The following is not to be considered tax advice. PokerNews Canada is not liable for any actions taken based on this article.
Happy tax season, Canada! You have a little over a week to get your taxes filed and poker players are in their annual confuddled state, trying to figure out exactly what the law states about poker winnings.
If you don’t play professionally, the answer is easy: You don’t owe any taxes on your poker winnings. Lottery and gambling windfalls are not taxed in Canada because of the guiding principal that the gambling is done with after-tax dollars. Therefor, any winnings are exempt from tax.
For those of you who play poker for a living, the answer is a lot more murky and can only really be provided by an accountant who has taken a look at your personal circumstances.
Money earned from poker becomes taxable when it is income from a business. However, the line where poker becomes a business is frustratingly vague. For a person to be in the business of gambling, it would have to be provable that they expect to receive a recurring income and that the income was earned by their pursuit of profit.
Lottery and gambling windfalls are not taxed in Canada.
Ultimately, it must be decided on a case-by-case basis whether an individual is in the business of gambling.
Of course, as a business, expenses incurred in the pursuit of earnings would have to be deductible. Travel, accommodation, buy-ins, software, computer equipment, and more would all be business expenses. Because of this, Canada Revenue Agency doesn’t want players to be able to easily declare their gambling a business, because anyone who visited a casino could declare all of their losses as business expenses.
There have only been a few cases in all of Canadian case law where individuals have been found to be in the business of gambling. This is only in exceptional cases of very active, very profitable, and very skilled gamblers.
The Federal Court in 2013 (Radonjic v. Canada Revenue Agency) and the Tax Court of Canada in 2011 (Cohen v. The Queen) both closed their cases by determining the poker players in question were not conducting a gambling business.
Money earned from poker becomes taxable when it is income from a business.
In the case of Cohen, the player was a lawyer who quit his day job to become a professional poker player. He played a busy schedule of 35-50 hours a week and testified that he had a winning strategy of playing against inexperienced players. It was concluded that Cohen was a hobby player.
In the case of Radonjic, the player successfully supported himself for more than three years by playing online poker. He was also declared a hobby player.
The Federal Court made statements at the time that the frequency and intensity of playing online does not equate to a system of winning. Also, all players try to improve their odds of winning by having a winning strategy, so studying and practicing also doesn’t equate to a system of winning. Lastly, it was stated that setting up a method of payment to collect online winnings is not an indicator of a system.
Any poker player could have all of those things in place (playing many hours a week, dedicating time to studying and improving skills, and having online payments regularly transferred into a bank account) and still be considered a hobby player.
It must be said that these cases do not necessarily set a precedent for all poker players. Again, all players must be determined on a case-by-case basis whether they are conducting a gambling business.