Originally Posted by TaxGuru
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.