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Don’t Cheat the House

April 12th, 2012 No comments

Christopher Stone-Spyglass used to be a card dealer at the Gold Eagle Casino in Saskatchewan, Canada. He lost his job because he was caught cheating the casino.

Reported by the StarPhoenix, Spyglass pleaded guilty to theft over $5,000. Apparently, he falsely shuffled cards and dealt them in a set order, or flashed cards at blackjack players. He even let some players take their money back after placing losing bets.

Spyglass was ordered to pay $12,600 in restitution to the Saskatchewan Indian Gaming Authority.

Back in January, Spyglass was granted an adjournment so he could come up with some cash to pay towards his restitution and avoid a jail sentence.

At yesterday’s hearing, Spyglass still had no cash. Apparently, Spyglass had been expecting a $6,000 refund from his most recent tax return filing. Turns out he received no refund at all.

I prefer waiting to tell a client whether a refund is due until after the return has been finalized. I don’t want a client relying on the expectation that a refund may be likely. A 1099 may not turn up until after the initial preparation, for example, and that may reduce or eliminate the refund.

It sounds like Mr. Spyglass relied on his expectation of a refund to pay the Saskatchewan Indian Gaming Authority. The judge wasn’t sympathetic when Spyglass showed up empty handed, saying “It doesn’t sound like he’s put in much effort, to be frank.”

Fortunately for Spyglass, the judge adjourned the case for two more weeks to April 25. The judge is looking for Spyglass to pay $1,000 towards the restitution every two weeks. If he comes up short, he may have to serve time.

In the end, the house always wins.

Categories: Canada Tags:

Bellagio Backcheck

January 23rd, 2012 No comments

Len Barrie, 42, played for four teams in the National Hockey League, mostly during the 1990s. After retiring, he became involved in real estate development in the Victoria, British Columbia (Canada) area. In 2008, he leveraged his partnership in the Bear Mountain Resort to purchase the Tampa Bay Lightning.

His return to the NHL as an owner was short-lived, however, as the team was sold in 2009 amid allegations of irreconcilable differences between Barrie and his co-owner, Oren Koules. It appears Barrie seems to find himself in all sorts of disagreements.

As reported by the Times Colonist, the Las Vegas-based hotel and casino Bellagio LLC filed a notice of claim against Barrie in a Canadian court last week, seeking more than $2 million in unpaid gambling debts.

The statement of claim alleges that in May of 2008 the Bellagio extended to Barrie a $1.5 million line of credit, at 18 percent interest. At that rate, it makes you wonder if Barrie either expected to pay off the loan in very short time, or just wasn’t thinking.

And by the way, Barrie is scheduled to appear in Victoria court on February 23 to face charges for failing to file corporate tax returns on behalf of the Bear Mountain Resort in 2008 and 2009.

Categories: Canada, Sports Tags: ,

Taxation of Gambling Winnings in Canada

March 7th, 2011 3 comments

[Introductory note from taxdood: Join me in welcoming gamingcounsel as a guest author at Taxes in the Back. Be sure to check out his impressive mini-bio at the end of the post.***]

Brad Polizzano has written about US taxation rules as they affect non-resident gamblers. What about the rules in Canada? What if you play in a poker tournament in Canada? Are those winnings taxable? Does it matter if you’re a professional poker player or not?

In each case it will depend on a factual determination of whether you are carrying on the business of being a poker player or a gambler.

Source Income

Very generally, the “income” in respect of which one is taxed in Canada is one’s “income from source” as set out in the Income Tax Act[1] (the Canadian equivalent of the Internal Revenue Code). What is income from source? It is a productive source of revenue from an office, an employment, a property, a business, or (without limiting the generality of the foregoing) an “other source.” Income from betting or wagering isn’t from an office or employment, and it’s not conceptually like the rents, interest, royalties, or dividends that come from property. The courts in Canada have demonstrated a reluctance to extend tax liabilities to cover unenumerated sources (the “other source” referred to above) of income; it’s unlikely that any gambling activities would be included in unenumerated sources.

That leaves income from business. When one carries on business in Canada, whether as a resident or a non-resident, one is generally taxable on the profit associated with that business. So, can a gambler be carrying on the business of gambling? The answer is that it’s conceptually possible, but it’s not easy.

In order to carry on business as a gambler based on the decided cases, one has to carry on a business with a fairly high level of skill. The two most prominent cases where a person was found to be taxable on gambling winnings involved a professional golfer who made money wagering on his own performance in matches[2] and a snooker player who hustled drunks in money games.[3]

There is an old paragraph of the Act called “right to a prize” that provides as follows: “a taxpayer’s gain or loss from the disposition of (i) a chance to win a prize or bet, or (ii) a right to receive an amount as a prize or as winnings on a bet, in connection with a lottery scheme or a pool system of betting referred to in section 205 of the Criminal Code, is nil.”[4] While this language appears straightforward, this paragraph is of limited assistance and raises more questions than it answers; section 205 of the Criminal Code was repealed in 1985.

