Question re: Canadians and Tax on Winnings from Betting

Mudcat · 02-28-07, 01:14 AM

I get questions like this once in awhile and here is an answer I saved:

Yes, I file taxes as a sports betting business since it's my only income. The law states that I have to. There are 4 conditions in the law that determine if you are a professional and I meet them. It would take some searching to dig up the exact section of the tax law - so you can do that if you want - but they have to do with how organized you are and the extent of your record keeping and if you use specialized knowledge/training to make money betting and blah, blah, blah.

I have an accountant do my taxes so I'm not going to be able to talk in too much detail about this but really what it boils down to is, if you systematically make money at it, you are supposed to pay taxes.

You asked if I write Pro Gambler on my return. I just had a quick look and I see that under Main Source of Income, she has put, Gambling. So I guess that answers that question.

I'll tell you what I do. I count money that I pull into my bank account from my offshore accounts - through Neteller - as my income. That is traceable through my bank statements. If I sent money out, that would be deducted from my income. It is really as simple as that. And I can claim office supplies/equipment and a portion of my rent/car as deductions. My accountant would have to explain how that all breaks down. I just keep receipts throughout the year and hand the file to her at tax time.

What is slightly "tricky" is that I actually make more money than that because I have a lot of funds offshore and those funds keep growing. But I don't count all that profit as income. I leave most of the profit offshore and only pull in what I need for my living expenses.

I still think that's legitimate. After all, those offshore funds are still at risk (now more than ever). And basically what will happen down the road (when I retire?) is I will have a big chunk of cash that I will have to pull in and account for and pay taxes on. (Or maybe I can just move it from sportsbook accounts to a safe offshore bank and legally save on taxes. I don't know. I'll cross that bridge when I come to it.)

Because so much of what we do happens offshore, you can probably get away with a lot. How much you want to "push the limits" is up to you. If I wanted to get really tricky, I could probably just say I had one big lucky win offshore - basically like winning the lottery - and that's where all my money came from. That would definitely not make me a professional and that should be tax-free. It would be hard, maybe impossible, to prove I was lying. But then maybe if I was audited and they searched my computer, they could tell I was lying. I don't know.

I frankly sleep better at night just doing what I do. I don't think I would have any trouble at all if I was audited and that's the way I like it.

Hope that helps.

Wheell · 02-28-07, 01:17 AM

Legally in both Canada and the US you are wrong. If you have access to the cash (no neteller jokes here) then it is income. You are literally hiding income offshore. Don't get caught cat.

cobra_king · 02-28-07, 03:22 AM

Gambling winnings in canada are only taxable if it is your main source of income. So in Mudcats situation what he is doing is clearly correct by declaring it. However, if it is obviously just a hobby and you have a full time job and just gamble on the side, that money is not considered your main source of income and therefore doesn't have to be declared as earnings. Of course if your gambling income is twice what your "regular job" income is than it would be a tough sell to say that it's just a hobby, but that would only apply to money that is clearly traceable. For example if you won $50,000 at the racetrack (in canada, i know it's different in the U.S) and took it in cash, no way you'd have to declare it because it's not traceable. In short, if it's a hobby don't worry about it.

sabe · 02-28-07, 09:58 AM

Thanks!

Thanks for all your tips guys!