31 July 2000 External T.I. 1999-0009745 - Gambling winnings on internet web site

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: tax treatment of gambling winnings won through an internet web site

Position: question of fact

Reasons: question of fact see IT- 334R2

XXXXXXXXXX 1999-000974
G. Middleton
(613) 957-2122
July 31, 2000

Dear Sir:

This is in reply to your letter and further to your telephone conversation with Mr. Ken Major of this Directorate concerning the taxability of gambling winnings won through an internet web site.

We offer the following comments.

Firstly, we understand that it is illegal to gamble on the internet through computer terminals located in Canada.

Secondly, as to whether gambling winnings on the internet are subject to tax, this is a question of fact. In this regard, we refer you to the comments contained in paragraphs 10 and 11 of Interpretation Bulletin IT-334R2 (copy attached) under the headings "Gambling Profits" and "Hobbies", respectively.

As stated in paragraph 10 of Interpretation Bulletin IT-334R2,

"an individual may be subject to tax on income derived from gambling itself, if the gambling activities constitute carrying on the business of gambling; .....The issue of whether or not an individual's activities are such that he or she can be considered to be carrying on a gambling business is a question of fact that can be determined only by an examination of all the circumstances and the taxpayer's entire course of conduct. Although no one factor may be conclusive, the following criteria should be considered in making the determination:

(a) the degree of organization that is present in the pursuit of this activity by the taxpayer,

(b) the existence of special knowledge or inside information that enables the taxpayer to reduce the element of chance,

(c) the taxpayer's intention to gamble for pleasure as compared with any intention to gamble for profit as a means of gaining a livelihood, and

(d) the extent of the taxpayer's gambling activities, including the number and frequency of bets.

It is clear from various decisions of the courts that earnings from illegal operations or illicit businesses, such as illegal gambling and fraudulent business schemes, are not exempt from tax."

On the other hand, as stated in paragraph 11 of IT-334R2,

"In order for any activity or pursuit to be regarded as a source of income, there must be a reasonable expectation of profit. Where such an expectation does not exist (as is the case with most hobbies), neither amounts received or expenses incurred are included in the income computation for tax purposes."

We trust our comments will be of some assistance to you.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch