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Old 03-17-2009, 11:33 PM   #651
Henry17
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Re: Canadian Online Poker Tax Thread

My understanding is that to sponsor someone you must agree to support them so there is going to be either an income or net worth requirement.
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Old 03-18-2009, 10:18 AM   #652
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Re: Canadian Online Poker Tax Thread

in your opinion, would this greatly increase my chances of being audited?
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Old 03-18-2009, 11:15 AM   #653
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Re: Canadian Online Poker Tax Thread

I have no idea how much communication goes on between different parts of the government but if you look at this you are basically telling one part of the government that you can and are willing to financially support someone because you have all this income you don't report to the government. If this was anywhere else but Canada I'd say you were screwed but our public service is a make work project for people who are fairly lazy and not that bright so who knows.

I would be interest to know if Immigration considers your winnings income with regards to the income requirement for sponsorship.
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Old 04-14-2009, 01:11 PM   #654
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Re: Canadian Online Poker Tax Thread

Hi, assuming you plan to pay tax (Canada)

How would you document your year? I read earlier post seem to imply its the net profit of the year and some equation...

But I read that in US they have to document daily(thats how they define per session) and not subtract off losing days right away. So I guess my currently plan is to document wins and loss daily with where and when I played(ie online sites) maybe even number of hands played in case they require it.

would hand written document + my holdem manager database/hand history be enough to prove to CRA that my income number is legit? in theory both can be forged.

what about pokerstars statement does pokerstars keep track infomation such as account balance on 2008 dec 31, 2009 dc 31 and all the intermediate transactions? or do they delete it after some time? will they provide it formerly when you ask? sorry I guess I have to confirm these with PS in the future too.

This brings me to the next point, the definition of Gross Income.
just as example, If I record daily and played 10 days 8 winning total 1k and lost 2 days total $200. Now on my tax form do I put gross as 1K or $800, in US seems to imply 1k. How will this effect our RSP limit (18% of gross I believe)? If I do this I probably have to put my loss with my business cost?

Thanks in advance for any advice.
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Old 04-14-2009, 04:03 PM   #655
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Re: Canadian Online Poker Tax Thread

Nah you would keep a spreadsheet of somesort. You could track daily or weekly. You could attach this to your taxes when you submit. Though if you play live this can enhance your deductions also. You will not get much flack if you are claiming gambling winnings as a high percentage never do.

Your spreadsheet is fine and no total hands required.
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Old 04-14-2009, 04:48 PM   #656
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Re: Canadian Online Poker Tax Thread

I separately the posts cause they are pretty separate.

previously it was mentioned about you may not have to pay tax on tourney if you are a cash game pro. I would like to extend that discussion.

Situation: you have played NL holdem cash game online a few year and winning player. This year you want to give it a shot at FL holdem, a game you never played before. You plan to play a lot 1million+ hands this year doing multi-tabling. oh and you will still play NL once awhile. Assuming you pay or are starting to pay tax on NL cash profits. Do you claim your FL profit. if the tax issue wasn't a gray area I would say this is.

lets review the facts differentiating business vs hobby.
mentioned by many before:
1. Reasonable Expectation of profit
2. Uses a skill or special knowledge
3. Organized behaviour
4. Extent / Frequency

The below are all just my opinion on the issue

FL holdem is just as different if not much more different then MTT such as the sunday million are to NL holdem cash game. Am don't dont much about FL at this point but I would think there are many seasoned pro in both game that can testify this point. So if you can get away with tourney you should be able to get away with FL which implies that you can get away with other form of poker.(omaha, stud, etc)

Now I'm not saying I will never pay for the profit(winnings + fpp/rakeback) on fixed holdem, I feel only after certain amount of hands I qualify the above 4 points. That certain amount of hands I would like to ask everyone in the poker community. (my feeling is about half million)

Here are my reasoning:

In terms of frequency you would fail for sure. Also you most likely use skill or special knowledge. but I feel the strongest point is "Reasonable Expectation of profit" there shouldn't exist any at all for a person who never played a game and that expectation simply doesn't exist in the online poker world especially vs other online player that have way more experience than you. Playing a lot can simply mean you are addicted, a person addicted to online game(mmorpg, realtimestrategy, ie starcraft) do not treat those games as a job/business but definitely hobby. mmorpg, rts such as starcraft require immense amount of skill/knowledge and millions of people plays hours a day when they are popular. The population in these games > than poker and even through I don't agree there are tons of people who would think those games requires more skill than poker. Certainly poker have more luck factor too.
Level of organization in games like clans, guilds... definitely arguably more than poker. Sorry for going a bit off topic but the point is with only number 2 - 4 one can't not differentiate at all the difference between a profession and a hobby So all weight rest on "reasonable expectation of profit" which is definitely not reasonable enough for a player who just started to play FL holdem. It was also mentioned in a previous post that a respectable prof at UofT commented that it is very hard to establish "reasonable expectation of profit".

