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Old 03-08-2010, 09:21 AM   #1126
TorontoCFE
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Re: Canadian Online Poker Tax Thread

There are 2 major benefits to incorporating:

1. Income smoothing. You can leave excess income in the corporation during really good years and pay only the corp tax rate (rather than high personal rates). In bad years, you can then pay yourself what you need from the accumulated surplus of earlier years, again at the lower tax rates.
If you are unincorporated, then all earnings are taxed at personal rates so in good years you are paying the highest tax rates even if you don't need all of the money and in bad years you get no tax relief.

2. The ability to carry losses back or forward. If a corporation losses money then you can carry it back to years when it made money (and get a tax refund) or hold onto the loss until a year when you do make money.
A person can't make use of losses as easily as a corporation.
This ability to carry losses is only useful if you do sometimes make money.

Minor benefits include:
1. Limited liability if you choose to use the corp for other purposes (like operating a car or getting credit once the corp is established).
2. You can use the corp's money without paying the higher personal tax rates taxfree if you use it to buy yourself a home or car you use for the business.
3. The corp develops a history in case you choose to put future activities in it.
4. It makes income splitting or estate freezing down the road with children a little easier.
5. For some, it is easier to keep track of business activities if they are separate from personal ones (expenses, ank accounts, etc.)
6. You generate RSP room from paying yourself a salary, which you don't get from business income.


Costs / negatives:
1. there is a cost to set it up in the first place.
2. There is a time commitment to operating it (not much though)
3. There is ongoing added costs of doing a corp tax return and annual filings and payroll filings in addition to your personal stuff.
4. You have to pay CPP on money you pay yourself as salary. You do at least get a pension later in life though and it can be minimized through tax planning.

You can set up a corp of your own and do everything online for less than 1k.
You may need a professional to advise you on how to set up your bank accounts, an employment agreement and the corp's minute book to accurately reflect poker activity and make sure you are compliant.
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Old 03-08-2010, 10:21 AM   #1127
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Re: Canadian Online Poker Tax Thread

For those of you who declare poker income as business or corporate income, how do you deal with sales taxes? After you reach the $30K/year revenue, won't you need to get a GST/PST number? Obv. you know how poker revenue is gained, so there's no way to charge your opponents GST/PST.
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Old 03-08-2010, 10:34 AM   #1128
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Re: Canadian Online Poker Tax Thread

You aren't providing a taxable good or service.
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Old 03-08-2010, 10:35 AM   #1129
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Re: Canadian Online Poker Tax Thread

also another question: can you operate a corp without employees? so basically, can you just declare dividends every x period without paying yourself a salary?
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Old 03-08-2010, 10:38 AM   #1130
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Re: Canadian Online Poker Tax Thread

Quote:
Originally Posted by TorontoCFE View Post
You aren't providing a taxable good or service.
so the revenue would fall under AII or a similar catagory? i guess i have to brush up on my corp tax.
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Old 03-08-2010, 10:42 AM   #1131
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Re: Canadian Online Poker Tax Thread

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Originally Posted by blindsRobber View Post
also another question: can you operate a corp without employees? so basically, can you just declare dividends every x period without paying yourself a salary?
Yes you can though you will be questioned every so often on this.
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Old 03-08-2010, 10:48 AM   #1132
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Re: Canadian Online Poker Tax Thread

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so the revenue would fall under AII or a similar catagory? i guess i have to brush up on my corp tax.
Well, it would be commodities tax law and not corporate.

You are neither providing a good (obviously) or a taxable service.
You aren't selling anything really or being compensated directly by
a party in exchange for providing a service - you really have no customer.
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Old 03-08-2010, 10:48 AM   #1133
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Re: Canadian Online Poker Tax Thread

To set a corp up is it much better/safer to go to a tax lawyer or can any lawyer set it up for me? Are the tax savings a big percentage? If I set it up now as a poker player and later move on to trading is it easy to change the business of the corp or does it not matter as long as the setup is maintained?
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Old 03-08-2010, 10:58 AM   #1134
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Re: Canadian Online Poker Tax Thread

Any lawyer can set up a corp for you or you can do it online yourself even
if you are adventurous.

The key is to make sure the employment agreement between you and the corp is set up correctly.
For this, a lawyer of accountant who knows what they are talking about is very helpful.

If you are in Quebec then you would be paying about 45%. A proper corp
where you take a base salary and dividend out the rest or defer it to future years could lower it to 30% or less so you might save up to 15% but there are a LOT of variables.

It is very easy to change the use of a corp to any purpose you want, especially if you are the only shareholder.
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Old 03-08-2010, 11:00 AM   #1135
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Re: Canadian Online Poker Tax Thread

Unless you want to have multiple classes of shares I say do it yourself. It is really easy.

As long as the article of incorporation are generic and contain no restrictions you can switch with no issue. One of my first stock purchases was actually an asbestos company that reconstituted itself into a pop soda company.
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Old 03-08-2010, 12:43 PM   #1136
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Re: Canadian Online Poker Tax Thread

Thanks for very much for the replies, this is all very interesting. I think, for my own reasons, I will pay tax on my poker earnings, but I also want to make those taxes as small as possible.

2010 will be my first full year as a pro player. I've filed my taxes for 2009 already with no mention of poker as I spent the majority of my year employed through other means.

Besides allocating a certain percentage of my winnings to pay in taxes later, and keeping track of my winnings, what else should I be doing throughout the year to make tax season next year easier? Does it make sense to incorporate now or later in the year or next tax season?

Also, in personal taxes, one can tax avoid with rrsps and other options to bring your total taxable income down, as I understand it. On the good years where I have excess funds in the corporation, are there similar options? Also, can the money be working for me (i.e. invested) while in the possession of the company and not my personal use?

Last edited by banalanal; 03-08-2010 at 01:13 PM.
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Old 03-09-2010, 07:06 AM   #1137
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Re: Canadian Online Poker Tax Thread

It should be mentioned that incorporation does little for you if you are intending to dividend out all (or substantially all) of the income each year.

It should also be mentioned that playing "as a corporation" is not automatically permitted by the terms of use of various sites.
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Old 03-09-2010, 11:08 AM   #1138
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Re: Canadian Online Poker Tax Thread

I have my own Corp for Software Consulting. If I play in a tournament in the U.S. can I pay entry via personal funds and if I win claim it through company and put winnings through the Corp?

Until this thread I've never thought of poker being part of my business. Especially since I am a microstakes player now who plays smaller buyin events during WSOP (usually other casino deepstack events).
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Old 03-09-2010, 11:34 AM   #1139
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Re: Canadian Online Poker Tax Thread

If you only occasionally play tournaments then it is not taxable and buy having your corp pay for your entry fee that payment would most likely be considered income for you personally.
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Old 03-09-2010, 11:48 AM   #1140
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Re: Canadian Online Poker Tax Thread

Quote:
Originally Posted by TaxGuru View Post
It should be mentioned that incorporation does little for you if you are intending to dividend out all (or substantially all) of the income each year.

It should also be mentioned that playing "as a corporation" is not automatically permitted by the terms of use of various sites.
Well I want to save and invest the majority of my earnings for 2010 as I won't need to spend the bulk of it. Does that still make sense?

It'd be great if anyone who has incorporated for poker could say how it's been working; comment on the monetary benefits.
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Old 03-09-2010, 12:00 PM   #1141
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Re: Canadian Online Poker Tax Thread

Once you pay corp tax on it in one year then you are free to use the money
any way you wish afterwards and only pay corp tax on its income.

A corp isn't for every one - you need to think there will be ups and downs and that you will be making money over a long period of time.

I know people who have made substantial money one year and draw out
a base salary. The balance then is invested by the corp to provide
ongoing salary to the owner over a period of time, like an annuity, that grows
with each profitable year.
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Old 03-09-2010, 03:20 PM   #1142
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Re: Canadian Online Poker Tax Thread

So for the first year, let's say I make 100k. I take a base salary of 50k. I then pay personal income taxes on the 50k and corp taxes on the other remaining 50k?

Can I tax avoid through rrsps or flow through shares on the corp's 50k?
So after the first year I can simply withtdraw the corp's 50k from the previous year and pay it to myself or invest it?

"A corp isn't for every one - you need to think there will be ups and downs and that you will be making money over a long period of time."

Just curious what that meant exactly. Not really getting what you're saying. Why wouldn't every tax paying poker player go the corp route?

Thanks again.

Also, I'm in Manitoba if that makes a difference on anything.
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Old 03-09-2010, 03:51 PM   #1143
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Re: Canadian Online Poker Tax Thread

So for the first year, let's say I make 100k. I take a base salary of 50k. I then pay personal income taxes on the 50k and corp taxes on the other remaining 50k? Correct.

Can I tax avoid through rrsps or flow through shares on the corp's 50k?
So after the first year I can simply withtdraw the corp's 50k from the previous year and pay it to myself or invest it?
You have no easy ways of reducing the corp's share of tax (though it is lower than personal taxes). Once you pay corp tax on the 50k left in from a prior year, then you can withdraw it as salry (and pay personal tax) and the corp gets a deduction for that 50k. If in that 2nd year the corp made money, it would pay tax on 50k less. If it lost money, it would have an extra 50k loss and you could then carry it back to the prior year and get a refund cheque for the corp's taxes on that 50k.
Also note you pay less tax making 50k over 2 years than 100k in one year.

"A corp isn't for every one - you need to think there will be ups and downs and that you will be making money over a long period of time."

Just curious what that meant exactly. Not really getting what you're saying. Why wouldn't every tax paying poker player go the corp route?

