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This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: [TaxInterpretations translation] Does the taxpayer, who engages in sports betting on the Internet, operate a business?
Position: Question of fact. We have referred the representative to the criteria listed in Interpretation Bulletin IT-334R2.
Reasons: Income Tax Act
From: Bordeleau, François
Posted: November 9, 2009 12:16 PM
TO: XXXXXXXXXXX
Subject: Sports betting on the Internet - 2009-033728
Importance: High
Dear XXXXXXXXXX,
Thank you for your email dated October 19, 2009 regarding the above topic.
In order to answer your question, I wish to refer you to Interpretation Bulletin IT-334R2, Miscellaneous Receipts, which discusses the taxation of various amounts received by taxpayers. Section 3 of the Income Tax Act (the "Act") brings into income, for tax purposes, a taxpayer's income from all sources and the taxable portion of capital gains net of allowable capital losses. Thus, in order to determine how an amount will be treated for tax purposes, it is necessary to identify its source, whether it is an employment, an office, a property, a business or any other source not listed. You can consult this Interpretation Bulletin by accessing the Canada Revenue Agency's Web site at http://www.cra-arc.gc.ca/E/pub/tp/it334r2/READ-ME.html.
Where a taxpayer derives income from placing sports bets, it is necessary to determine whether the taxpayer's activities are such that it can be concluded that a business exists.
Under IT-334R2, profits derived from bookmaking or from the operation of any gambling establishment constitute income from a business. In addition, an individual may be subject to tax on income derived from gambling itself, if the gambling activities constitute carrying on the business of gambling. Whether or not an individual's activities are such that the individual can be considered to be carrying on a gambling business is a question of fact that can be determined only by an examination of all of the circumstances and the taxpayer's entire course of conduct. Although no one factor may be conclusive, the following criteria should be considered in making that determination:
(a) the degree of organization that is present in the pursuit of this activity by the taxpayer,
(b) the existence of special knowledge or inside information that enables the taxpayer to reduce the element of chance,
(c) the taxpayer's intention to gamble for pleasure as compared with any intention to gamble for profit as a means of gaining a livelihood, and
(d) the extent of the taxpayer's gambling activities, including the number and frequency of bets.
The corollary of the above is that an activity that does not have a reasonable expectation of profit cannot be a source of income. Where there is no expectation of profit, neither amounts received nor expenses incurred are to be included in computing income and any excess of expenses over revenues is a personal or living expense, whose deduction is not permitted under paragraph 18(1)(h). However, if the hobby results in more revenue than expenses, this is a clear indication that the pastime is a business carried on with the expectation of profit.
By examining your client's circumstances, in particular the fact that your client has earned more than $20,000 as of October 2009, we conclude that there is a source of income and, therefore, that the amounts received are taxable. However, we reiterate that this determination is a factual determination that is the responsibility of the Tax Services Office in the region where your client lives.
We hope that we have answered your questions.
Best regards,
François Bordeleau, LL.B.
Manager
Business and Partnerships Section
Income Tax Rulings Directorate
(613) 957-8972.
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