Originally Posted by TaxGuru
Incorrect. When all the cases are consistent, they are correct. Given the lack of specificity in the Income Tax Act and the fact that we have a self-assessing income tax system, it is more reasonable than not to regard the case law as being the prevailing law on the issue.
This isn't a question of law -- every decision takes the time to explicitly state that gambling winnings from a professional gambler are income from a taxable source. They then conclude that the individual before them is not a professional gambler which is a question of fact.
The reason you have consistent outcomes is that CRA uses the same losing argument in every case. CRA continuously attempts to argue that someone is a professional player based on a combination of working backwards from the outcome and an attempt at extrapolation of the player's intent from his behaviour. That wasn't a bad argument to try the first time but once it has been rejected several times that CRA continues to try to be successful using an argument the court has made more than clear is insufficient is incompetence. That doesn't change the fact that it would be easy (although possibly costly) to win one of these cases if CRA presented the argument the court has been telegraphing it needs from day one.
Of course, you are free to disagree with the outcomes of the cases from a policy perspective. Attacking the intelligence or competence of the administrators of the tax system and also those adjudicating disputes thereunder seems rather puerile.
One of my torts exams involved a question where grounding. Students who somehow managed to get into their 20s without knowing what it means to ground something applied the law correctly but got the wrong answer because they didn't understand what they were talking about. This is what is happening here. Every decision shows a lack of understanding about basic probability. The law is being applied correctly but the person applying it does not understand math or gambling.
With respect to CRA I have never had any dealings with them (unrelated to gambling) where I have not walked away thinking the person was incompetent. When it comes to gambling as a business cases they repeatedly advance an argument that they know is a loser hoping for a different outcome. Why would anyone expect that? It hasn't even occurred to them that if you read the decisions the court is telling CRA what it needs to find someone a professional gambler.
Then there is how CRA deals with the gambling evidence. Take the Proline case -- the bettor had an expert testify that given how terrible the payouts on the lottery parleys were it was impossible regardless of skill to be +EV. That is very likely true if we didn't consider that the OLG at the time was publishing locked lines as much as seven days in advance. That completely changes everything but the Leblanc's expert didn't take that into consideration and CRA never caught that. OLG understood what was happening and made changes so that people could not exploit the sports lottery the way the Leblancs had. CRA lost the Leblanc case because they didn't understand sports betting.
If I were a judge faced with a gambling tax case now, I think it would be very challenging to counter the accumulated case law to find a poker player taxable.
There is no accumulated case law to counter -- every single decision explicitly states that winnings by a professional player are income from a taxable source. That in these cases the judge then proceeds to (in some instances) incorrectly decide that the individual before them is not a professional player is a question of fact. These cases don't set any precedent -- at most they give limited insight into what criteria the court considers sufficient to consider someone a professional (or since CRA loses all of them -- what the court considers insufficient). The court makes it very clear what CRA needs to do to be successful and when CRA starts to do that they will start winning these cases -- as long as CRA keeps presenting the losing argument they will keep losing. It is really that simple.