Lotteries, Games of Chance & Sports Betting

It’s safe to say that a person in Canada winning a lottery prize or winning at a game of pure chance (e.g., craps, roulette, or slots) is not subject to Canadian income tax on those receipts and, in fact, no modern reported case that I am aware of has found such receipts to be taxable. This makes intuitive sense as it would be difficult to imagine anyone actually making a commercial living based on pure chance.[5]

What about sports betting? In perhaps the leading case on the taxation of gambling winnings in Canada right now,[6] these kinds of winnings were not held to be taxable. The taxpayers in that case played the provincial sports lotteries. Even though they were financially successful, devoted themselves to the activity full-time, and had an organized and systematic approach to playing the lotteries and comparing posted odds to the Vegas odds, the court concluded that they were compulsive gamblers “continually trying their luck at a game of chance.”

The Poker Situation

Poker, however, provides an interesting possible counterpoint. Again, for most people, and certainly for the casual player, there will be a presumption against taxation of poker winnings as they will not be from a business. But what of the professional[7] poker player? Although there is no remotely recent case holding that a professional player is taxable on her profits from poker, it’s possible to see how such a case could be made by the government. Among other indicia, if a resident in Canada is successful in poker with solid and consistent profits from the activity over a number of taxation years, has no material income-earning occupation other than playing poker (or related to playing poker – sponsorships, for example), and is a student of the game and works at learning and improving her game, then it seems likely that that resident would be classified as carrying on the business of being a professional poker player and be taxable on her profits from the game.

One difficulty is that making an actual determination like this would be extremely difficult. Where is the tipping point at which a taxpayer makes the leap from an amateur player to a professional sufficiently devoted to poker, consistently winning, and making good money? These things are much easier to nail down in theory than in practice. This is part of the reason that the Canada Revenue Agency is reluctant to assess people as having income from carrying on the business of playing poker; if business profits are taxable, then business losses can be also used to reduce income from that business and (in the case of individuals) from other businesses or from employment. If the government gets overly aggressive with taxing poker players, it could eventually find that it results in a net drain on Canada’s tax revenues.

How could the tax laws in Canada apply in a land-based poker tournament being held in Canada pursuant to applicable provincial laws and regulations? This is an interesting question. An amateur player would likely not be taxable, but let’s assume that a professional poker player who is resident in Canada wins such a tournament. Again, based on an analysis that the player has the hallmarks of a professional poker player discussed above, those winnings would likely be included in the player’s income from a business.

What of a United States resident professional player winning such a tournament? Non-residents are generally taxable on income earned from carrying on a business in Canada, and “carrying on business” in this context is broadly defined.[8] However, the Canada-US Income Tax Convention (the “Treaty”) provides that where a US resident is carrying on business in Canada, the business profits are taxable by Canada only if the US resident is carrying on business through a permanent establishment. Permanent establishment in the Convention is an inclusive definition, which means the examples given are not exhaustive – things can be permanent establishments even though they’re not specifically itemized. However, this enumerated list includes structures and relationships like a branch, an office, a factory, a construction site, and an agent in Canada habitually exercising authority to conclude contracts in the name of her principal. It’s highly unlikely that a non-resident coming to Canada and playing in one land-based tournament and then leaving the country would be seen to have a permanent establishment in Canada.

Therefore, it doesn’t appear that a US professional playing at a Canadian land-based tournament would be subject to tax in Canada under the terms of the Treaty, which also means that the tournament would not withhold on any payments to that non-resident. (In each case of a non-resident, it will be important to know what her home country’s tax convention with Canada says, if in fact the two countries have signed one.)

Income Derived From an Illegal Source

One other comment should be made: If one has income from an illegal activity, in Canada that income is still generally taxable even though ill-gotten.[9] Accordingly, players and gaming operators (including poker operators and players) committing offences under the Criminal Code, whether in bricks-and-mortar facilities or online, may still very well be taxable on their activities. Given that criminals often hide their incomes, this note is more technical and of less practical use to most people.

***

Stuart Hoegner is an attorney and an accountant in Toronto, Canada practicing exclusively in gaming law. His clients include the owners of top Internet poker brands, skill games operators, casinos, auction sites, bookmakers, media companies, professional poker players, and entrepreneurs in the gaming and social media sectors. He is @GamingCounsel on Twitter.


[1] R.S.C. 1985, c. 1 (the “Act”). There is an excellent and recent article addressing the income tax aspects of poker in Canada: Income Taxation of Poker Winnings in Canada by Benjamin Alarie. Alarie addresses many of the issues in much more detail than I do here. However, I will also talk about non-residents participating in land-based poker tournaments, which Alarie did not discuss.

[2] Dowling v. R., [1996] 2 T.C.J. No 301 (T.C.C.).

[3] Luprypa v. R. (1997), D.T.C. 1416 (T.C.C.).

[4] Paragraph 40(2)(f).

[5] This ignores any possible ‘breaking’ of the provincial lotteries or some other way of systematically reducing or eliminating the odds of losing. See the interesting article in Wired by Jonah Lehrer for some perspective on this. This could, at least conceptually, make a “random” game, if pursued systematically and consistently, a business or adventure or concern in the nature of trade for tax purposes.

[6] (2007), D.T.C. 307 (T.C.C.).

[7] By this I don’t mean a professional in the sense that one is regulated by a governing body to which one pays dues, has professional insurance, etc. I use the term more loosely to describe any individual that receives income that is compensation for or attributable to the individual’s activities as a player in a sport or activity.

[8] See s. 353 of the Act.

[9] See for example R. v. Poynton (1972), D.T.C. 6329 (Ont. C.A.).

Categories: Canada, Gambling Tax Basics Tags:
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