Now to extend this point further taking a look at the effect of winning result on expectation of profit: (feel free to correct me anywhere, I'm not so clear about this concept myself hence wanting to discuss it with everyone)
Expectation of profit, a relative term in poker, one can be very skilled and still expected to lose if most of his opponent are better, his having a bad day emotionally other factors etc...) so the fact the game req skill doesn't imply expectation of profit.
"expectation of profit" whos expectation of profit? it is something that shouldn't be decided by the player or anyone around him because of difference in bias/perspective and perhaps should be decided objectively(how)? one may expect to win and does indeed win but in reality from say an overhead view he actually was not expected to win he merely think he is and does due to luck. Concrete example would be in any match a pro(say phil ivey, alan cunningham...) is expected to win vs unknown but how can people know that unknown isn't actually better player? and poker have so many more factor in say 9 man table, setup flow sitposition etc.
Trying new style of play, even if I'm a consistent winner(also term decided by people) I would not have expectation to win if I was trying new style say light 4betting. I tried that in 9max PS recently in varies of situation vs different suitable opponent had like 2/7 success only.
so results winning for n years, n hands, ... decided by whom? have anyone actually calculated the odds of someone who isn't suppose to have expectation to win and still win n hands? Not to mention they haven't specified what % chance of win from "feeling" is "reasonable". I guess they can argue when looking at a year as a whole you are expected to win. or when looking backward in time from your results u "were" expected to win. But at any instant in the year you can argue that from the bottom of your heart you truly don't feel "reasonable expectation to win" both sides arguments feels iffy to me.
Here is a extreme case counter example of someone who definitely is not expected to win but still wins and plays millions of hands a year. the guy usually plays 24 table at penny table his not horrible but very tight passive, bad at playing postflop and overall small loosing player one day his been losing so badly(from luck/skill/drunk) he goes to high stake table and gets a cooler situation and wins 100k. and then he goes back to penny table to do his usually in the end up +60k in the year. this is not a realist example I just want to show there are so many factor in determine point (1) and its certainly possible (unsure %) for someone to win multiple years even in cashgame even through his not expected to win. In MTT I would think its extremely easy to prove you don't expect the win since its widely expected that it takes longer to reach long run. sit and go harder but still possible do to large swing and how often one gamble do to blinds.
A very clear gaming analogy can be used also: a Canadian wins 10k in a Starcraft(online RTS) tournament he is certain extremely skilled and have had great success(ladder rating through not necessarily money wins for a few years) Now he would meet all 4 points I highly doubt that he would have to pay tax and no one can really say his a pro gamer and not a hobby, this is especially true in Canada, in Korea things would be different. All these feeling/common sense things such as "how can it be hobby when you win so much/year" are not that solid since there probably exist events that makes money and meet all 4 points and still widely excepted as hobby. The amount shouldn't be very important to the principle.

As I'm writing all my points(there are more) I feel like I shouldn't even pay tax according to law(not moral) on my NL cash game profits I'm still deciding. The only thing that worries me is that for these tax issue in court you are guilty until proven innocent. Right now I feel they can not solidly prove you guilty but it is hard for you to prove yourself innocent also this will depend on the perspective of the judge and the ability of CRA/your lawyer. BTW really sorry for such long post I got more interested in this topic half way. Final perhaps mostly important note can someone confirm that if you prove with certainty its a hobby even if the 4 points are meet(fairly solidly) are your winnings still tax-free. opps the above line may not make sense if in math term "not hobby if and only if 4 points are met"
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Old 04-14-2009, 05:03 PM   #657
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Re: Canadian Online Poker Tax Thread

I can't understand your post enough to respond but from what I did understand I'm 100% sure you are wrong -- the test for reasonable expectation of profit is not a subjective test.

Read these two cases. One deals with poker the other with sports betting. It might help you understand.

http://www.canlii.org/en/ca/tcc/doc/...003tcc707.html
http://www.canlii.org/en/ca/tcc/doc/...006tcc680.html
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Old 04-14-2009, 05:25 PM   #658
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Re: Canadian Online Poker Tax Thread

Quote:
Originally Posted by Henry17 View Post
I can't understand your post enough to respond but from what I did understand I'm 100% sure you are wrong -- the test for reasonable expectation of profit is not a subjective test.

Read these two cases. One deals with poker the other with sports betting. It might help you understand.

http://www.canlii.org/en/ca/tcc/doc/...003tcc707.html
http://www.canlii.org/en/ca/tcc/doc/...006tcc680.html
Henry, can you give us a cliff notes version of the judgement and your interpretation of the first case as it resolves around poker. There is a lot of interesting read there but there's a lot of legal lingo that I'm trying to make sense of which can get confusing. Thanks.
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Old 04-14-2009, 05:41 PM   #659
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Re: Canadian Online Poker Tax Thread

im a total noob when it comes to law, professional since the beginning of 2009

do i have to pay taxes or not? if so who should i go see first?
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Old 04-14-2009, 05:47 PM   #660
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Re: Canadian Online Poker Tax Thread

precisely which part do you mean? I'm never study law or anything so I wouldn't know a lot of the details. Could you please be specific.

I first want to prove that point 2-4 can not be used to strongly prove the player is conducting business/professional since there are hobby that meets them.

Then discuss 1st point is unclear. Unless they actually mean literally winning = professional. Basically I'm saying you can't be certain you have an reasonable expectation to win in the poker environment. and would like to add I believe it was ED miller that said most people he know who is winning 100k a year before moved on to nl limit because the limit games are not nearly as profitable these days. if thats true doesn't that show with how fast online poker is evolving you can't be sure of "reasonable expectation to win"

Also I was wondering if you can please tell me about my intended topic of FL holdem. I thought you and TorontoCFE both agreed that profit doesn't = all your winning so if you are a cash game player when you win in sunday million you don't need to pay tax on that. correctly me if am wrong but thats the impression I got.
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Old 04-14-2009, 05:54 PM   #661
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Re: Canadian Online Poker Tax Thread

so for example I just started playing Limit this year and win 40k and 40k more for nolimit can I just claim the 40k nolimit since I feel like I'm consistent winner. I was also wondering which part to focus on in the first link you gave.

Btw Thank you for the fast reply yesterday about foreign account/poker issue
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Old 04-14-2009, 06:05 PM   #662
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Re: Canadian Online Poker Tax Thread

Epel played poker live in the Ottawa area.

CRA decided to go after him because of something related to his shoe repair business and that is when the issue of his poker income was discovered.

The case basically came down to a reasonable expectation of profit argument. The court accepted John Turmel as an expert on the subject and it worked out well since Tony use to play at John's game so he could testify to Tony's play:

Quote:
Turmel testified that he certainly was a quick learner, with a natural ability for the game, who for a time had luck on his side. However Epel was not a skilled player whose focus was to constantly develop and perfect his skills, as Turmel had done
The judge found that Epel was not a skill player but what is important is that the judge clearly states that if he was he would be subject to income tax the way Turmel is.

The case establishes without a doubt that for at least some people poker is taxable income. The judge restates the test but doesn't really add much except to say that Turmel would be subject to tax while Epel would not. That leaves a lot of people in the middle between those two so it really doesn't help us much. The sports lottery judge goes into reasonable expectation since with the sports lottery there is more to work with than one expert who is allowed to testify that Epel sucks at poker and just wins because he is lucky.

The case was correctly decided based on the evidence but very likely ended with the incorrect result because it hinged completely on Turmel's opinion of Epel's skill. As someone who has interacted with both individuals I'm not sure if Turmel would be my first choice as an expert witness. What we can take away from that is that the court has low standards for expert witnesses which might be useful for B&M players -- as long as you can get a famous pro (preferably someone who wrote a book) to testify that they have played with you sufficient to evaluate your play and you are not a skill player then you are good to go unless CRA can find an expert to contradict that opinion. Since until recently most B&M games in Canada were undergrounds it is really hard to go out and find another expert. Once we move to online though there is a record of your play and that changes everything since anyone can study your play by studying your hand histories.
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Old 04-14-2009, 06:17 PM   #663
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Re: Canadian Online Poker Tax Thread

Quote:
Originally Posted by cmadg View Post
Basically I'm saying you can't be certain you have an reasonable expectation to win in the poker environment. and would like to add I believe it was ED miller that said most people he know who is winning 100k a year before moved on to nl limit because the limit games are not nearly as profitable these days. if thats true doesn't that show with how fast online poker is evolving you can't be sure of "reasonable expectation to win"
You are confusing a reasonable expectation of profit with certainty of profit. With online poker reasonable expectation of profit would be established by submitting your hand histories to an expert who would then judge your play.

