How is gambling taxed in Canada?

[Mr_J]

AFL is a little gay.

[47outs]

I am familiar with the thread.

The friend of mine has told me stories of audits he has done. One in particular was a professional sports bettor. There is no question that gamblers have been audited before in Canada, but for the time being, poker players need not worry (unless your dragging 100k+, every year).

You say my advice is bad? My advice saying don't worry about the taxes? Show me 3 canadian poker players that have gotten audited, EVER.

Unless there is a major shift of policy and focus by revenue Canada, poker players need not worry about filing taxes.

I cannot explain the situation myself as well as it was explained to me. But he is an expert on it and gave me the advice i have passed on. I would bet that there is noone on this forum who is better qualified than he on the topic, so why do you say his advice is bad?

outs

[sumdumguy]

The friend of mine has told me stories of audits he has done. One in particular was a professional sports bettor. There is no question that gamblers have been audited before in Canada, but for the time being, poker players need not worry (unless your dragging 100k+, every year).
Q1. Did the pro sportsbettor have to pay taxes?
Q2. If it's not taxable, why would I suddenly have to worry if I'm over 100K a year for the last two years?

Unless there is a major shift of policy and focus by revenue Canada, poker players need not worry about filing taxes.
Are you suggesting: It is not that pro gambling is not taxable, but rather at this time, CRA does not consider auditing poker players to be efficient? Thus, they are not actively enforcing this matter? Kind of like easily getting away with not declaring tips as income 25+ years ago?

[47outs]

[ QUOTE ]

Are you suggesting: It is not that pro gambling is not taxable, but rather at this time, CRA does not consider auditing poker players to be efficient? Thus, they are not actively enforcing this matter? Kind of like easily getting away with not declaring tips as income 25+ years ago?

[/ QUOTE ]

You have summed it up well.

The efficiency part of it all has to do with so many things. I was explained a portion of what would have to be done to successfully audit a poker player. The 100k figure was an example he used in describing my specific situation (and his). As I am not close to this figure annually, 100k helped put things into perspective for myself. I'm sure this figure has no relevance or legal weight, just an example.

outs

[TorontoCFE]

First, 95% of all ACCOUNTANTS do not understand the tax laws and gambling well enough - As an accountant, I deal with dozens all of the time and the truth is they hear "gambling" and they default to the taxfree answer.
This is not uncommon - 99% of people think that selling stock results in capital gains/losses. The truth is that if trading stocks is done to seek a profit, with the intention of selling quickly,etc., then that becomes business income and NOT a capital gain. It is not uncommon even for professional tax advisors to get that wrong.

Secondly, the major policy shift that you speak of is very likely in my opinion. In my dealings with the CRA, at a level above the tax auditor level, I have sounded them out about their position and have the impression that they are definitely aware of the growing poker industry, that they want those tax dollars and will take action once it becomes efficient to get them.

My goal in informing people about potential tax liability is not that everyone has to pay taxes but that they should not be surprised if the CRA takes the opposite position.
If you were to go to court, then you very likely would lose.
TECHNICALLY, you would be breaking the law. The only justification for a PROFESSIONAL poker player to not pay taxes is 1. they don't think they will get caught or 2.
they are relying on historical precedent.
Intrpretations change all the time according to political and economic desires. Not everyone would or should be comfortable with breaking the law on on the basis of low risk of penalty - and that risk will only go up over time. My position is and always will be that 99% of poker players need not worry about paying taxes - but there are people out there on this forum that should seriously consider it because the risk is there whether people choose to flaunt it or not.

Third, I am personally aware of 4 cases of audits of proefessional players. 2 are ongoing and 2 were resolved in the favour of the taxpayer. Just because they do not go to court does not mean they are not happening - most cases are resolved at the arbitration level. I would expect that the CRA will decide to test the law and proceed to court as the potential tax income becomes too big to ignore.

While the sky is not falling, my goal is to challenge assumptions people make about tax and warn them that they could be at risk.

Fourth, I would lay heavy odds that my tax knowledge in this area would not be an underdog to anyone on or off this forum.

I always take issue with tax advice that goes "even though you are breaking the law, you won't get caught, so don't worry"....
Too much risk potential for me.

If Daniel Negreanu still lived in Canada and chose not to pay taxes, do you think the CRA would go after him?
If they would go after him, then there must be a line where they will choose to pursue you. Why would a serious player try to guess where the line is?

[Tuco]

[ QUOTE ]
You say my advice is bad? My advice saying don't worry about the taxes?

[/ QUOTE ]

Dude, someone asked if they should MOVE to Canada because poker winnings in non-taxable. Just because he might not get caught, telling him not to worry and MOVE here is not good advice.

[ QUOTE ]
Unless there is a major shift of policy and focus by revenue Canada, poker players need not worry about filing taxes.

[/ QUOTE ]

If the CRA does the expected and starts enforcing, do you think they might go back a few years and look under the hood? "...need not worry" seems like some seriously bad advice. Unless you have no problem handing over a check for a large amount of money, not to mention the legal fees to keep you out of some serious hot water.

[ QUOTE ]
I would bet that there is noone on this forum who is better qualified than he on the topic

[/ QUOTE ]

I'd like to make this bet. TorontoCFE is probably the most qualified in Canada, never mind this board.

Please refer to his most recent post where he also tells you that your advice is bad.

Tuco.

[47outs]

[ QUOTE ]

Dude, someone asked if they should MOVE to Canada because poker winnings in non-taxable. Just because he might not get caught, telling him not to worry and MOVE here is not good advice.


