When Poker Winnings Become Taxable

A million-dollar poker run sounds like the ultimate loophole, until the CRA decides it looks like a job. We talk with criminal defence lawyer Michael Mulligan about a Supreme Court of Canada leave decision that leaves standing a key ruling on poker winnings and Canadian income tax, and the real lesson it carries for anyone who treats gambling like a serious side hustle or a full-time living. 

We get into why most gambling winnings in Canada are generally tax-free under the Income Tax Act, then zero in on the exception: when the activity becomes business income. Hours spent, strategy, risk management, consistent profits, and relying on poker as your main source of income can all push you over the line. And if it’s business income, it can cut both ways, because deductions for losses and expenses may be available just like any other business. 

Then we shift to a topic that frustrates the public and the courts alike: criminal cases that take too long. We unpack Jordan’s hard timelines under Charter section 11(b), what counts as delay, and how the Supreme Court now treats “exceptionally complex” prosecutions with many accused and mountains of disclosure. 

If you care about Canadian law, taxes, and how court decisions affect everyday choices, hit subscribe, share this with a friend, and leave us a review. What do you think should count as “work” when luck is involved?

Follow this link for a transcript of the show and links to the cases discussed.

Transcript

Supreme Court Leave And Signals

SPEAKER_01 0:04

Michael Mulligan, third turn full third and defense third. Michael, thanks for the thing first for the number. And you've got some interesting cases that we want to gather about. Let us know because I know coming out of last week it alleged there was some interest in the fact that the Supreme Court of Canada declined to hear an appeal of a New Brunswick case related to Aboriginal title. So the very fact of whether a court decides to hear an appeal or not is in itself significant.

Michael Mulligan 0:44

That's right. And so that was one of the things that I thought was worth commenting on about this case, as well as the just some of the underlying uh issues that were dealt with in terms of uh taxation as it relates to people who are playing Texas Hold'em poker. Uh and so uh just like in the case you mentioned uh dealing with uh a leave application, this was a appeal uh in this case, uh the one that we're talking about today, from the Federal Court of Appeal of Canada. And the Federal Court of Appeal hears appeals uh from a number of sources, including from the tax court. Uh and the way it works is that like with uh appeals from other uh uh provincial courts of appeal, you don't have the right to just go to the Supreme Court of Canada because you want another kick at the can. Uh in most cases, if you wish to get a case in front of the Supreme Court of Canada, you need to make what's called an application for leave or permission uh to bring uh the appeal there. Uh and ordinarily the Supreme Court of Canada is very selective in terms of the cases that it can hear each year, because it can only hear a limited number, and there would be hundreds of people who might, for a variety of reasons, wish to uh try on one more level of appeal. And typically the Supreme Court of Canada would pick cases on the basis of things like whether it's a matter of national interest or importance, or sometimes they'll pick cases where there's uh uh an interesting or important legal issue that needs to be settled, uh, or sometimes they'll pick cases where, for example, you've got courts of appeal in different parts of the country that have come to completely different conclusions. Uh, and so those would be the sort of things they would take into account when deciding whether to grant leave. Um, and in the case you mentioned, in terms of uh whether uh land claims can include uh personal property, an issue that's uh live in BC, the Supreme Court of Canada uh in a different case where that was an issue, uh declined uh to grant leave. And one thing to be said about that is it's not necessarily an endorsement because there are a variety of reasons why the Supreme Court of Canada could choose not to hear something, uh but uh at least it's uh their view that it's not of national importance for the the the particular case they want to hear to sort out that issue. And so

Canada’s Rules On Gambling Tax

Michael Mulligan 3:05

the decision that uh came out, one of the decisions that came out uh today from the Supreme Court of Canada was a decision denying a leave application uh to this case involving taxation of poker winnings. Uh and reading the underlying case is an interesting one, and it has some things that people I think should be uh aware of, because it can have implications in terms of um maybe what you want to spend your spare time doing, uh, but also when you might have to pay tax on something. And one of the things that underlies that, and it's an interesting difference between, for example, Canada and the United States, uh, is that in Canada there's a specific provision in our income tax act that provides that you don't have to pay income tax if you wind up with winnings uh from, for example, a bet or prize or a lottery scheme. So if you win the lottery in Canada, it's not taxable. That's not the case, for example, in the United States. If you're down in the U.S. and you made some uh win at a casino, for example, they're gonna keep uh a portion of that money because it may be due in tax down there. Did not know that.