For anyone who has no job a reasonable expectation of profit is pretty much established by their lack of employment.
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Old 04-14-2009, 06:18 PM   #664
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Re: Canadian Online Poker Tax Thread

Quote:
Originally Posted by Henry17 View Post
Epel played poker live in the Ottawa area.

CRA decided to go after him because of something related to his shoe repair business and that is when the issue of his poker income was discovered.

The case basically came down to a reasonable expectation of profit argument. The court accepted John Turmel as an expert on the subject and it worked out well since Tony use to play at John's game so he could testify to Tony's play:



The judge found that Epel was not a skill player but what is important is that the judge clearly states that if he was he would be subject to income tax the way Turmel is.

The case establishes without a doubt that for at least some people poker is taxable income. The judge restates the test but doesn't really add much except to say that Turmel would be subject to tax while Epel would not. That leaves a lot of people in the middle between those two so it really doesn't help us much. The sports lottery judge goes into reasonable expectation since with the sports lottery there is more to work with than one expert who is allowed to testify that Epel sucks at poker and just wins because he is lucky.

The case was correctly decided based on the evidence but very likely ended with the incorrect result because it hinged completely on Turmel's opinion of Epel's skill. As someone who has interacted with both individuals I'm not sure if Turmel would be my first choice as an expert witness. What we can take away from that is that the court has low standards for expert witnesses which might be useful for B&M players -- as long as you can get a famous pro (preferably someone who wrote a book) to testify that they have played with you sufficient to evaluate your play and you are not a skill player then you are good to go unless CRA can find an expert to contradict that opinion. Since until recently most B&M games in Canada were undergrounds it is really hard to go out and find another expert. Once we move to online though there is a record of your play and that changes everything since anyone can study your play by studying your hand histories.

Thanks Henry. I noticed the case was in 2002 and you're right regarding the advent of online poker which changes everything. A very interesting read.
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Old 04-14-2009, 06:22 PM   #665
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Re: Canadian Online Poker Tax Thread

I found this part very interesting.


He went on to state near the end of his decision at page 3:


There can be no doubt that the Appellant freely indulged his inordinate passion for gambling, but I cannot conclude that in doing so he carried on a business. Counsel for the Minister stressed that the Appellant gambled with a view to profit. However, it must be observed that such intention is one shared by all who gamble, and the presence of the intention to win or make money in gambling, which is there in all who gamble, does not lead to a conclusion that all who gamble, or even all those who gamble frequently, are carrying on a business.




So even though EPEL consistently made roughly $4000 every week, this did not automatically made him liable to income tax. Am I reading this correctly? Sounds good to me.
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Old 04-14-2009, 06:34 PM   #666
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Re: Canadian Online Poker Tax Thread

Interesting and thank you for the summary so this means that if someone accepted deems you as "skilled" then you pay tax even if you are a losing player because your competition is more skilled. pretty biased overall. To me that doesn't exactly follow the "reasonable expected profit" at all since in a relative skill game such as poker skilled doesn't mean you profit its how skilled. Anyways I guess law is law and doesn't have to be fair or reasonable.

So can you be skilled in one game and not in the other? can you be unskilled at the start of a year and skilled after a few month? even if you never played the game before you can still be skilled if you win right away? how should someone deal with these situations?
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Old 04-14-2009, 06:35 PM   #667
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Re: Canadian Online Poker Tax Thread

lol my last post suppose to come out before henry's 2nd post on this page man you guys are fast
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Old 04-14-2009, 06:44 PM   #668
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Re: Canadian Online Poker Tax Thread

The bold part is just the judge shooting down the argument that intending to win is sufficient. All gamblers intend to win even the house game players.

The part that dealt with him winning is not related to the bold part. It is addressing a different argument that winning in and of itself is enough. The judge rejects that. You have to win while using skill. A few years ago I had a friend who would wake up and place football bets usually still half drunk from the night before. He was a losing player but for arguments sake lets assume he managed to win consistently. He would not be taxed since there is no skill involved while someone like myself that does research and has a system would be taxed. We are making money exactly the same way but because I'm using skill and he is just lucky I have to pay income tax and he doesn't.

It is harder to imagine a poker player who has no skill yet constantly wins. In theory I assume it is possible but what happened here is that Epel is probably a skilled player but since the judge relied on Turmel he was classified as non-skill.
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Old 04-14-2009, 06:59 PM   #669
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Re: Canadian Online Poker Tax Thread

cool I think you made the point very clear now.

so whats your recommendation if I play cashgame(NL) regularity and win and then goes and cash in Sunday million(not sure if the amount matters) should I declare the profit(cash-buyin) or should leave it and see until they ask me. Assuming that I have very limited history of tourney would a pro still think that am skilled and would his view be enough in this case when there are so limited info. ie I can probably get people to state the fact that given the hand sample one cannot conclude.

