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Federal Tax - Gambling. Fournier-Giguère v. Canada
In Fournier-Giguère v. Canada (Fed CA, 2025) the Federal Court of Appeal dismissed three related income tax (second) appeals that "challenge the tax status of net earnings made from poker activities":[4] In three separate judgments—Fournier Giguère v. The King, 2022 TCC 132 (Fournier‑Giguère Judgment); D’Auteuil v. The King, 2023 TCC 3 (D’Auteuil Judgment); and Bérubé v. The King, 2023 TCC 12 (Bérubé Judgment)—rendered following a joint hearing, Justice Réal Favreau of the TCC (the Judge) largely dismissed the appeals filed by the appellants, being satisfied that paragraph 40(2)(f) of the Act did not apply in this case and that the appellants’ net earnings from their poker activities should be included in the computation of their taxable income as business income.
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B. Paragraph 40(2)(f) of the Act
[30] Paragraph 40(2)(f) is part of a subdivision of the Act concerned with taxable capital gains and allowable capital losses in relation to the rules applicable in computing income. It provides that "“a taxpayer’s gain or loss from the disposition of (i) a chance to win a prize or bet, or (ii) a right to receive an amount as a prize or as winnings on a bet, in connection with a lottery scheme or a pool system of betting referred to in section 205 of the ""Criminal Code"" is nil”" (emphasis added).
[31] Section 205 of the Criminal Code, R.S.C. 1985, c. C-46 (the Criminal Code), which has not been in force since 1985, decriminalized the operation and management of "“pool systems of betting”"—which were otherwise prohibited—provided that they were operated and managed by the Government of Canada, whether solely or jointly following an agreement with the governments of any one or more provinces. The decriminalization related in particular to "“any combination of two or more athletic contests or events”", as defined by regulations.
[32] The appellants criticize the Judge for concluding that paragraph 40(2)(f) did not apply without even carrying out any kind of analysis, such as into the meaning of the terms "“lottery”" and "“pool system of betting”", which, according to them, encompasses the game of poker when the interpretation of these terms is [translation] "“adjusted to the current reality”" (Memorandum of the Appellants at para. 39 (Mr. Fournier-Giguère); para. 33 (Mr. Bérubé); and para. 47 (Mr. D’Auteuil)).
[33] Even if we accept that the scope of these terms should be [translation] "“adjusted to the current reality”", it would at the very least be surprising to say that the game of poker can reasonably be equated with a "“lottery”" or "“pool system of betting”". As the evidence in this case demonstrates, the game of poker can be taught; books have been written about it; websites show players in action and comment on how they play; and software is available to help players understand their opponents. Of course, no one is disputing the fact that chance plays a role in the outcome of poker games, but no one is disputing the part played by the player’s skill, either.
[34] Moreover, in Duhamel—on which the appellants largely base their case theory—the TCC held that no expert had persuaded it "“that either chance or skill generally prevailed in the outcome of a poker game”" (Duhamel at para. 170). I note that two of the three experts who testified in these cases were opposing experts in Duhamel, including the Minister’s expert.
[35] In addition, anyone with even the slightest interest in the game knows that certain major poker tournaments are now televised on sports channels, with experts commentating on the game as it unfolds.
[36] The same cannot be said of lotteries and pool systems of betting. At the very least, the record in this case contains no evidence to that effect.
[37] In any event, the appellants’ argument regarding paragraph 40(2)(f) of the Act fails for another reason. As the Minister correctly points out, there is no hard and fast rule against the taxation of gambling income. While lottery winnings have traditionally been treated as "“windfalls”", and thus of a capital nature (The Queen v. Rumack, 92 D.T.C. 6142), as we will see, when certain criteria are met, gambling-related income may be considered business income and, as such, should be included in the computation of the taxable income.
