When it comes to winnings from gambling, tax laws vary from country to country, especially in the area of online casino gambling, which is still largely unregulated. Some countries make a distinction between casual winnings and income made from professional gambling. While these are obviously very different, it is hard to draw a line between them.
In Canada, the tax law defines taxable winnings as income from a source. The problem is that there is no easy determinant in place for establishing where, when, and how this phrase should be understood. Most people in Canada will never owe tax on their online casino winnings in terms of the practical application of this law. Gambling winnings are considered windfalls, and so are exempt from taxation.
The vagueness increases, however, for those who make a good-sized portion of their income from online and mobile casino gambling, which is very often true for pro poker players. If someone is consistently making a profit from gambling and spends a large amount of their time doing so, it could quite rightly be claimed that they are running a business, which would make the winnings taxable. It has also been asserted that, in order for gambling winnings to be taxed there needs to be evidence that they were accrued as a result of more than just a lucky streak, and that the gambler is using a workable system to minimise risk and optimise profit.
In order to address the question of whether or not gambling should be considered a type of income or business, the Supreme Court in Canada has ruled that those players need to have a reasonable expectation of making a profit, or the pursuit of profit. This requirement needs to be met to decide whether the losses from a business can be deducted or not. If this expectation is met, then taxes must be paid on winnings, because losses are being claimed against.
The application of the theory of a player pursuing profit means that players can be seen as running a business, and the money they bet becomes an investment. Should this end in a loss, this can be used to offset the tax money owed. However, when gambling is a personal pastime, it’s difficult to prove that profit is being pursued. Players are thus exempt from taxation if they are able to prove that the Canadian online casino games they spend time enjoying are purely for fun.
A case that illustrates the problem regarding taxation on winnings in Canada is that of the Leblanc brothers. They played sports lotteries in Ontario and Quebec, and frequently enjoyed big wins. They also spent a lot of money pursuing this pastime, and developed a system for analysing bets and also negotiated a discount on ticket prices for bulk buys. Canada treated the brothers’ activities like a business, as it was operating with the intention of generating profit.
Steven Cohen, on the other hand, was not able to garner this classification. In 2011 he wanted to claim losses from Poker play, stating that he was a full-time player and this made him a business. The court did not agree, asserting that there was an element of personal consumption to his gambling, and he was not able to get any kind of tax deduction on the money he had lost.
In Canada there is no established framework for analysing gambling income and losses in terms of taxability, so you can enjoy playing at an online casino with peace of mind. If you are headed to pro status, however, seek out guidance to determine if any of your winnings are taxable and to see if you qualify for deductions.