[/ QUOTE ]

I see your point and your right. Although noone actually does pay taxes on poker winnings, it isn't very good advice.


[ QUOTE ]

If the CRA does the expected and starts enforcing, do you think they might go back a few years and look under the hood? "...need not worry" seems like some seriously bad advice. Unless you have no problem handing over a check for a large amount of money, not to mention the legal fees to keep you out of some serious hot water.


[/ QUOTE ]

A lot of players are still trying to figure out if they are actually winning players after a 'few' years. To tax someone based on earnings (which are very hard to prove) occured in the last 'few' years could prove irresponsible, especially if the particular player has been more lucky than not. Poker is still a winfall in Canada and thus largely untaxable, ie. gambling.


[ QUOTE ]

I'd like to make this bet. TorontoCFE is probably the most qualified in Canada, never mind this board.


[/ QUOTE ]

Your right again, I forgot about TorontoCFE and his previous explanatons on this topic. I still think he a too conservative at this point in the game.


outs

[teddyFBI]

[ QUOTE ]
Gambling is tax free if it is considered a windfall.
If there is an expectation of profit it is taxable.
Now everyone hopes they will win when they gamble but if you play regularly and the primary reason you play is because you do win consistently then i would say it is taxable.

[/ QUOTE ]

correct.

[sumdumguy]

[ QUOTE ]
The tax laws here for gambling income are very ambiguous. The general consensus is that you have to pay taxes if gambling is your primary source of income.

[/ QUOTE ]
The laws aren't exactly ambiguous. Or at least, they become very clear once one researches past court rulings and examines the "reasons for judgement" that justices painfully prepare, but few care to read. What is ambiguous, is how "we" approach our accountants and CRA when asking the question: Is gambling taxable?

If you asked a public accountant, CA or CGA, or ask a supervisor or auditor at CRA the question: Is gambling taxable? The reply will be 99.99% of the time: No it is not. It is considered windfall profits, just as windfall losses are not deductible.

If one is less ambiguous, that is, did not withhold information: What if I employed PT and GT+, applied material from TOP, HPFAP, and SSH, have a limited hand selection that is situationally adjusted, have a multi-year history with no end of year loss, and "expected" my endeavor to be profitable at the end of most taxation years?

Their response: It is not a windfall profit (or loss). It is income, which is taxable, and future losses are also deductible. Or to clarify, it is revenue, and one is entitled to deduct expenses associated with the generation of revenue, the net of which is taxable. It is a business organization or operation.

I've asked 2 CGA's, 2 CA's, my own company accountant (a CGA), my personal accountant (a CA in public practice) 1 CRA auditor, and 1 CRA supervisor, and the above is how they replied.

I dug a little deeper to find out why they don't make it a habit to audit suspected "pro" poker players that have not been reporting this income. The CRA supervisor gave me what I believe to be very sound reasoning. That is, as a vp of operations for more than a decade, I would hope my subordinates would make similar policy decisions with our company's limited resources. It would not be difficult for a small timer to get away with not paying taxes, as 47outs pretty much spelled out. But I wouldn't go so far as to advise someone that it would be "legal" or "risk-free" to do so.

It is relatively risk free for 47outs and his auditor friend. I'm sure his buddy would be among the first to know about a change in policy. One can always take advantage of the Volountary Disclosure Program; whereby, an individual taxpayer may disclose errors in past tax filings at no penalty. The right to exercise no-fault disclosure applies when the disclosure process begins prior to a CRA audit, and that the taxpayer comes totally clean. If one is later found to have withheld information, it can get nasty.

The policy may change in the very near future. In additional to TorontoCFE's suspicions, two accountants I've spoken with claim the policy is up for review. Further, a CRA auditor friend of a pro player I know has recently pressed him to come clean. The world is changing, the gambling market has grown considerably, and pro earnings are higher than ever.. this group of taxpayers may be deemed a higher audit priority and an efficient use of resources.


Other items of interest (which I hope I understand correctly),

Primary Income: There is no law that states a tax payer cannot have more than one vocation, nor any law that states only one vocation may be deemed taxable. Whether it is one's primary source of funds, would effect the probability of further investigation and likeliness of reassessment. There is no law that tax exempts gambling on the basis of secondary income.

Dollar Value: It seems the rich get richer. It is more difficult for CRA to assert that income is derived from gambling if you are rich. Presumably, with 500K in wages, with only 100K from gambling, they will tend to more easily believe one wagered big and simply got lucky.

Expectation of Profit: Is not merely what one in the here and now, or at the time, believed to be true. It can be equally interpreted to be a reasonable expectation of a reasonable man (or of CRA) based on an individual's performance history rather than what the individual taxpayer "claims" to be his actual belief or state of mind.

If one hears only that which they want to hear.. they are certifiable idiots. That we have pro players on this board that behave like this only supports my belief that any random retard can learn to beat recreational gamblers. On the other hand, if you make an informed decision to "gamble" with CRA.. that is your choice. I think most can get away with it. But that's something for you to deal with between your accountant and lawyer.

[M.B.E.]

[ QUOTE ]
I've asked 2 CGA's, 2 CA's, my own company accountant (a CGA), my personal accountant (a CA in public practice) 1 CRA auditor, and 1 CRA supervisor, and the above is how they replied.

[/ QUOTE ]
Nothing against any of those professionals, but I'd be more inclined to trust the opinion of a lawyer.