Can I extend this to FL like my first 200k hands is not enough to conclude I'm a skilled player and I deduct those winnings from my net income.

Oh I'm starting and another thread "potential/suitable country for relocation for Canadian citizen" check it out if interested
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Old 04-15-2009, 09:58 AM   #670
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Re: Canadian Online Poker Tax Thread

The CRA maintains a series of Interpretation Bulletins that outline the Agency’s view of the applicable law in a number of income tax areas. The Supreme Court of Canada has found that these Interpretation Bulletins do not have any independently binding legal authority: see R. v. Nowegijick, [1983] C.T.C. 20, 83 D.T.C. 5041 (S.C.C.) at para. 28. Nevertheless, the Bulletins do purport to outline the CRA’s view of the law (both statutory law and accumulated case law) and may be regarded by courts as persuasive sources of reasoning concerning the effect of the Act and the relevant tax jurisprudence. In one of these Interpretation Bulletins, entitled, “Miscellaneous Receipts,” (Canada Revenue Agency, “IT-334R2—Miscellaneous Receipts” (February 21, 1992), available online at: http://www.cra-arc.gc.ca/E/pub/tp/it334r2/it334r2-e.txt) the CRA describes the approach that it takes to assessing gambling profits at paragraph 10 as follows:

"10. Profits derived from bookmaking or from the operation of any gambling establishment (carried on legally or otherwise) constitute income from a business. In addition, an individual may be subject to tax on income derived from gambling itself, if the gambling activities constitute carrying on the business of gambling; see the decision of MNR v. Morden, (1961) CTC 484, 61 DTC 1266 (Ex. Ct.). The issue of whether or not an individual's activities are such that he or she can be considered to be carrying on a gambling business is a question of fact that can be determined only by an examination of all of the circumstances and the taxpayer's entire course of conduct. Although no one factor may be conclusive, the following criteria should be considered in making the determination:

(a) the degree of organization that is present in the pursuit of this activity by the taxpayer,

(b) the existence of special knowledge or inside information that enables the taxpayer to reduce the element of chance,

(c) the taxpayer's intention to gamble for pleasure as compared with any intention to gamble for profit as a means of gaining a livelihood, and

(d) the extent of the taxpayer's gambling activities, including the number and frequency of bets.

It is clear from various decisions of the courts that earnings from illegal operations or illicit businesses, such as illegal gambling and fraudulent business schemes, are not exempt from tax."

It should be emphasized again that the administrative position outlined in these Interpretation Bulletins is not binding on the Minister, and that although the CRA does attempt to provide an accurate interpretation of the law, the bulletins are at most of persuasive value (See R. v. Nowegijick, [1983] C.T.C. 20, 83 D.T.C. 5041 (S.C.C.) at para. 28.) and have no independent legal force (see generally Glen Loutzenhiser, “Holding Revenue Canada to its Word: Estoppel in Tax Law” (1999) 57 University of Toronto Faculty of Law Review 127).

On January 23, 2008, the CRA issued an opinion to a taxpayer who had requested an advance income tax ruling with respect to the taxation of online gambling gains (see CRA Views, Interpretation, “2007-023601E5—Taxation of a person’s gambling activities” (January 23, 2008)). The CRA referenced paragraph 10 of “IT-334R2—Miscellaneous Receipts” and explained that its basic position with respect to the taxation of online poker winnings is that, “The determination of whether a person’s gambling activities constitute the carrying on of a business in the pursuit of profit that results in a source of income under the Income Tax Act (the “Act”) is a question of fact that can only be determined by an examination of all the circumstances and the taxpayer’s entire course of conduct.” Without reciting the factual details provided by the taxpayer, the CRA stated that, “Based on the limited facts described in your correspondence, your gambling activities appear to be conducted primarily for your pleasure as a hobby and without special knowledge. In such circumstances, and as noted above, earning or losses from such gambling activities would be of a personal nature and would not constitute earnings or losses of a business.”

With respect to the CRA, the position outlined in its Interpretation Bulletin and in the letter of January 23, 2008, appears to overstate in favour of the Minister the legal approach that the courts are likely to adopt with respect to the taxation of online gambling gains. This is particularly so in light of the most recent decisions, such as Leblanc v. R., 2006 TCC 680, 2007 D.T.C. 307 (T.C.C.), in which gains in the millions of dollars from heavy and frequent betting over several years with up to 15 hired helpers was not considered by the court to lead to income from a business.