SPEAKER_01 4:12

That's a big deal, obviously. That makes the winning so much more.

Michael Mulligan 4:15

Yeah, and it's interesting it's an interesting one. I mean, in terms of the lottery thing, you can sort of understand that in Canada, given that lotteries have generally, historically in Canada, have been operated by governments, so they really are in their entirety a tax. But we've just as a policy decision decided to apply that same thing to other kind of prizes or bets or things you might win, right? So if you go to the casino here and you win it big, generally, that's tax-free. But there's an important exception here, and that's what this case was dealing with. And the case was an appeal actually by three different people who all knew each other, sounds like they got along and maybe even spent time together, uh, who all got seriously into playing poker, uh, and in particular Texas Hold'em poker. Uh and they weren't just they didn't just sort of clean up one weekend at the casino. Uh, they had uh intent instead it had become virtually their entire uh means of earning income. Uh for example, one of them was playing fifteen or twenty-five, between fifteen and twenty-five hours a week. Um they were some of them were traveling around Europe, they took a four-month trip there uh and uh were playing poker, and they they earned enough money to cover all of their expenses in Europe. Uh, and uh a couple of them took a trip to Australia, they went up a pile of money there, uh, and eventually, for example, um one of them purchased a home in Quebec, uh, $225,000 home, cash paid

Pro Poker And Business Income

Michael Mulligan 5:45

for that, all earned from poker playing. Uh, also then purchased a condo in Florida, $360,000 U.S. paid for in cash. Uh, and it uh drew some attention and uh a review of how much they had earned, and it was substantial. Uh the uh they were looking at uh various taxation years, but for some of them, for example, uh the years like in 2020, 2009, one of them earned $305,000 in poker in 2010 $1.4 million. Wow, $1.9 million, 2012, $736,000. We're in the wrong career, Michael. Yeah, you should uh go play poker. Uh but and so and they didn't pay tax on it. And they they said, well, this is these are just winnings. I just happen to have been uh very fortunate, I've won these prizes and and bets. Uh uh, and so the uh taxation people in Canada took a different view of it. And the reason there can be a disagreement there is that if you turn something into what amounts to a business activity, you then have what amounts to business income, not just a lottery win, or not just, hey, I got lucky and won the poker game with my buddy on the weekend. Uh and so the legal issue becomes how do you parse up whether you are in the business of playing poker or whether you just were very fortunate in a number of uh uh, you know, betting enterprises. And one of the things that the court, both the court of appeal and the court that dealt with it initially looked at is that poker uh is not just a lottery scheme. Certainly there is a element of randomness in it, uh, but there's little dispute that the outcome of a poker game is going to uh be the product of both the random cards that are drawn, but also the player's skill. Uh and the uh court pointed out that uh, you know, for example, anyone who pays any uh attention at all to pe people playing poker, is it's now, for example, something that's televised on sporting channels, right? You know, there aren't too many television, you know, televised uh uh, you know, uh shows about somebody going and buying a 649 ticket.

SPEAKER_01 8:00

There's one-armed bandits, you don't think it no one would watch that, but there are I I think of there as and I'm not knowledgeable about it, but I do think of there as being professional poker players.

Michael Mulligan 8:09

That's right. And the reason you can be a professional poker player is that it involves an element of skill. It's not just a matter of, hey, I'm gonna get there there are no professional uh you know slot machine players, right? There's just nothing in it than pulling a handle down, and you're going to lose, right? And so the court pointed out that you know these uh people, the all three people here, like year after year, were generating substantial amounts of money, you know, hundreds of thousands of dollars a year, year in and year out. Not something that's going to occur if you're just uh sitting at the slot machine. And so one of the traditional ways that's looked at is whether what you're engaged in has a reasonable expectation of profit. That's one way to approach it. Uh, but another way to approach it, and it's an alternative, is that if you engage in business like behavior, which is an interesting thing, and so they would look at things like, you know, how much time are you spending doing this? Are you doing it in a business-like fashion? Uh, you know, is this just some kind of a minor, you know, incidental pursuit on the weekend that's going to be in that category of, well, a lucky win at the casino, I guess. But here they looked at how these people operated and they found that it was uh operated in a you know sufficiently commercial fashion. They were looking at their odds and making careful decisions about how they were betting and how they were playing the game, that kind of thing. Uh, and so they upheld the court the uh court of appeal did, uh, the federal court of appeal, the decision that this was a business-like operation. That led to another interesting conclusion, which was also uh not uh overturned, which was if it's that, if this is business income, then you also have the right to deduct uh losses and expenses, just like you would from any other business. Uh and so the alternative position from these uh taxpayers was well, okay, fine, if you don't buy my argument that I've just repeatedly won various bets, uh they then said, Well, we should be able to to deduct losses and expenses. Hey, we have to travel. It's good for the goose, it's good for the gander. Yeah. Yeah. And so they had this list of expenses at times when they lost money. Now, I should say those figures, like for example, the one year the $1.9 million, that year they losses were only $1,684. Pretty good poker player. Wow. In other years, for example, 2009, winnings $305,000, losses $305. So it was almost a a wash, right? Uh other years, though, like winnings $736, losses $215. And so big gains virtually every year, year in and year out, uh, but they were allowed to deduct their losses, which is an interesting thing. You you sure can't uh go in and deduct the uh losing lottery tickets that you go and purchase. That's not coming off your uh uh your income. Uh, but if you get into one of these things and you do have that reasonable expectation of profit, or you're engaged in a uh you know business-like uh behavior, you can turn what otherwise might not be taxable into taxable income. Similar issues have arisen with respect to things like principal resident houses, right? And there have been some changes around that. Generally, you don't pay capital gains on the uh amount that your house goes up if it's your principal residence. But if you're a person who's flipping houses, you can then have the business of renovating houses. And there have been some changes made to that for people that are holding them in most cases for a shorter period of time. So you can't just turn over a house every year uh and uh pay no uh tax on the capital gain that would uh result from that. And in fact, if you're doing that as a business, it's going to turn into business income rather than non-taxable capital gains on a principal residence. The flip side of all of that, sometimes this will come up for people, is that you have somebody who's trying to establish that there was some reasonable expectation of profit in order to be able to deduct losses, for example. And that will often come up in cases where people have uh, quote, businesses, close quote, or things they're claiming to be businesses and generating business losses, which have the appearance of being the opposite of this, which would be kind of a recreational activity. Classic examples of that would be somebody who says, hey, I'm gonna buy a beautiful big sailboat, and I'm gonna claim this was for the purpose of chartering it. Uh oh, and it's really too bad each year I generate a giant loss on my sailboat, and I'd like to write that off. You can wind up with the opposite circumstance where you have no reasonable expectation of profit, uh, and eventually your effort to deduct your losses will wind up being uh denied uh on your income tax return.

SPEAKER_01 12:57

So on this case, was it was the decision very contingent on the on the particular fact? Like if if you or I, and I anyone who's ever played poker with me the four times I've done it would would can attest to the fact that I'm not good at poker. But if if if if somebody who does not do it in a way that comes across family as a professional uh activity, would we still be subject to the idea that we would be forced to pay taxes if we got if we just clearly got lucky playing blackjacks or poker one night?

