21 February 2012 External T.I. 2012-0432251E5 - Online Poker

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether the income from playing online poker is taxable

Position: Question of fact - additional information required

Reasons: Factors used to determine whether it is a business or hobby are outlined in IT-334R2

XXXXXXXXXX
									2012-043225
									A. Townsend
February 21, 2012

Dear XXXXXXXXXX :

Re: Online Poker

This is in response to your fax dated December 23, 2011 asking whether online poker profits are considered income from a business or are non-taxable income such as lottery winnings. In addition, you are asking whether the tax treatment is different for an individual whose only source of income is from online poker, as compared with an individual who otherwise has full time employment. Also, you asked if the winnings from non-Canadian online sites are treated the same as winnings from Canadian online sites.

It is not this Directorate's practice to comment on transactions involving specific taxpayers other than in the form of an advance income tax ruling. However, we can offer the following general comments that we trust will be of some assistance to you.

All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").

The determination of whether a person, who plays online poker, is carrying on a business in the pursuit of profit, is a question of fact that can only be determined on a case by case basis. Paragraph 10 of Interpretation Bulletin IT-334R2 Miscellaneous Receipts, lists some of the factors that are used in making the determination:

• The degree of organization that is present in the pursuit of this activity by the taxpayer,
• the existence of special knowledge or inside information that enables the taxpayer to reduce the element of chance,
• 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
• the extent of the taxpayer's gambling activities, including the number and frequency of bets.

In addition, paragraph 11 of IT-334R2 discusses the fact that any activity or pursuit, regardless of the source of income, must have a reasonable expectation of profit to be considered income from a business. Where a reasonable expectation does not exist the activity may be considered a hobby and amounts received and expenses incurred, are not included in the computation of income. Additional factors used by the Courts in the determination include the depth of knowledge, skill and the efforts made to minimize the risk of loss.

The fact that an individual's primary source of income is from playing online poker is an indication that the individual is carrying on a business, as compared to an individual who has full-time employment and plays online poker as a hobby in their spare time. However, the issue of whether or not an individual's activities are such that he or she can be considered to be carrying on a 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.

In accordance with subsection 3(a), the income of a taxpayer resident in Canada is the total of all amounts from an office, employment, business and property from a source inside or outside Canada. Therefore, online poker winnings are treated the same under the Act regardless of whether the winnings result from a Canadian or non-Canadian website.

We trust these comments are of assistance.

Yours truly,

Doug Watson
For Director
Business and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch