Around 2011, after speaking with other poker friends, Mr. Radonjic decided that his winnings weren't taxable. So, he asked CRA to allow him to adjust his returns after the 3-year normal reassessment period. (See Form T1-ADJ "T1 Adjustment Request".)
The Income Tax Act gives CRA a number of ways to offer "taxpayer relief". The most commonly sought types of relief are interest and penalty waivers. But CRA may also allow taxpayers to file late elections (s. 220(3.2)) or to amend their returns after the "normal reassessment period" (s. 152(4.2) (but only for individuals and testamentary trusts)).
So, CRA could have let Mr. Radonjic amend his returns but it refused. He asked again ("Second Administrative Review"). CRA still refused, on the basis that his winnings were business income. So, he asked the Federal Court to review CRA's decision.
If CRA or any other "federal board, commission or other tribunal" makes an unreasonable decision, the person affected can apply to the Federal Court to "set aside [the decision] and refer [it] back for determination in accordance with such directions as [the Court] considers to be appropriate". (Federal Courts Act (R.S.C., 1985, c. F-7), s. 18.1.)
Generally, the Federal Court may only intervene if it thinks the CRA acted unreasonably and, even then, the Court will usually only send the case back to the CRA to reconsider, as it did in Mr. Radonjic's case. The Court won't direct CRA's decision or force it to allow the late filing or to waive interest or penalty. But often, the Court's reasons make clear the decision CRA must take. So it was in this case, where Judge Russell's reasons make it hard to think when a successful poker player would have to report his winnings as taxable income.
Judge Russell agreed with Mr. Radonjic that the CRA was unreasonable in refusing the late amendments for the following reasons:
(a) The Minister relied on past success to conclude that Mr. Radonjic had a "reasonable expectation of profit". (Often, where a taxpayer loses in gambling, the Minister looks back and concludes that he could not have had a reasonable expectation of profit. But the Federal Court says that past performance should not be a guide);
"(b) The Minister concludes that the Applicant had a “system” but does not provide any meaningful explanation of what this system might be. It looks as though the Applicant’s simply playing online poker on his computer on an intense and regular basis over an extended period of time is equated with a system."
"(c) ... Everyone who competes in online poker wants to win and will attempt to narrow the odds in their favour in any way they can. But this does not mean they have devised a system if they do win; chance remains the predominant factor in whether they win or lose, as it did on the facts of this case;"
"(d) The method of payment used was no indicator of a “system” or a reasonable expectation of profits. Everyone who wants to pay has to set up some kind of payment system, so this cannot be an indication of running a business. Paypal accounts are used in a variety of contexts where payment is required online;"
"(e) The Applicant’s cutting back on other work and income while he won at poker is also no indicator of a system or running a business with a reasonable expectation of profit. A large gambling win could result in the winner quitting work entirely, but that would not mean he or she had been running a business."
"(g) There is no indication that the monitors or other equipment which the Applicant used to gamble in this case were anything special or that the Applicant had made capital investments for the purpose of running a business or earning a profit;" (One could say of very many businesses that there is nothing special about the equipment they use -- such as phones, computers, etc.)
"(h) The Applicant’s record keeping was minimal and entirely consistent with the need to prove the source of funds for tax purposes. They were not business records in any meaningful way, and did not even correlate to CRA’s own criteria." (Para. 52.)
Given the facts in this case and the judge's analysis of them, one might well conclude that a poker player need never report his winnings as taxable income in Canada. The Court's analysis in this case seems extreme and CRA may try to confine it to its facts.
Note also that the same reasoning would mean that a poker player who loses might never be able to claim his losses against other income sources: See Cohen v Canada, 2011 TCC 262.
Perhaps if the player has employees or partners working at computers, executing his instructions or following a system, that degree of activity might be enough for the Court to say there is a business.
In the U.S., where gambling income is taxable anyway and the issue is more the legality of online poker, the Poker Players Alliance (PPA) argues that poker is a game of skill, not chance, a view that would support CRA's position in cases like these. See "Games of Skill and Games of Chance: Poker as a Game of Skill - PPA (2009)".
See Radonjic v .Canada Revenue Agency, (2013 FC Russell)