US Cross-Border Tax Blog

Published by W.L. Dueck LLP

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Online Poker Winnings – Taxable in Canada or the US?

A recent Canadian tax court case confirmed that an online poker player’s winnings were not subject to Canadian income tax.  In Radonjic  V. The Queen, 2013 FCC 916, Peter Radonjic, a Coquitlam BC resident, paused his career as a lawyer to play online poker on a full time basis.  The case centered on whether his online poker activities were a business established for the purpose of making a profit.  Mr. Radonjic’s activities included spending more time reading about, practicing and playing poker, purchasing equipment such as extra monitors, devising strategies to beat inexperienced players and setting up a payment system to collect winnings.  Despite these activities, the judge concluded that Mr. Radonjic had no system in place to guarantee wining and that he was a hobby poker player. The time spent playing, the success he had and the equipment and payment systems he used were not evidence of a business.  As a result, Mr. Radonjic was not subject to tax on his poker winnings from 2004 to 2007.

Under US tax law, the tax treatment of winnings from gambling activities are much clearer.  While not a statutory inclusion in income, gambling winnings are treated as gross income under the concept of a clearly-realized accession to wealth.  US tax courts have found consistently that the winnings from any sort of wagering activity including but not limited to gambling, lotteries, slot machines and raffles is included in gross income.  The rules apply to US persons and to non-US persons who win US lotteries and make profits from US casinos.

Mr. Radonjic actually reported his online poker winnings to Canada Revenue Agency for the years in question and paid Canadian tax.  He then amended his tax returns to claim a refund after conducting his research and discussing the situation with his accountant.  Canada Revenue Agency refused to issue a refund which led both parties to court.  The November 2013 issue of The Bottom Line reported that the CRA was not planning to appeal the decision and was prepared to accept the court’s findings.   One can imagine a Canada Revenue Agency official, after reading the judgment in favour of Mr. Radjonic, speaking to a CRA colleague in his best Teddy KGB voice saying “Pay that man his money”.

Written by Steven Flynn, CA, CPA

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