As we previously reported, the Canada Revenue Agency (CRA) thought that Jonathan Duhamel, the winner of the Main Event of the World Series of Poker (WSOP) in 2010 was a professional gambler, and that he conducted himself as a professional gambler. Thus, his gambling winnings should be subject to Canadian income tax. Mr. Duhamel argued that poker is a game of chance and not subject to tax in Canada, and that even if it were a game of skill Mr. Duhamel did not conduct himself as a professional poker player. The case was tried in front of the Tax Court of Canada last November, and a decision was released late last month. (I am indebted to a friend of mine who speaks French for translating the key points of the decision — his translation runs 40 pages.)
The evidence as presented to the court showed that Mr. Duhamel was bad at recordkeeping. He apparently only kept track of his tournament results, and never tracked cash games (even though he played lots of cash games). For a Canadian who doesn’t want to be considered a professional gambler, bad recordkeeping appears to be a plus as this was a factor that influenced the court.
(Of course, if you are an American—and this blog caters to Americans—a warning is needed. Bad recordkeeping is not what you want to do as either an amateur or a professional gambler in the United States. All gamblers in the United States must pay tax on their winnings, and a gambling log is a must. But I digress….)
The Court noted (as translated) [1]:
Because the evidence shows that chance is a very important element in poker game results, that Mr. Duhamel’s poker game activities do not demonstrate an ability to generate profits, that the probability Mr. Duhamel’s ruin in his poker gambling business is well over 50% (but less than 87%), that Mr. Duhamel does not act like a serious businessman in his poker gaming activities, that Mr. Duhamel has not developed any system for managing or mitigating risks in connection with his poker gaming activities and that the financial results of his tournaments do not show any consistency or progress in the results, the Court concludes, on a balance of probabilities, that Mr. Duhamel’s poker gaming activities are not carried on in a sufficiently commercial manner to constitute a source of business income for the purposes of the Act. Accordingly, the net earnings from Mr. Duhamel’s poker gaming activities should not be included in the calculation of his income under sections 3 and 9 for the 2010, 2011 and 2012 taxation years.
The court looked at the activities of Mr. Duhamel, and found that he acted as an amateur; for Mr. Duhamel, this decision is excellent news. Mr. Duhamel won in part because he didn’t act like he was in business.
However, there is bad news implicit in this decision for some Canadian professional poker players: It’s clear that there are Canadian poker players who consistently make their living from poker, and who would likely be considered professional gamblers if the CRA were to look at their activities. I don’t practice in Canada, but I would advise any Canadian professional poker player to seek advice from a Canadian tax professional who understands gambling activities and this decision.
[1] This paragraph in French reads, “Puisqu’il ressort de la preuve que le hasard est un élément très important dans les résultats au jeu de poker, que les activités de jeu de poker de M. Duhamel ne démontrent pas une capacité de générer des profits, que la probabilité de ruine de M. Duhamel dans le cadre de ses activités de jeu de poker est bien supérieure à 50 % (mais inférieure à 87 %), que M. Duhamel n’agit pas comme un homme d’affaires sérieux dans le cadre de ses activités de jeu de poker, que M. Duhamel n’a mis au point aucun système de gestion ou d’atténuation des risques dans le cadre de ses activités de jeu de poker et que les résultats financiers de ses tournois ne démontrent aucune constance ni progression dans les résultats, la Cour conclut, selon la prépondérance des probabilités, que les activités de jeu de poker de M. Duhamel ne sont pas exercées de manière suffisamment commerciale pour constituer une source de revenu d’entreprise aux fins de la Loi. Conséquemment, les gains nets tirés des activités de jeu de poker de M. Duhamel ne doivent pas être inclus dans le calcul de son revenu aux termes des articles 3 et 9 pour les années d’imposition 2010, 2011 et 2012.”