[38] I note in this regard that the Act provides no exemption akin to that set out in paragraph 40(2)(f) for the computation of income or loss from a business. Since Parliament expressly provided for a tax exemption in one case but not in the other, we can assume that it did not intend to extend such an exemption to the computation of business income (R. v. Wolfe, 2024 SCC 34 at para. 35). I also note that only sports betting and horse racing have been regulated under section 205 of the Criminal Code (Regulations respecting the Supervision of Pari-Mutuel Betting and the Possession and Use of Drugs at Race Tracks, C.R.C., c. 441 (27 December 1984), SOR/85-59 (2 January 1985); Regulations respecting the Organization, Operation and Management of Sports Pool Systems, P.C. 1984-1356 (18 April 1984), SOR/84‑326 (19 April 1984); Pari-Mutuel Payments Order, P.C. 1983-846 (24 March 1983); An Act to provide for government operated pool systems on combinations of athletic contests and events and to amend the Criminal Code and the Income Tax Act, Canada Gazette, vol. 6, no. 21 (29 June 1983); and Regulations respecting the supervision and operation of pari-mutuel betting at race-courses and the prohibition, restriction and regulation of the possession of drugs and equipment used in the administering of drugs at race-courses, S.C. 1989, c. 2, s. 1, SOR/91-365 (30 May 1991)).
[39] For these reasons, I see no error of law or palpable and overriding error in finding, as the Judge did, that paragraph 40(2)(f) of the Act does not apply for the purpose of determining whether net poker earnings can be considered not as windfalls but as income from a business. In fact, the appellants cited no authority to support their contention that paragraph 40(2)(f) should apply to poker earnings.
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[52] It is also important to underscore, as the appellants came to acknowledge at the hearing, that there is no case law, statutory provision or principle of tax law holding that gambling winnings, such as from playing poker, are not taxable. Whether or not these winnings are taxable will depend in each case on whether the activity in question was carried on with the intention of making a profit or, if applicable, whether it was carried on in a sufficiently commercial manner.
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(a) Preliminary issue
[68] This argument is, for all intents and purposes, based on paragraph 40(2)(f) of the Act. According to the appellants, the Judge should have found that poker is a betting game within the meaning of that provision. I have already rejected this argument. Again, the Judge was satisfied that poker is a game that combines luck with skill and that the question of which of the two prevails over the other was irrelevant to the dispute before him.
[69] I note in this regard that the expert Mathieu Dufour, retained by the appellants, opined in paragraph 9 of his main report that [translation] "“[t]he outcome of a poker game clearly depend[ed] on both chance (if only because of the distribution of the cards) and the skill of the players”" (Appeal Book at 2581 (Mr. Fournier-Giguère), 1993 (Mr. Bérubé) and 2221 (Mr. D’Auteuil)). Their other expert in this case, Jeffrey S. Rosenthal, expressed a similar opinion at paragraph 14 of his report, stating, "“I completely agree”" with the Minister’s expert that poker "“is a game in which both skill and chance play a role in the ultimate outcome”" (Appeal Book at 2451 (Mr. Fournier-Giguère), 1863 (Mr. Bérubé) and 2351 (Mr. D’Auteuil)).
[70] Not only did the Judge make no palpable and overriding error in finding that paragraph 40(2)(f) of the Act does not apply, but the appellants’ contention underlying this preliminary issue that poker is just a game of chance is also not supported by the evidence. At paras 63-106 the court walks through factors leading them to find that the gambling income here was "taxable as business income":VI. Conclusion
[110] In order to be included in the computation of a taxpayer’s income, a "“source of income”" must have been created with the intention of making a profit. This excludes income from a purely recreational activity, but the earnings made from such an activity may become a "“source of income”" under the Act if it is undertaken in a sufficiently commercial manner. A number of indicia have been established by the case law to help determine, for tax purposes, whether a recreational activity was undertaken in a sufficiently commercial manner.
[111] This requires a global analysis that will vary depending on the nature of the activity at issue. In some cases—and I am willing to concede that these are rather rare—the line between a purely recreational activity and a gambling activity undertaken in a sufficiently commercial manner is thin. Ultimately, it will depend on the circumstances of each case. Accordingly, where the law was correctly understood and applied by the trial judge, this Court will intervene only if the trial judge made a palpable and overriding error in his or her assessment of the facts. This makes for a very small opening, one that was too small in this case.
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