Michael Mulligan 13:28

Probably not. And they they gave an example of the whole kind of list of various things that we looked at when determining whether either you've got that reasonable expectation of profit, that's a common way that it's looked at, or whether you're engaged in something that has a sufficiently business like uh elements to it. And here they listed things like, for example, um that uh they were uh earning their entire living from it. It was their only source of income. They devoted almost all of their time to doing it. Uh they were able to make a profit on a yearly basis consistently and regularly. Uh that, despite being a bit of an unconventional lifestyle, they said, they did what they were doing in a business like manner, playing to win, having strategies to do that, um, and engaging things like risk management considerations and uh all of that. And so you're exactly right. If you're the person who just lucks out at your buddy's house on the weekend uh and earns some money uh at a poker game, you're almost certainly going to be non-taxable. But if that turns into your uh principal source of income, you're spending most of your time doing it, you're traveling around doing it, inconsistently making a whole bunch of money doing it, you're very likely to wind up in a circumstance where you're engaged in a business-like activity, not just sort of a uh recreation on the on the weekend. So that that's really the dividing line. Um and uh it's uh now, I suppose, the leading case on where that dividing line is uh in the case of uh somebody who's playing Texas Old'em

Trial Delay And Jordan Ceilings

Michael Mulligan 14:58

poker.

SPEAKER_01 14:58

Well, that's super interesting. Well, we should probably take a quick break for a commercial, but we're speaking with Michael Mulligan, his weekly segment, is a criminal defense lawyer enlightening us on the latest interesting developments in the law. We'll be back in a moment or two. And our guest at the moment is Michael Mulligan, a criminal defense player with mulligan defense players. We're still talking about the fact that the recent Supreme Court candidates are not taken appeal means that if you are a professional gambler, expect to happen to be a basement occasional gambler that's like you in focus, you're probably still going to be able to keep your winnings without paying uh paying auto off. Um Michael, thanks for doing that. Thanks for being on the field. Yeah, but there is another case that caught your eye and as I understand it, it relates to this expectation of having a trial hurt within a reasonable time, and something that many of us would wonder about hearing the courts are so busy. Scheduling gets difficult, but that sometimes results in a trial not being heard within a reasonable time that can lead to outcomes where I think the public gets upset when they hear, oh, geez, this person accused of a of a worrisome, heinous crime gets off without having a trial.

