Introduction: Recent Tax Court Rulings on the Taxability of Poker Winnings – Duhamel, Fournier, Berube, & D’Auteuil

Poker, a game requiring both skill and strategy, has seen widespread popularity across the globe. In Canada, numerous individuals participate in poker, either for leisure or as a professional pursuit. As a result, the Tax Court of Canada has often been called upon to determine whether a taxpayer’s poker winnings are subject to taxation in Canada.

In general, poker winnings are not considered taxable in Canada. This is because the Tax Court of Canada, the Federal Court of Appeal, the Supreme Court of Canada, and the Canada Revenue Agency (CRA) usually do not view casual gambling as a source of income.

However, there are exceptions.

The Tax Court of Canada ruled on four cases involving poker winnings in 2022 and 2023:

• Duhamel v The Queen, 2022 TCC 66
• Fournier Giguère v. The King, 2022 TCC 132
• Bérubé v. The King, 2023 TCC 12
• D’Auteuil v. The King, 2023 TCC 3

In Duhamel, the court ruled that the taxpayer’s poker winnings were not taxable. However, in Fournier Giguère, Bérubé, and D’Auteuil—cases that appeared to have similar facts to Duhamel—the court reached the opposite conclusion, determining that the winnings were taxable. These seemingly inconsistent decisions create confusion for Canadian taxpayers about the tax treatment of poker winnings.

This article provides expert guidance from a Canadian tax-lawyer by examining key poker-related tax cases and offering insights on how to reconcile their outcomes. Before delving into the cases, it sets the stage with important legislative and judicial context, beginning with an overview of what constitutes a “source of income” under Canadian tax law. It also reviews general tax principles related to the taxation of poker and gambling winnings. After establishing this framework, the article analyzes the Tax Court of Canada rulings in Duhamel, Fournier Giguère, Bérubé, and D’Auteuil. The article concludes with professional tax tips from our top Canadian tax lawyers for those who may have earned taxable poker income.

Taxable Income Sources in Canada: Section 3 of the Income Tax Act of Canada

According to Subsection 2(1) of Canada’s Income Tax Act, every Canadian tax resident is obligated to pay tax on what is defined as “taxable income.”

Subsection 2(2) clarifies that a taxpayer’s “taxable income” is determined by taking that taxpayer’s “income for the year” and subtracting the deductions outlined in Division C of the Income Tax Act. Division C encompasses various tax subsidies, relief provisions, and policy-related deductions, including loss carryover rules, the lifetime capital gains exemption (LCGE), the part-year resident rule—which exempts offshore income from taxation if earned while the taxpayer was a non-resident of Canada—and tax treaty exemptions.

Section 3 outlines the process for calculating a taxpayer’s “income for the year.” In this context, it provides a non-exhaustive list of potential “sources” of income, which includes:

• Office
• Employment
• Business
• Property
• Capital gains

As a result, these income sources contribute to a person’s taxable income. Conversely, Canadian courts have utilized the concept of “source” to exclude specific receipts from a taxpayer’s income.

The concept of “income from a source” has significantly influenced both the drafting of the Income Tax Act by Parliament and its interpretation by the courts. The fundamental premise is that a receipt qualifies as income only if it originates from a productive source. This notion is enshrined in Section 3 of the Income Tax Act, which states that only “income from a source” is factored in when determining a taxpayer’s income for the year. In the case of Stewart v Canada (2002 SCC 46), the Supreme Court of Canada clarified that “whether a taxpayer has a source of income is determined by considering whether the taxpayer intends to carry on the activity for profit, and whether there is evidence to support that intention.”

Consequently, a source of income generally exhibits one or more of the following attributes:

• It generates a recurring yield over time.
• It necessitates organized effort, activity, or engagement from the taxpayer.
• It involves a transaction in the marketplace.
• It provides the taxpayer with a legally enforceable right to receive payment.
• It arises from the taxpayer’s intention to earn a profit, particularly in the context of business or property income.

Thus, the tax law definition of “income” does not encompass windfalls, such as winnings from amateur gambling. Activities categorized as amateur or casual gambling do not establish a valid source of income. Even for those who engage in compulsive gambling and repeatedly try their luck in chance-based games, such as the lottery, these activities remain personal ventures rather than sources of income (as illustrated in Leblanc v The Queen, 2006 TCC 680).

However, this is not always the case. Gambling winnings can be classified as taxable business income in two specific scenarios. The first occurs when gambling is a supplementary or incidental activity to a business—for example, a casino owner who gambles at his or her own establishment or a horse owner who trains, races, and wagers on owned horses. The second scenario involves individuals leveraging their expertise to make a living from a gambling game where skill plays a significant role—for instance, a pool player who, while sober, competes against intoxicated opponents for monetary stakes.

Poker Classified as a “Source of Income” Under Section 3 of Canada’s Income Tax Act

As mentioned above, a receipt is not subject to tax unless it originates from a source of income. An activity is not classified as a source of income if (1) it exhibits characteristics indicating that “it could be considered a hobby or other personal pursuit,” and (2) the taxpayer did not intend to generate a profit while engaging in the activity (Stewart v Canada, 2002 SCC 46, at paras 52 and 54).

The personal-element test comes before the intent-to-profit test. This means that the taxpayer’s commercial intent is only considered if the disputed activity shows some personal or hobby aspect. If an activity is clearly commercial, the intent-to-profit test does not apply. For instance, in Stewart v Canada, the taxpayer owned four condominium units that generated rental income. All units were leased to unrelated parties, and the taxpayer never lived in any of them. The Supreme Court of Canada determined that the rental operation represented a source of income since it had no personal usage and was undeniably a commercial endeavor. The Court noted that there was no need to consider the intent-to-profit test because the rental activity did not involve any personal element. Conversely, in Mendoza v Canada, the case also concerned a purported rental property, but the court applied the intent-to-profit test because the taxpayers rented the property to their son.

To meet the requirements of the personal-element test, the disputed activity must show a “personal element [that] so overshadows any element of commerciality as to substantially displace it that one may conclude that the activity is merely a hobby and is not a business at all.” If the activity appears to be more of a hobby or personal endeavor, the source-of-income analysis will then consider whether the taxpayer had the intention to profit from it.

To determine if a taxpayer had the intention to profit from an activity, a court examines several objective factors, such as the profit and loss history in previous years, the taxpayer’s training, his or her planned course of action, and the venture’s potential to generate profit. By evaluating these factors, the court aims to assess whether the taxpayer engaged in the activity with commercial intent, meaning “in accordance with objective standards of businesslike behaviour.”

In Brooks v The Queen, for instance, the taxpayer’s attempt to sell various collectible items on eBay was deemed a personal endeavor rather than a source of income, as the taxpayer did not sell a single item. Similarly, in Lang v The Queen, a retired Canadian Army paratrooper from the Korean War who collected and sold military artifacts was found to be engaging in a mere hobby, as he only sold duplicate or surplus items from his collection that he no longer wanted. In Mendoza v Canada, the court ruled that the taxpayers’ rental property did not qualify as a source of income since they rented it to their son for a price significantly below market value. In Palangio v The Queen, the taxpayer claimed that his contributions to a local newspaper constituted business income, but the court disagreed, determining that the articles were written purely as a personal pursuit. Specifically, the taxpayer wrote them as part of his political activities aimed at promoting transparent governance during his time as a town councilor, and he also failed to demonstrate that the newspaper had compensated him for his writings.

Various cases have examined the source-of-income principle in relation to gambling, which can be classified into three main categories:

1. Recreational Gamblers: These cases involve individuals for whom gambling is purely a leisure activity, and their winnings are not considered taxable income, regardless of how often or compulsively they gamble, or whether they employ some form of strategy or system.
2. Business-Related Gambling: In this category, gambling winnings are deemed taxable because the gambling activities are closely tied to an established business, such as a casino owner gambling in his or her own establishment.
3. Skill-Based Gambling: This category pertains to gamblers who leverage their expertise to make a living from skill-driven games. For example, a pool player who challenges intoxicated opponents for money falls into this classification, as his or her winnings are considered taxable income.