Tax issues depend on a million circumstances that might be unique and advice depends on each situation which is why giving advice without knowing exact situations doesn't work or mean much.

If you don't expect to be making money for a long period of time, aren't making much total, can't be bothered to keep up with the filings, wish to keep your play private (from a spouse say), have legal concerns about poker in the future, don't care about potential RRSP room, wish to avoid the CPP contributions required, have banking problems, have so much money you can't effectively invest it in the corp, need to show personal income either high or low for some reason or various other concerns, then a corp may not work for you.

Only you can know which factors may be significant enough to tilt your decisionmaking.

Last edited by TorontoCFE; 03-09-2010 at 03:58 PM.
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Old 03-10-2010, 04:20 AM   #1144
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Re: Canadian Online Poker Tax Thread

Quote:
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1) I am not aware of anything related to banks investigating cheques greater than $1000 from online merchants. The only concern that I'm aware of is that the bank will report you to FINTRAC for suspicious transactions usually that involves amounts of $10k or more. The only time amounts less than $10k are reported is if the pattern looks like you were intentionally trying to avoid hitting the $10k trigger.

2) If you have been winning consistently for a year and a half then yes you are likely legally taxable. That being said if you don't report it the chance of ever having any issues is very very small. The consequences should you get caught are also likely not that significant if you do nothing to actively hide winnings and are able to pay. I think that makes it +EV to not report but that is a personal decision based on your risk tolerance, morality toward taxes, and how visible you are.

3) Getting a mortgage is going to be an issue. Anti-money laundering legislation requires that the source of down-payment have a 90 day history. You need to get a second bank account to keep the down-payment funds separate from cash outs. You also can't just apply for a normal mortgage -- you'll need what is called a NIQ mortgage. These are considerably harder to get and typically you are looking at 65% LTV although I do have someone who claims they can do 80% LTV but I'm not certain if he is going to pull it off. You are going to have to explain the source of future payments to the lender which means putting something on paper about your pro status. That could cause future issues should CRA ever come around.


What is considered actively hiding winnings?
What you use something like Moneybookers with a prepaid card is that considered actively hiding money?
Or would you be better of cashing out directly to your Bank account?
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Old 03-10-2010, 07:33 AM   #1145
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Re: Canadian Online Poker Tax Thread

Last I checked the Moneybookers card is only available to European players so using a European bank account and address to get one seems elaberate for the sake of convenience so might be hard to explain.

More importantly though you know have this cash from the ATM -- what do you do with it? If you just put it in a bank account / investment account then the whole elaborate effort to avoid bank wires is a waste of effort.
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Old 03-10-2010, 02:51 PM   #1146
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Re: Canadian Online Poker Tax Thread

Quote:
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Last I checked the Moneybookers card is only available to European players so using a European bank account and address to get one seems elaberate for the sake of convenience so might be hard to explain.

More importantly though you know have this cash from the ATM -- what do you do with it? If you just put it in a bank account / investment account then the whole elaborate effort to avoid bank wires is a waste of effort.

Ok, lets take entropay (located in gibraltar (part of uk)) that its a new Merchant that offers virtual credit cards to Canadians with a Plastic master card that can be used to get cash or pay at a store. Could you argue u use it because this where the only company u know that would provide u with a credit card for example!?
What do you do with cash!? Well cover living expenses for now would good enough. How about putting money on saving accounts in different countries.
Would that consider be hiding even if it is my ex-home-country?

thx for the answer
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Old 03-10-2010, 03:06 PM   #1147
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Re: Canadian Online Poker Tax Thread

If you start keeping money in foreign bank accounts that would be enough I think.

Further, these funds would be generating returns I presume so you'd need to be declaring that that to CRA as you are taxed on your global income.
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Old 03-10-2010, 03:20 PM   #1148
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Re: Canadian Online Poker Tax Thread

So putting money on foreign accounts would be considered hiding even if you declare the interest you are making on those accounts!?
How about the entropay thing alone, just for living expenses?

And again I appreciate your answers
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Old 03-10-2010, 03:45 PM   #1149
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Re: Canadian Online Poker Tax Thread

If you declare the interest then they know about the funds so why would you be bothering to keep the money in foreign accounts? If you have a legitimate purpose for it then that is different but I assumed your intent was to hide it.

With respect to the use of the card it is like anything else -- was their a legitimate reason for you using it? I think so. You need to cash out and they offer the service so assuming it wasn't subject to fees that were insane it should be fine.
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Old 03-10-2010, 03:56 PM   #1150
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Re: Canadian Online Poker Tax Thread

Well, there is the option to cash out on a checking account or credit card with no fees at all. I do not know about the fees of entropay yet but i guess they are quite high. So what if you put a little bit here and a little bit there. aka luxury living expense on entropay normal living expense on Canadian checking account + savings for instance.

+ You have a PM THX
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