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A Canadian Tax Lawyers Guide To The Taxation Of Poker Winnings: Duhamel C. Canada, [2022] A.C.I. No 49: A Case Comment – Tax Authorities

Background: Jonathan Duhamel’s Poker Winnings and Canadian

In 2010, Jonathan Duhamel won the most prestigious Texas
hold’em poker tournament: the annual World Series of Poker Main
Event. The prize for the winner, the player who could outlast the
7,318 other players in the field was just under $9,000,000 USD. He
further won $383,916 in 2011, and $106,775 in 2012, as cash prizes
for his high-ranked finishes at various poker tournaments.
Unfortunately for Mr. Duhamel, the Canada Revue Agency (CRA)
decided that these winnings should be taxed as business income, moving away from the decades
of precedent concluding that poker winnings were not taxable.

On June 21, 2022, Jonathan Duhamel won a significant victory at
the Tax Court of Canada. Justice Lafleur decided that his poker
winnings from 2010 through 2012 should not be included in his
income as per Sections 3 and 9 of Canada’s Income Tax
. A lengthy judgement upheld years of case law which
indicated an exceptionally high bar for gambling winnings to be
included as income.

Canadian Income Tax Act and the Source Concept of Income

Section 3 of Canada’s Income Tax Act determines
that for income to be taxed under the Tax Act, it must come from a
“source”. The Tax Act provides office, employment,
business, and property as the typical sources, but indicates that
this list is not exhaustive. A mixture of legislation and case law
have provided guidelines as to what types of income correspond with
each source. Under Canada’s Income Tax Act, the
characterization of income type is determined by source, and not
vice versa. For example, an increase in the value of a
taxpayer’s real property, on disposition, may be considered
income from the business source or the property source. This
determination, of course, dictates the tax consequences.

Canadian tax legislation and case law have remained strict on
the source concept of income. Generally, if the income does not
fall within a recognized source, it is beyond the scope of the Act,
and therefore not taxable. Gambling winnings, for example, are one
key income stream which falls beyond the scope of any source of
income. In the U.S.A., however, all gambling winnings are taxable.
This gambling tax makes gambling winnings
significantly more tax advantageous in Canada than in the

Taxation of Poker Winnings in Canada

For poker winnings to be considered business
income, the winnings must be in the context on an activity that
constitutes a business for the purposes of the Act. In
Stewart, the 2002 Supreme Court of Canada case, the Court
provided a two-step test to determine whether a source of business
(or property income) exists for the purposes of the Act. The two
stages consist of the following questions:

  1. Is the activity carried out with a view to making a profit, or
    is it a personal endeavour?

  2. If it is not a personal endeavour, is the source of income a
    business or property?

In the context of gambling winnings, the second prong of the
test is irrelevant. Instead, the first prong acts as the key
question to which determination is sought.

There are a further two sub-prongs which assist in answering the
question for each taxpayer’s case. The first asks whether there
is some subjective personal or hobby element concerning the
activity in question: was the activity undertaken in pursuit of
profit or was it a personal endeavour? In other words, was the
predominant intention to make a profit? It is important to note
that a personal endeavour with a sufficiently
“commercial” manner, will also constitute commerciality
and therefore business income. For example, an amateur tennis
player may play at local tournaments, and even win a cash prize.
This, however, is unlikely to amount to the level of commerciality
necessary to constitute business income. On the other hand, a
professional tennis player, who plays tennis full time and employ a
team of coaches and professionals to enhance their performance,
will likely be sufficiently commercial for the tournament winnings
to be characterized as business income.

The second sub-prong asks an objective question: does the
undertaking, from an objective point of view demonstrate that the
activity was taken in a sufficiently commercial manner. Key factors

  • Profit or loss experienced in the past,

  • Taxpayer training and experience,

  • Taxpayer’s intended course of action,

  • Whether the taxpayer created a business plan,

  • Capability of the venture to show a profit,

  • Reasonable expectation of profit.

The Court affirmed that the key inquiry is in determining the
commercial nature of the activity. It is critical, the Court found,
not to second guess the business acumen of the taxpayer, as
hindsight bias after a failed venture can easily distort from
undertaking an accurate assessment of the commerciality
determination. The Court also noted that this list of factors is
not exhaustive, and that various activities may require additional
factors for their determination. In Duhamel, the Tax Court of Canada affirmed this precise
notion: for gambling winnings in particular, an analysis of the
objective standards of business, such as whether there was a
reasonable expectation of profit, is not determinative.

In Tarascio v The Queen 2012 FCA 30, the Federal Court
of Appeal concluded that the approach taken in determining gambling
winnings (such as horse racing, slots, and lotteries), must utilize
whether the activity is “carried on in a sufficiently
commercial manner, that is to say with the subjective intention to
make a profit supported by objective evidence of serious business
conduct.” One problem with poker winnings, in particular, is
that all poker players want to win, and therefore are pursuing
profit. How can you truly distinguish between commercially
sufficient and non-commercially sufficient poker players?

To answer this question, the Courts have employed additional
factors to make this determination. First, there must be evidence
of a consistent risk management or mitigation system. Without such
a system, it exceptionally challenging to call the gambling
activity commercial. Simply put, if gambling hinges on a large
amount of luck, without somehow reducing the variance created by
luck, it is very difficult to characterize the activity as a
business. More recent case law indicates that such a system must
also demonstrate the seriousness of the taxpayer and their approach
to winnings.

Second, the Court must consider the skill, knowledge, and
competence of the taxpayer. Whether the taxpayer has some taken
courses or training, their academic knowledge, and their experience
with gambling are all factors to consider in this enquiry. Merely
playing a significant amount of poker, for example, will not be
sufficient to meet this criterion. In Leblanc v The Queen 2006
TCC 680, 2007 DTC 307
the Court concluded that “Gambling
– even regular, frequent and systematic gambling – is something
that by its nature is not generally regarded as a commercial
activity except under very exceptional circumstances.” The CRA
has cited this quotation in IT Folio S3-F9-C1.

To summarize the case law, regular tax winnings are not, and
have not been, taxable income in Canada. Because of the
element of luck and the nature of gambling, the Courts have
determined that in all but the most exceptional cases, gambling
winnings (such as poker winnings) are not constitutive of business
income. Simply, the manner of action is not commercial enough to be
considered a business.

Tax Court of Canada’s Decision in Duhamel c. Canada, [2022]
A.C.I. no 49

In Duhamel, the Canada Revenue Agency (CRA) reassessed
Mr. Duhamel for his poker tournament winnings from nearly a decade
prior. They argued that his skill level, as well as his publication
of his book “Cartes sur table: Champion du monde de poker
2010” provided evidence that Mr. Duhamel had acted in a
business-like manner, and that the winnings ought to be taxable
business income. The CRA asserted that his book evinced a system
which mitigated risk and allowed him a skill-based edge against the
other players. Further, the CRA argued that Texas hold-em in
particular, the poker game Mr. Duhamel played, was a skill-oriented
– rather than luck-focused – game, which in the long run, could
provide a considerable edge for a “better” player.

The Court, however, rebuked this assessment. First, the Court
concluded that, in particular, Mr. Duhamel’s winning the
particular tournament that he did, was a result of chance. It was
one tournament, the WSOP Main Event, which kept Mr. Duhamel
financially afloat, and without the enormous cash prize, Mr.
Duhamel would be financially ruined. It was pure luck that he won
this tournament rather than another.

Second, the Court pointed out that even if poker was a game in
which skill prevailed over luck, the Court could not determine that
Mr. Duhamel’s activities amounted to a business, rather than a
hobby or form of entertainment. His actions were not sufficiently
organized, he did not employ, with enough consistency and
seriousness, a risk mitigation strategy, and he did not possess the
training, skill, and competency required in order to run a

In conclusory remarks, the Court asserted that Mr. Duhamel’s
actions do not amount to actions that a businessman would
undertake. This confirms his assessment of the hobby or
entertainment nature of his poker winnings. Just like other poker
players, Mr. Duhamel played to win, and he won. That does not mean
that his winnings are necessarily those of an active business.

Legal Conclusion: The Tax Liability of Gambling

What remains clear from this case is that Courts continue to
regard gambling winnings as non-taxable income. The winnings of
regular poker players, who do not employ sophisticated risk
mitigation technology and/or strategy; who do not have
sophisticated training and immense experience; and who do not act
in a business-like manner in terms of their gambling activities,
will not be taxed as business income. However, it is important to
note that there are certain gambling-related activities that the
Courts have determined constitute business income.

In Luprypa v R [1997], the Court ruled that a
“pool shark”, (a skilled pool player) received business
income. Luprypa would challenge inebriated individuals to games of
pool and produce income. The context of a skill-based game,
alongside near certain victory, provided the backdrop for the
Court’s decision. In The Queen v Poynton, [1972] CTC 411,
72 DTC 6329 (Ont. C.A.)
the Court ruled that profits derived
from bookmaking or operating a gaming establishment (legal or
illegal) constitutes income from a business.

Pro Tax Tip: One key element in determining
whether winnings (whether gambling, sports, or other endeavour) are
characterized as business income is whether there is a personal or
hobby element. If the primary intent of the endeavour relates to
the taxpayer’s hobby or personal entertainment, then it is
likely not to be considered business income. It is
important to note that a hobby undertaken in a sufficiently
“commercial” manner can be characterized as business
income. To make sure you are properly reporting your gambling
winnings contact one of our knowledgeable CRA tax lawyers.


Are my poker winnings taxable?

Generally, poker winnings are not taxable income as per Section
3 of Canada’s Income Tax Act. Unless you are acting in
a sufficiently business-like manner, employing enhanced
risk-mitigation methods and/or technology, have significant
training, and act with the intention of profit, it is highly
unlikely that your poker winnings are taxable.

If I am a bookmaker, is my income taxable?

Generally, yes. If you determine gambling odds and receive and
pay bets, your income is taxable under Sections 3 and 9 of the
Income Tax Act. However, such a determination is fact
specific, and you may require legal assistance for such an

If I reported my poker winnings as income from a
business, is there anything I can do to get the money

Yes. You can file a T1 adjustment Request with the CRA. However,
if the CRA rejects the request, then you may file a Judicial Review
Application in Federal Court under Section 18.1 of the Federal
Courts Act
. Our experienced Canadian tax lawyers can help you
in filing your judicial review application.

“This article provides information of a general nature
only. It is only current at the posting date. It is not updated and
it may no longer be current. It does not provide legal advice nor
can it or should it be relied upon. All tax situations are specific
to their facts and will differ from the situations in the articles.
If you have specific legal questions you should consult a Canadian
tax lawyer.”

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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