Taxes aren’t something we enjoy. The word ‘tax’ itself mean to burden, and it is never nice to see a chunk of your hard-earned income come out of your pocket. When a poker win comes in, the last thing on your mind is taxes. Your heart is thumping too loud to hear the rational, sensible part of your brain. But it is there, and unfortunately it is something that you need to be aware of.
As a Canadian, however, your poker face has to be on form. Why? To hide that smile you have lingering before even picking up the cards. That secret smile comes from knowing that your winnings are tax-free.
Of course, there are some limitations. Poker must be recreational and not a business. Canada Revenue Agency’s position on gambling is that:
An individual may be subject to tax on income derived from gambling itself, if the gambling activities constitute carrying on the business of gambling. (learn more about Gambling taxes in Canada).
A professional poker player can be taxed, as it is then a matter of gambling as a business, with the pursuit of profit.
Generally, if you are playing poker in your spare time – albeit winning a lot of money – then it is currently tax-free. This also means that if you are not doing so well you can’t claim your losses.
A great example of how the Canada Revenue Agency view poker came in 2011, when Toronto lawyer Steven Cohen filed a $122,000 loss from poker as a business expense. He had previously quit his legal career to pursue one in poker, travelling to tournaments and playing over 2,500 hours. He brought books on the subject and attended a seminar, with the idea of making $150,000 during his first year and then $500,000 annually thereafter. However, his business plan was slight, without detailed budgeting or financing.
The CRA and the Tax Court of Canada ultimately disallowed the claim that he was entitled to deductions as a professional player, as his gambling was not a legitimate business. As reported by The Globe and Mail, the judge ruled that: “I cannot find that [Mr. Cohen] demonstrated that he conducted his venture in such a manner as to constitute a profession, calling, trade, undertaking, or adventure or concern in the nature of trade so as to fall within the definition of a business.”
This shows where the lines are shaky, as even though Mr Cohen believed he was running a business, it was not so in the eyes of the law. If you are a Canadian playing poker for the enjoyment of the game – even if you’ve attended tournaments – then no matter how much you win, your earnings are tax-free.
It is a great time to be a Canadian poker player, but be aware that the rules may change in the future and this is only true of when the article was written. Now, go out there and try to keep that tax-free smile hidden.
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