The rationale in these cases, whether stated directly or implied, utilized the principles of the source-of-income test. The courts acknowledged that gambling inherently involved a personal aspect and determined that winnings would be taxable only if the gambler engaged in the activity with the intent to make a profit. This could occur, for example, if the gambling was connected to an existing business or if the gamblers systematically employed their skills to earn a living from the activity.

Reconciling Recent Poker Rulings from the Tax Court of Canada: Duhamel, Fournier Giguère, Bérubé, and D’Auteuil

Several cases have specifically examined the source-of-income analysis in relation to poker. In 2022 and 2023, the Tax Court of Canada ruled on four cases concerning poker winnings: (1) Duhamel v The Queen, 2022 TCC 66; (2) Fournier Giguère v. The King, 2022 TCC 132; (3) Bérubé v. The King, 2023 TCC 12; and (4) D’Auteuil v. The King, 2023 TCC 3.

In Duhamel, the Tax Court determined that the taxpayer’s poker winnings were not subject to taxation. However, in the cases of Fournier Giguère, Bérubé, and D’Auteuil, the court came to the contrary conclusion, ruling that the taxpayers’ winnings were, in fact, taxable.

Importantly, these cases are not easily distinguishable based on the following factors:

• Amount of Winnings: In Bérubé, the taxpayer won $1.5 million over three years; in Fournier Giguère, the total was $1.7 million over four years; in D’Auteuil, the taxpayer won $5.2 million over five years; and in Duhamel, the winnings amounted to $6.3 million over three years.
• Formal Training: In Fournier Giguère, the taxpayer had no formal training and was self-taught. D’Auteuil learned poker from his father as a child, while both Bérubé and Duhamel were also self-taught with no formal training. None of these taxpayers had any educational background that provided them with an advantage over their opponents.
• Risk-Management Strategies: Bérubé did not implement any coherent risk-management strategies.
• Record-Keeping Practices: None of the taxpayers maintained formal accounting records in any of these cases.
• Use of Poker-Training Software: All four taxpayers utilized poker-training software to varying degrees.
• Time Invested: Each taxpayer dedicated a similar amount of time to playing, practicing, and learning about poker.

One factor does appear to distinguish the cases where poker winnings are deemed taxable from those where they are not: the taxpayer’s capacity to earn a living solely from playing poker. In Fournier Giguère, Bérubé, and D’Auteuil, each taxpayer depended on their poker winnings to support themselves and maintain their lifestyle. In these instances, the Tax Court of Canada determined that the taxpayers’ poker-playing activities qualified as a source of business income.

In Fournier, the taxpayer’s poker winnings enabled him to purchase two homes, acquire a car, and fund several trips. While he also coached poker on a part-time basis, that income was insufficient to support his lifestyle or cover the assets he acquired. Similarly, in D’Auteuil, the taxpayer relied on his poker winnings, amassing over $5.2 million over five years. During two of those years, he earned a modest amount from part-time work—$16,000 in one year and $8,000 in another—but it was his poker winnings, not his employment income, that financed the $525,000 purchase of his home and allowed him to buy a $37,000 vehicle outright. In Bérubé, the taxpayer fully supported himself through his poker winnings, earning approximately $1.5 million over three years. This income allowed him to buy a $530,000 home in full and maintain a bank account with sufficient cash to meet his daily expenses.

In contrast, when a taxpayer depends on alternative sources to maintain his or her lifestyle (or to support their gambling), that taxpayer’s poker activities do not qualify as a source of income. In Duhamel, for instance, the taxpayer funded his poker pursuits by withdrawing from his savings. Prior to taking a break from his academic studies and winning over $4.8 million at the World Series of Poker, he had been employed full-time for several years, amassing a substantial financial cushion that enabled him to engage in poker without distractions. Consequently, the court determined that his winnings were not taxable.

Therefore, although the decisions in Duhamel, Fournier Giguère, Bérubé, and D’Auteuil may seem contradictory at first glance, a thorough analysis by experienced Canadian tax lawyers reveals that they can be harmonized. Additionally, these rulings illustrate the foundational Canadian tax principles associated with the source-of-income analysis.

Tax Pro Tips: Challenging Tax Reassessments on Poker Winnings

The poker rulings by the Tax Court of Canada in Duhamel, Fournier Giguère, Bérubé, and D’Auteuil highlight the necessity of retaining an expert Canadian tax lawyer. Poker cases, similar to others involving the source-of-income test, require a detailed and fact-specific tax-law analysis. Just as seen in Duhamel, Fournier Giguère, Bérubé, and D’Auteuil, the Canada Revenue Agency’s tax auditors may presume that your poker activities are business-related and reclassify your winnings as taxable income.

Due to the intricate tax-law analysis needed in these cases, the average Canadian taxpayer is at a disadvantage against CRA tactics without the support of qualified Canadian tax lawyers. Therefore, if the Canada Revenue Agency has reclassified your poker or gambling winnings as taxable income, or if you suspect they may attempt to do so, reach out to one of our knowledgeable Canadian tax lawyers today. We have a deep understanding of this legal area and can help you present a strong and persuasive objection to the Canada Revenue Agency’s Appeals Division or file an appeal with the Tax Court of Canada.

FAQs (Frequently Asked Questions)

I frequently gamble at casinos. Are my winnings subject to tax in Canada?

In general, no, but there are exceptions. In Canada, the tax-law definition of “income” does not include windfalls, such as winnings from amateur gambling. Casual or amateur gambling is not considered a “source of income” for Canadian tax purposes. This also applies to compulsive gamblers who frequently engage in games of chance, such as the lottery; these activities are regarded as personal pursuits rather than sources of income. However, there are circumstances where gambling winnings can be classified as taxable business income. The first scenario occurs when gambling is part of a business operation—such as a casino owner gambling in his or her own establishment or a horse owner who trains and races horses while placing bets. The second scenario involves individuals leveraging their expertise to earn a living from skill-based gambling activities—like a pool player who soberly challenges intoxicated opponents to cash games. This area of Canadian tax law can be complex. For guidance on whether your gambling or poker winnings are taxable in Canada, reach out to one of our experienced Canadian tax lawyers today.

I recently had a tax audit by the Canada Revenue Agency, and the CRA auditor claims that I was playing poker as a business. They intend to reassess my poker winnings as taxable income. What actions should I take?

Reach out to our expert Canadian tax lawyers for assistance. The recent poker-related decisions by the Tax Court of Canada in Duhamel, Fournier Giguère, Bérubé, and D’Auteui highlight the significance of having a highly skilled Canadian tax lawyer represent you during a CRA tax audit involving poker.

Poker cases, much like other matters related to the source-of-income test, require a detailed and fact-specific tax-law analysis. Similar to what occurred in Duhamel, Fournier Giguère, Bérubé, and D’Auteui, the Canada Revenue Agency’s tax auditors may categorize your poker hobby as a business and reassess your winnings as taxable income. Given the intricate tax-law analysis needed for these situations, the average Canadian taxpayer may struggle against these CRA tactics without the guidance of skilled Canadian tax lawyers.

If the Canada Revenue Agency has reassessed your poker or gambling winnings as taxable income, or if you suspect they may do so, reach out to one of our expert Canadian tax lawyers today. We have a deep understanding of this area of law and can help you present a strong and compelling objection to the Canada Revenue Agency’s Appeals Division or file an appeal with the Tax Court of Canada.

DISCLAIMER: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the articles. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.