Michael Mulligan 16:12

And I think that's a reasonable thing, right? And and I should say it there's lots of authority around this as well. Delay in criminal cases is really bad for all people involved, not only the community, complainants in cases, accused people in cases, it is really not satisfactory. Uh and as with, I guess, many things in uh the uh public world, uh you wind up often with uh resourcing kind of at the state at the state of what can we possibly get away with, right? That seems to be the threshold. Um and this uh this particular decision that just came out uh is a follow-up on a Supreme Court of Canada case that came out in 2016 called Jordan. Um and that case and the most recent one both address this constitutional right to have a criminal trial occur within a reasonable period of time. And prior to that Jordan decision in 2016, that concept of what was a reasonable period of time was not crisply defined. And what that meant, um, really two things. Uh one, as the Supreme Court of Canada pointed out in that Jordan decision, that it led to a what they described as a culture of complacency. Uh so nobody really uh you know leaning into, hey, we've got to get this thing done, when's the deadline, right? Without a deadline, it can be hard to motivate people to get on with something. Uh but in addition, uh you wound up with a bunch of time being spent uh arguing about whether something was too long or not, right? And when we don't have enough judges or courtrooms or court clerks or sheriffs or or anything, um every day you spend arguing about whether something was too long or not is a day you could have spent doing something meaningful, right? Getting on with the substance of the case. And so uh decisions about whether something was within a reasonable period of time used to rely on a bunch of evidence about things like, you know, was the person laying awake at night over this thing, or were they really stoic, or did they get fired from their job, or was their employer very understanding, or things of that sort, right? Which can you can imagine how hard it can be to wrap your arms around how a particular judge is going to come to those decisions. A little bit subjective, too, I suppose. Absolutely, subjective and individualized, which just takes time. Anytime you have an individualized thing with uncertainty and no actual deadline, it's gonna take time to sort out. And so in Jordan, what the Supreme Court of Canada did was to set presumptive ceilings, kind of a hard deadline, and if you go over it, if you don't get it done, presumptively, that's it. Uh the case is going to be stayed and can't proceed. Now, those deadlines for cases in provincial court were 18 months, and in Supreme Court, where you might also have to have a preliminary inquiry, like another hearing before the actual trial, the deadline was 30 months. Now, a few things just to mention off the bat. First of all, the time doesn't start running until the person's actually charged. Like if it takes some time to investigate a file and the person hasn't been arrested, hasn't been charged, that time doesn't count. Also, and the reason for that is the language is a person charged with an offense has a right to a trial within a reasonable period of time. Also, delay that an accused person might cause, they can't then complain about. A person can't drag their feet or do unnecessary things or slow things down and then complain it didn't get on. That does not count either. Okay? But where you just don't get it done and it goes over that threshold, presumptively that's it, and the case won't be allowed to proceed. So it gives everyone a hard deadline to get it done. Now, the uh safety, or not a the one of the exceptions to that is the Supreme Court of Canada in Jordan spoke about exceptional circumstances that can excuse a case that goes over that limit. And exceptional circumstances could include you can imagine all kinds of things in human affairs, like uh COVID strikes and the courthouse gets shut down, or the judge has a heart attack, or you know, somebody gets sick and can't uh proceed. You know, the crown counsel gets uh the flu, it can't go ahead. Those kinds of delays would also not be counted as exceptional circumstances.

Complex Cases And The Exception

Michael Mulligan 20:25

But this case that just came out was uh dealing with the issue of what about exceptionally complicated cases? And this one was a person, it was like a uh major drug investigation uh where you had uh was like all think fifteen accused people uh and multiple trials and thing being like multiple hearings for different groups of people with huge amounts of disclosure material, and the whole thing took 18 months and four days. It's making very complicated. And so the Supreme Court of Canada here uh found that uh there's that kind of a case can be exceptionally complicated, and that can be one of those exceptional circumstances like the courthouse burning down or a pandemic striking, or you know, somebody having a heart attack uh that can justify a case going over that time limit. And the way it works is that first of all, the crown would have to show, where it's going over the time limit, that it was particularly complex, like huge, large number of people, huge amounts of evidence, just inherently very complicated. Second, the crown has to show they took reasonable steps to try to get it done and on time, and then finally, you would have to have a look at to see whether the amount it went past the deadline was reasonable given all those things. And so on that basis, the Supreme Court of Canada said, in these in this circumstance, 18 months and four days is fine, you can carry on. But they were also careful to say the deadline's the deadline, and we're not rolling back to a period of time when, you know, sort of uh complacency was the order of the day. And so there is a bright line, and there is a deadline, and one of the things that hopefully causes is for when you're deciding about resources, how many judges and sheriffs and so on a crown are we gonna have, you can point to it and say, There's a deadline. We gotta get it done, and if you don't have enough of those people, you better appoint some more or hire some more, otherwise the cases aren't going to get to trial. So they didn't retreat from having the clear uh endpoint, but they did they did provide some further detail about when a really exceptional case uh can be justified going slightly over that uh timeline. So that's the latest from the Supreme Court of Canada on trials within a reasonable time and how we're supposed to apply that uh Jordan deadline uh to keep everything on track and on time.

SPEAKER_01 22:40

Michael Mulligan, thank you for being on the program. Thanks for explaining the uh the significance of both those Supreme Court of Canada cases. Thanks so much. It's always uh always great to be here. It was Michael Mulligan, criminal defense lawyer with Mulligan Defense Lawyers. We'll take a quick commercial break and be back in a moment.