Although other types of gambling opportunities are made available online, such as sports betting and horse race wagering, the most common form of online gambling is poker. It is popular in Canada and its popularity appears to be growing. The foregoing suggests that it is only with some difficulty that the Minister will be able to successfully collect income taxes from online poker players. It will not be until they have established a clear and consistent track record of success in online poker that there would be sufficient evidence to take the position that they have sufficient skill or knowledge to ensure profitability. Even still, there is the observation of Bowman J. in Leblanc v. R., 2006 TCC 680, 2007 D.T.C. 307 (T.C.C.) that there is something problematic about using the brute fact of success to justify a finding of a system and therefore find that the gains are taxable.

Online poker is played at a variety of websites, among the most popular of which are PartyPoker.com and PokerStars.com. Typically the game is played against other players on a downloadable software platform that installed on a player’s computer. The “house” facilitates the game by providing the software platform, accounting for the bankrolls of players, and ensuring the integrity of the system. The financial return for the services the house provides comes predominantly in the form of a “rake” collected from the pot for each hand played at a table, though the house also profits from earning interest on outstanding bankrolls held by players and by running tournaments at a profit-yielding entry fee per player. The providers of these services are undoubtedly engaged in the business of providing gambling opportunities to players. An open question surrounds the possible tax liability of the players, however. Is it the case that Canadian-resident players may be open to income tax liability on winnings?

From the state of the legislation and the case law, it seems unlikely that Canadian income tax law applies in ordinary circumstances to tax online poker gains for at least four reasons.

First, it is not the players that are prima facie engaged in a productive activity—it is the poker website itself that is providing the gambling opportunities, minimizing risks, and guaranteeing itself a stream of revenues. Although poker is a game that is a mix of skill and luck, when players play in a game organized by a casino or other operator, the operator demands a rake from each pot, which means that the players at each table will on net inevitably experience losses when considered as a group. When individual players do not lose on net, in the short and medium term, at least, this result can frequently be attributed to brute luck. Only a small proportion of players are in fact so skilled at playing online poker that they can overcome the toll the rake takes on their wagers and winnings. The number of players who believe themselves to be in this select group naturally far exceeds those who actually are in this select group.

Second, in ordinary cases online gambling is engaged in casually by individuals looking for part-time amusement. These individuals will have other employment and / or business pursuits and will play online poker simply to unwind, to relax, or to simply try out their luck in a real game of poker against real opponents from the convenience of their studies, living rooms, or kitchen tables. Because of the instantaneous and convenient nature of the opportunity online poker presents, it is not uncommon for players to spend many hours online each week playing. Nevertheless, where players have other income-earning occupations, these hours are not inconsistently regarded as hours spent indulging in a poker hobby.

Third, it is not clear how players could be using a system to guarantee success at online poker. Most sites attempt to ensure the integrity of games by using sophisticated means to detect cheating. If a poker player or a group of poker players were cheating in order to generate their gains, this might be found to be akin to having a system or having inside information such that the gains would be taxable. In these circumstances, of course, it would probably be appropriate to characterize the gains not as gambling gains, but rather as gains from theft or fraud. In the absence of cheating or rigging the results of an online poker game, a player’s system would inevitably turn on a mix of estimating the relative strength of one’s hand and predicting how other players will react to the various strategies available to the player (call, raise, fold, etc). However, all players are in the same position vis-ŕ-vis each other. In the long-run, a dynamic will develop in which relatively strong players will tend to gravitate to the higher stakes tables where they will tend to play other strong players, diluting the winnings available from the weaker players that are reasonably available to each of them. In addition, the rake does not discriminate on the basis of a player’s skill level; each pot is subject to a fractional interest taken by the house. The mental or psychological skills associated with playing online poker can be contrasted with the physical skills involved in cases such as in Luprya v. R., [1997] 3 C.T.C. 2363, 97 D.T.C. 1416 (T.C.C.) and Dowling v. R., [1996] 2 C.T.C. 2340, 96 D.T.C. 1250, where the taxpayers were found to be taxable when they profitably gambled on the basis of their ability to perform in a superior way physically at snooker or golf. In online poker, one does not control the destiny of the cards in the same way as is possible to control the cue ball in snooker or a golf ball in a round of golf. A skilled Texas hold ‘em poker player cannot control the cards in the “flop” and will frequently lose to less skilled players out of the sheer randomness of the cards. The outcome of a snooker game or golf match, on the other hand, is only rarely determined by something other than the relative skill of the competitors (except for competitors that are very closely matched in ability). It is only in the very long run that the mental or psychological abilities of strong poker players will ensure gains, and even then only when they can be confident that they are playing against less-skilled opponents. That one is actually more skilled than one’s opponents in Texas hold ‘em is impossible to ever determine conclusively, and can only be inferred probabilistically from long-run financial successes playing against the same players.

