John Balanko v. Minister of National Revenue, [1981] CTC 2977, 81 DTC 887

M J Bonner:—This appellant appeals from assessments of income tax for the 1974, 1975 and 1976 taxation years. The assessments were made on a net worth basis. The parties were agreed that the figures were correct, and it was common ground that the source of the increments to net worth was gambling gains. The sole issue was whether the gains in question resulted from a gambling business carried on by the appellant, or whether the appellant’s gambling activities did not constitute a business.

The evidence indicated that the appellant’s gambling activities took three principal forms: wagers on horse races, wagers on other sporting activities, and card games. The card games in which the appellant was involved took place in two locations. One was at the office of the witness, Herman Ventress. The appellant participated in those games as often as three times a week. I gather Mr Ventress was the organizer of the games. Certainly the appellant was not; he was merely an invitee.

In the latter part of the period in question here, the games in which the appellant participated took place at the Siroza Club, which was a social club located at or near a pool hall. The appellant was employed to run that club, but it was not shown that he was the organizer of the games. He was interested financially in the club only as a $150-a-week employee, and as one of the persons who leased the premises occupied by the club.

The appellant denied having any interest in the take or percentage — or in any take or in any percentage of wagers which went to the house.

On the evidence, I would characterize the appellant’s card-playing activities both at the Siroza Club and at the Ventress office as having been undertaken in the character of a customer as opposed to that of a proprietor of a gambling establishment. The appellant played, he said, because he enjoyed it.

The appellant’s trips to the horse races do not appear to have been either regular or particularly frequent during the years in question.

The appellant’s evidence as to wagers on sporting events was that he did not enjoy watching sports unless he had made a wager on the outcome. The bets made by the appellant appear to have varied in amount, but they appear to have been very substantial, at least in some cases, and certainly on a cumulative basis.

The appellant from time to time borrowed money to finance his gambling activities. Save for gambling, he had no substantial source of income, and no significant occupation apart from the previously mentioned employment at the Siroza Club, which was during the latter part of the three-year period.

There can be no doubt that the appellant freely indulged his inordinate passion for gambling, but I cannot conclude that in doing so he carried on a business. Counsel for the Minister stressed that the appellant gambled with a view to profit. However, it must be observed that such an intention is one shared by all who gamble, and the presence of the intention to win or make money in gambling, which is there in all who gamble, does not lead to a conclusion that all who gamble, or even all those who gamble frequently, are carrying on a business.

Counsel for the Minister stressed that the appellant took risks, and that he borrowed money in order to carry on his gambling activities. While risktaking is necessary in a business, it is management or minimumization of risk which is the characteristic of business activity. For example, in the case of an insurer, he would have regard to the statistical incidence of losses in deciding whether to insure or how much to charge for coverage. There is a total absence of any evidence here which indicates the presence of any organized system for the minimization or management of risk. This lack of system distinguishes the appellant, an intemperate gambler, from the professional gambler. In this regard, reference should be made to the decision of Rowlatt, J in Graham v Green, [1925] 2 KB 37. The appeals will therefore be allowed, and the assessments referred back to the Respondent for reconsideration and reassessment on the basis that the appellant’s gambling gains formed no part of his income during the years under appeal.

Appeal allowed.