Quebec poker champion Jonathan Duhamel has a new opponent: the federal tax authorities, who are claiming $ 1.2 million in taxes from his poker winnings.
In 2010, Jonathan Duhamel became a world star of the famous game by winning the main tournament of the World Series of Poker. During this tournament which serves to crown the world champion, he won 8.9 million dollars.
But a decade later, the game is not quite over: Jonathan Duhamel and the Canada Revenue Agency (CRA) disagree on whether the poker champion should pay taxes in Canada on the millions of dollars he won in poker, including this World Series win in 2010.
In total, the CRA is claiming $ 1.2 million in unpaid taxes for three years, from 2010 to 2012. If the CRA wins the courts, Revenu Québec could decide to claim a similar amount from it, which would bring the sum of taxes at stake to around $ 2.4 million.
Winnings from games of chance like poker are not taxable in Canada – they are in the United States, which is why Jonathan Duhamel paid some US taxes on his World Series winnings. On the other hand, a Canadian tax resident who carries on a business must pay taxes on his profits, regardless of his type of activity. And the CRA considers that Jonathan Duhamel, who lives in the greater Montreal area, operated a business as a professional poker player.
A game of chance or a business?
By playing poker all over the world, studying the game thoroughly, devoting 40 to 50 hours a week to it, was Jonathan Duhamel running a business? This is the question for the Tax Court of Canada, which will hear the litigation next March.
The CRA estimates that Jonathan Duhamel, 33, operated a business from 2010 to 2012 playing poker, not least because he took it very seriously and because his long-term success in poker depended on his talent and skill. his strategies, and not on luck. The CRA makes the following arguments:
– Mr. Duhamel “considers himself” a professional poker player;
– he “behaves like a serious businessman” when playing poker;
– since 2008, his “sole occupation” has been playing poker;
– he “devotes an average of 40 to 50 hours per week to poker”; he “can play at eight different tables simultaneously” when playing online;
– poker is his only source of income (in addition to his investment income);
– he has above-average mathematical skills, uses them to determine his chances of winning, is “constantly on the lookout for new strategies”, analyzes his old games and those of his opponents, and adapts his strategies according to the circumstances ;
– during tournaments, he “carries out so-called“ swap ”hedging operations, which consist in exchanging a certain percentage of possible gains” with investors “in order to minimize his risk of losses”; during the 2010 World Series, he paid $ 4.1 million to other people under his swap agreements and then pocketed about $ 4.8 million on his gain of $ 8.9 million (these agreements swaps are tax deductible);
– he has had an agent since summer 2010;
– in November 2010 he obtained a sponsorship contract of 1 million US dollars for one year (the sum of 480,000 US $ and approximately 520,000 $ in tournament expenses and fees) to be part of the PokerStars team.
Poker is “the result of chance”, maintains Jonathan Duhamel
Jonathan Duhamel, a tax resident of Quebec, sees the situation differently from a tax standpoint. He alleges:
– that his “substantial” gain of 8.9 million at the World Series of Poker in 2010 “is only the result of chance”;
– that he has never received specific training in poker;
– that he has never used a system allowing him to overcome chance or to control his chances of winning during tournaments;
– of course, his victory in the World Series of Poker gave him “a certain notoriety” and he “had the qualifier of professional poker player” for marketing purposes (essentially to “encourage other players to play online on the PokerStars website ”), but poker remains a game determined by chance.
Jonathan Duhamel’s lawyer will notably plead a 2006 decision in which the Tax Court of Canada found that two compulsive gamblers who won millions of dollars by betting sports were not operating a betting business and had therefore not to pay tax on these gains. In this decision, however, Chief Justice Donald Bowman clarified that a professional player could in theory have to pay taxes on his winnings.
As the dispute is before the courts, the CRA and Jonathan Duhamel’s lawyer declined to comment on the case.
Revenu Québec has indicated that it has no litigation before the courts with Jonathan Duhamel. In general, the CRA and Revenu Québec “exchange information relating to the audits carried out with regard to their common clientele. If an individual has been audited by the CRA and as a result a reassessment has been established, RQ may use this information and issue a reassessment on the same basis ”, Revenu Québec indicated.
Sunday poker players, don’t worry …
If the taxman wins his case against Jonathan Duhamel, does this mean that he will be watching the income of all Sunday poker players who bet a few dollars with their friends (during online games during the pandemic)? No. For these occasional players, Jonathan Duhamel’s litigation will not change anything: winnings from games of chance are not taxable in Canada. “This cause is not aimed at Sunday players. For the gains to be taxable, it must be a business, ”says Khashayar Haghgouyan, professor of tax law at Laval University.