether or not the judgment was the "right" one.

There is no way that someone or something external to me can say for sure what the absolute right answer is in my case. I can only get an opinion.

This is actually very freeing in a way. It means I'm no longer going to look for an absolute of what the law's interpretation is in an instance like this where it is ambiguous and open to interpretation. Rather, I will follow the advice of my lawyer who I trust to know this aspect of my life better than I do.

Having said that, I'm more certain than ever that my poker playing wasn't supposed to be taxable

Congratulations, you are now the type of client that lawyers dream about. Aware of the rules, but understand that they are not absolute unless all of the material facts directly apply to your case.

Statutes are just parliament's way of trying to codify the decisions that judges make that the government likes. Case law is judges either interpreting statutes or trying to follow the principles of previous decisions. So it's rarely written in stone, especially in more complex issues. Paying taxes on the purchase of a book is relatively simple. You bought the book, every non-exempt good is taxable. You're paying that 13%. Taxation of poker as a "business" is way harder and involves way more material issues.

And you are exactly correct as to why lawyers give "advice" and "opinions", as opposed to "direction" and "orders".

Because law is hard and lawyers recognize that it's not absolute and it's harder than it appears.

Thanks, I really appreciate your help with this.

Though I'm not sure how to feel about being called a fish...

If people ask to restate their previous tax returns to remove income from poker winnings and CRA denies the adjustment they would end up at judicial review like you did. Those kind of decisions are meaningless as far as tax law is concerned. The only issue at stake is the reasonableness of CRA's refusal to allow the adjustment. They have absolutely no bearing on the tax liability of the individual. CRA can lose (and they will lose 100% of the time) and be forced to allow the adjustment and instantly turn around and go after the individual for the winnings they were allowed to remove in the adjustment.

If there is a significant number of money involved then people seeking adjustments that would increase the likelihood that CRA would seek out a perfect case. The adjustment process would also give them a good starting point in picking which player's are the best candidates. If someone is seeking an adjustment they should be very careful in what information they disclose.

Don't worry, the Rules of Professional Responsibility do pretty well at preventing us from taking advantage of the fish.

I believe you are taking a simplistic view of my case. I understand that I have a better understanding of the judgment because I participated and thus I am able to read between the lines in the Judgment. It is crazy to see what is said in the judgment and compare to what was actually argued in Court during the judicial review.

Yes, it was an "admin" case and not a "tax" case on it's surface. But if you look at it in more depth, it's actually very relevant because the judge was evaluating the CRA's tax argument and dismissed it as unreasonable - that is, an argument that has 0% chance of winning in tax court. If the CRA's position was wrong but at least could theoretically win in Tax Court, they would have won in my case. The judge alludes to me being able to win in Tax Court twice in my judgment.

Yes, but no. In my case I made a tax-law argument to the CRA first, and that was the basis of discussion with the CRA until Fed court where the DOJ lawyers argued reasonableness. And then in Court I had to shift my arguments on that basis.

IMO, I believe for poker players it is an easier win in Tax Court than in Fed Court because of this.

The CRA is a bureaucracy that exists to make money, like any other profit-driven corporation. Like any other big corporation, they have employees that are overwhelmed with work and can not possibly know all the ins-and-outs of the job. They likely have near-zero capability of constructing a meaningful defense on this topic, and that's why they continue to advance the same arguments against every poker player. Because every CRA employee that first encounters this situation has to start from scratch and draws from the same mis-leading CRA documentation, which is based on CRA opinion and not on the ONLY THING THAT MATTERS - previous Court judgments.

That's okay, and the judge's opinion may even have suggestive value to the tax court (may), but youre missing a fundamental point. FCA rulings are not precedential for the Tax Court, meaning the TCC is not obligated to follow previous decisions in the FCA where the issue is not the same (i.e. admin vs. tax). In other words, the judge's comments in the decision - or indeed, in the courtroom - may as well be obiter.

A large part of this is because the judge may not he had the requisite Tax expertise. Maybe he did, but he didn't need to have it.

As I said a while ago, tax law is a unique beast in many respects.

The decision doesn't actually say that. If you think it does you are misreading it. That being said eve if it did it would still be meaningless.

1) CRA used A+B to defend their decision to refuse the adjustment. We all agree that the A+B argument will likely lose. That doesn't mean CRA is limited to A+B should they decide to take you to tax court.

2) Even if the judge had said A+B+C would lose his opinion would carry no weight in tax court.

[quote ] If the CRA's position was wrong, but at least could theoretically win in Tax Court, they would have won in my case. [/quote]

That is incorrect -- in fact it is the exact opposite. CRA would not be successful in denying an adjustment request except in situations where there is little doubt of CRA's position. If there is doubt CRA has to allow the adjustment even when they are likely to be successful in tax court. The adjustment should always be allowed and questions settled in tax court except where the chances of the taxpayer being successful are so low that it would be considered a waste of the court's time.

I do not remember that but even if we assume the judge implied CRA would lose in tax court it is still meaningless. If he did express that opinion it would be based on the argument CRA presented but CRA is not limited to using the same argument in tax court. They could use a revised or completely different argument and obviously the judge can not give an opinion that.

The second issue is that law is specialized. I wouldn't put much confidence in a non-tax judge's opinion even if he gave it directly. In this particular instance it carries no legal weight but beyond that the opinion is based on the research of clerks who most likely never took a single tax course. Tax law is not like criminal, contracts, constitutional, or torts where everyone who has gone to law school can speak with a certain level of confidence on the subject. I would say tax is either the most complex or second most complex specialty and even among people who do tax law the gambling taxation question is a really obscure question.

For those of you that have received requested adjustments, what did the CRA accept as evidence of gambling winnings?

This is a quote from a recent PokerStars e-mail that I thought some of you would find interesting.

"PokerStars is owned and operated by a legal entity located in the Isle Of Man (a crown dependency of the United Kingdom)"

I guess Amaya hasn't interrupted their place of residence...

Interesting comments Gamblor and Henry17. I appreciate your contributions.

Here is a list of the relevant jurisprudence applicable:

Cases
• Balanko v. M.N.R., 81 DTC 887 - Justice Collier “all gamblers have an intention to win”
• Bélec v. The Queen, 95 DTC 121, 123 - “if you lose money then you can’t deduct, if you win money then you are in business”
• Cohen v. The Queen, 2011 TCC 262
• Dowling v. Canada, 1996, TCJ 301 - golfer/poker player taxable at golf, provable skill
• Epel v. The Queen, 2003 TCC 707 – winning poker player
• Leblanc v. The Queen, 2006 TCC 680 - 15 employees, negotiated business deals – Justice Bowman dismissed the CRA argument of “since you won you must have had a system and thus a business. If you lost, no system and no business and no losses/expenses can be claimed) logical fallacy post hoc ergo propter hoc
• Luprypa v. Canada, [1997] TCJ No. 469 – billiards player that played drunks
• Markowitz v. M.N.R., 64 DTC 397 - horse bettor that needed to keep records to prove winnings not from taxable source
• Morden v. MNR 1961, operated horse racing stable bets on horses, not taxable, hobby implies no expectation of profit

We are probably just a few years (and a two or three more judgments) away from sidelining all debate on this topic.

Thinking more about this, one thing that is bothering me is that all of the judgments so far have related to deducting "business" losses.

And we've been assuming that if a court won't allow deductions/adjustments for losses, that it would not treat poker as a business and therefore it was not taxable income.

But it's easy to show that a losing year does not mean there was a business. But winnings over several consecutive years might distinguish that from the previous cases.

Sustaining losses over a long period of time makes it very difficult to "stay in business" if there is no other income source, but sustaining winnings certainly doesn't. I don't think the TCC would have a problem turning around and saying poker income is taxable if it provides sustained profits and is the sole means of income. At that point, the court might say there is now a REOP and it is no longer a personal endeavour.

I don't know if this argument has been made itt, but it wouldn't surprise me if that was the final outcome.

Um... Leblanc?

Leblanc doesn't say that consistent winning is insufficient.

CRA would have been successful in Leblanc except for the testimony of Professor Smith who testified that given that Pro-line requires a minimum of a three team parlay it is impossible for Leblanc to have an advantage.

In fact the judge makes uses that they were forced to bet parlays to distinguish from other forms of gamblers who would be considered running a business and in that list he includes poker players.

This decision was incorrectly decided because of Professor Smith's testimony. Either intentionally or because as an expert witness he really didn't understand sports wagering his analysis never took into account that while Pro-line players were required to bet 3 team parlays those parlays were composed of bets with odds that were set and fixed for the entire week. This is a very different situation than betting 3-team parlays at a sportsbook / bookie. Professor Smith's expert testimony was incorrect but CRA did not challenge it with their own experts so the incorrect expert testimony mislead the judge into making the wrong decision.

Even if CRA did not understand the situation OLG did and because of the Leblancs they changed the structure of Pro-line so that betters could no longer use their system. They didn't end up paying income tax but they were done as gamblers. It is actually a good thing that they won since the amount that they claimed to have won was at least double what they actually won and most of the money had gone to the girls at Pigale so I'd be surprised if they could afford to pay the tax bill if they had lost.

Yes, this has been considered in various points in the various judgments I listed above, plus Alarie covers it well in his document.

Right. I just thought it was a salient point that hasn't been given much attention itt.