Fourth, from a pragmatic perspective it would be hazardous for the Minister to be overly aggressive in attempting to impose tax liability on online poker gains for the reason that if one is found to be in the business of gambling in one year, it would not readily be open to the Minister to claim that for the purposes of claiming losses the same taxpayer (or other similarly situated taxpayers) are not deductible as losses from a gambling business in a subsequent year. Because overall the only reliable winnings will be netted by the websites facilitating online poker play, the Minister can be expected to exercise caution in imposing income tax liability on online poker winnings. An overly ambitious strategy that picks up players who have truly only been lucky over the short and medium-term could easily backfire and result in claims for losses off-setting any revenues that might be realized on the taxed gains.

It is undoubtedly important for the tax treatment of online poker to not lead to inefficient distortions in the labour market whereby individuals shift efforts from productive and taxable activities to merely redistributive, unproductive and nontaxable activities. Probably more important, however, is that redistributive, unproductive and otherwise nontaxable activities not unduly reduce the tax base by drawing a cross-subsidy through a deduction of gambling losses from other sources of income. Given that the vast majority of individuals engaged in playing online poker are apt to be net losers on a lifetime basis, it seems the greater revenue threat is the reduction of the tax base through the deduction of gambling losses against other sources of income, rather than the foregone revenues associated with not taxing the few net lifetime winners. From a pragmatic perspective, then, the optimal approach is likely to be considerable restraint in concluding that a taxpayer’s online poker activities yield income tax consequences. More specifically, the CRA and the courts should seriously entertain a claim that a player is in the business of playing poker only once it becomes apparent beyond any doubt that a player’s financial successes are consistent and reflect true skill, knowledge, mental abilities and psychological control.

In light of the foregoing discussion of the case law and the legislation, and the pragmatic policy considerations underlying the taxation of online poker gains, what would characterize the activities and results of a poker player would be most likely to be liable for income tax on online poker winnings? The strongest case the Minister could muster would be to find a player who has the following profile or attributes:

1. The player would have experience playing online poker full-time without maintaining any significant alternative occupation for several years with little variation in earnings on a year-over-year basis (or, more promisingly, growing earnings) over a significant time period. Due to the nature of the activity, while one would expect daily and weekly results to swing wildly from large gains to large losses, nevertheless over the long-run, such as over the many thousands of hands potentially played over the course of a year, the taxpayer should exhibit consistently positive results.

2. One indicator that the player has the abilities to consistently profit from online poker would be that the taxpayer would not have any income-earning occupation except for playing poker. This would reveal that the taxpayer’s own estimation of his or her abilities is positive. The Minister should be cautious, however, since many gamblers dramatically overestimate their own abilities, selectively ascribing successful outcomes to their own skill and explaining away losses as due to bad luck. If a taxpayer has successfully supported him or herself over the course of at two years exclusively through online poker, this would add to the confidence the Minister and the courts could have in the conclusion that the taxpayer has the requisite skill and abilities and has devoted the required time and attention for online poker to be a business of the taxpayer.

3. Another indicator that the taxpayer is pursuing the game out of a desire to profit as a business rather than as amusement would be that the player would constantly study poker strategy by reading books, attending courses, practicing with poker software, or otherwise consciously and systematically seeking to improve her abilities. This alone is not dispositive, however, since many casual poker enthusiasts also study poker in this way, too, and consider it part of pleasurably pursuing their hobby.

4. Yet another indicator would be that the player would consider him or herself a professional poker player. This could be done through informal social networks, public advertising of poker success, endorsements of poker products and services, writing books in which they explain how to profit from playing poker, giving seminars or courses explaining his or her methods in exchange for fees, etc.

5. The player would participate not only in online poker but will also play in “live” games and tournaments with relatively consistent success. This is an important criterion, since it would be unlikely that poker skill would manifest itself only in online games and not in “live” games. Some of the largest financial rewards available to poker players are associated with live tournaments. If a player is skilled enough to generate consistent financial success online, it would be surprising if they would not also want to pursue greater possibilities to profit from their acquired skills and knowledge in live games.

6. A related point is that the player would be selective in the tables or games he or she plays in. The player would deliberately seek out weak players with large bankrolls and try to avoid strong players in order to maximize the profits associated with the time spent playing.

Even with all these factors in the Minister’s favour, in light of the case law it would not be guaranteed that the Minister would succeed in attempting to characterize the taxpayer as being in the business of playing online poker. The principal business associated with online poker is clearly that of the poker website itself, rather than the individual player making use of the gambling opportunities provided by the website.

To succeed in showing that an individual taxpayer was engaged in the business of earning income from online poker, the Minister would have to be able to convincingly demonstrate that the taxpayer is sufficiently skilled as to be able to generate reliable profits from her online poker playing and that the taxpayer was organized and systematic in deploying this skill to generate profits. To do this, it would be essential that the Minister be able to demonstrate that the taxpayer is skilled enough to overcome the costs imposed by the websites themselves through the rake. This would, in turn, be difficult to demonstrate. Unlike physical skills, such as snooker skill (Luprya v. R, [1997] 3 C.T.C. 2363, 97 D.T.C. 1416 (T.C.C.)) or golf prowess (Dowling v. R., [1996] 2 C.T.C. 2340, 96 D.T.C. 1250), the only reliable indicator in games involving a considerable degree of luck, such as poker (and unlike other games of mental skill, such as chess, for example) would be a long and sustained track-record of financial success combined with high levels of play and little or no outside income-earning activities. [Readers should note that as a counter-point to Dowling v. R., [1996] 2 C.T.C. 2340, 96 D.T.C. 1250, there is an analogous English case involving a professional golfer in which gambling gains from private golf wagering were not found to be taxable income: Down v. Compston, [1937] 2 All E.R. 475 (Eng. K.B.); however, this decision was obviously based on the relevant UK legislation rather than the Canadian Income Tax Act.]

It should be mentioned here, too, that even in the seemingly most promising circumstances for the Minister, there is no reason to believe that a player’s success at winning at online poker will necessarily continue. There is inherent to the structure of the game an “arms race” among participants to develop skill and knowledge at poker. In addition, luck inexorably plays a large role in realized financial outcomes, even for the most skilled players.

Given the pragmatic considerations discussed above relating to the asymmetry between foregone revenues associated with not taxing the winners and allowing deductions of losses against other sources of income for the much greater number of losers, the Minister ought to be quite careful to restrict claims that taxpayers are in the business of earning income from online poker only to those who by a long track-record of financial success have shown that they are clearly superior and dedicated professional players.

Last edited by TaxGuru; 04-15-2009 at 10:06 AM. Reason: formatting fixed
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Old 04-15-2009, 10:02 AM   #671
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Re: Canadian Online Poker Tax Thread

Bottom line for me is if it is your only source of income Ok But if you have a full Time job I would never claim it. Some will disagree but you again are playing the odds. The odds are it will never be an issue if you carefull with how the money comes in and heads out
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Old 04-15-2009, 11:32 AM   #672
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Re: Canadian Online Poker Tax Thread

Sweden is starting to crack down on online poker players (and others): http://news.bbc.co.uk/2/hi/europe/7993694.stm
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Old 04-15-2009, 11:38 AM   #673
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Re: Canadian Online Poker Tax Thread

It is just not Sweden. CRA is part of the Xenon project as well. Basically a spider-bot that goes out and looks for evidence of unreported income on the web.
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Old 04-15-2009, 01:36 PM   #674
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Re: Canadian Online Poker Tax Thread

So if I made 15k or so last year in profit at MTT's (first year of winnings and lol variance), but have a job as a Student, I should do what? My winnings are over many MTT's and not due to one large bink (biggest win was $5.5k). I am also barely up so far this year (lol variance).

And for future reference, if I do file poker winnings as income, am I allowed to deduct part of my rent, the computer I bought, the new monitor I bought, and food (need receipts obviously)? And what if my profit was less than those deductions?

And I think this in part explains why this is such a disaster for the CRA. There has to be lots of small winners who can probably show a paper loss through deductions, which would drive the CRA mad. Or am I thinking there are more deductions than there are?
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Old 04-15-2009, 01:40 PM   #675
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Re: Canadian Online Poker Tax Thread

Quote:
Originally Posted by RandomGuy2 View Post
So if I made 15k or so last year in profit at MTT's (first year of winnings and lol variance), but have a job as a Student, I should do what? My winnings are over many MTT's and not due to one large bink (biggest win was $5.5k). I am also barely up so far this year (lol variance).
Based on this very limited description I think it's unambiguous that you'd still be considered a casual, non-taxable player. Of course, this is not legal advice--this is an off-the-cuff response based on these limited facts.

Last edited by TaxGuru; 04-15-2009 at 01:41 PM. Reason: disclaimer
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