A November 25, 2022 French Tax Court of Canada case considered whether a taxpayer’s poker activity constituted a source of business income and therefore the winnings were taxable, as argued by CRA. The taxpayer argued that his winnings were non-taxable as they were derived from his hobby rather than a business. The taxpayer generated poker winnings each year from 2008 to 2011, ranging from $156,855 to $573,882.

Taxpayer loses
Where an activity can be considered both a hobby and a business, the Court will examine whether it is carried on in a sufficiently commercial manner. If carried on in a sufficiently commercial manner, the activity would be from a business and therefore proceeds taxable. The Court analyzed various elements of the taxpayer’s gambling activities, noting the following.
– The taxpayer’s activities were much more than entertainment; he played for a living. It was his sole source of income and he devoted almost all of his time to it. Although the taxpayer reported to CRA that he only played 10 hours per week, CRA was able to demonstrate that he was playing over 50,000 hands per month at a rate of 765 hands per hour, averaging over 30 hours/week for at least two of the years in question.
– The taxpayer had demonstrated over the four years an ability to make profits on a consistent and regular basis even though he could not predictably control each specific game. The purchase of a residence in Quebec and a condo in Florida indicated confidence in his ability to generate income.
– Despite an unusual lifestyle (frequent parties and travelling), he behaved like a serious businessman by, for example:

•  using various strategies depending on table limits and strength of opponents;
•  playing high volumes of games at low-limit tables against weaker players;
•  using software that provided information on the tendencies of opponents;
•  tracking and analyzing his own monthly statistics;
•  buying and selling shares of player entries in large poker tournaments (such as a 5% purchase in Jonathan Duhamel’s 2010 world poker championship win); and
• constantly reinvesting a portion of winnings into gambling.

The Court found that the taxpayer “had a subjective intention to make a profit, and that he used his expertise and ability to earn a living in poker, a game of chance where skill is a strong consideration.” Therefore, the earnings were taxable as business income. Further, the Court noted that this result was not inconsistent with another recent poker winnings case in which the much larger winnings were not considered taxable. The results in that case were different as, although the evaluation criteria were the same, the facts were different.

ACTION: Earnings from gambling and hobbies may be taxable depending on the intention and circumstances surrounding the earnings. If in doubt as to the tax status, consult a tax advisor.

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