Canada Revenue Agency Rejects Gambling Losses as a Business Expense

A recent article in the National Post discusses how a Canadian gambler was refused claims for losses realized from gambling. After the Canada Revenue Agency refused to let Giuseppe Tarascio from Toronto write off huge gambling losses as a business expense, he decided to take the government to court.

For three consecutive years between 1999 and 2001, he reported gambling losses of $56,132, $70,025 and $63,800 respectively and those claims appear to have passed without objection from the Canada Revenue Agency.

Giuseppe then made subsequent claims in 2002 and 2003 where he declared net losses against his gambling revenues of $40,950 and $56,000 and this time they were rejected.

The tax officials declared his gambling as a hobby and not to be a business. Some of the reasons cited to this effect were:

  • that he did not keep books or accounts of his gambling,
  • he did not use any special knowledge or training,
  • it was not his primary source of income,
  • he did not gamble in a systematic or organized manner,
  • he did nothing to mitigate risk and
  • he had no reasonable expectation of profit

“These gambling losses are of a personal nature and not incurred to gain or produce income from business or property,” a tax official wrote to him in 2007.

In an interview with the National Post, Giuseppe said:  “The government is ripping everyone else off. The government is a big Bully.”

While representing himself in court, he argued “I worked for Bell Canada during the day and gambled almost every day after work. I gambled systematically and extensively with the intention of making a profit, therefore my gambling was a business, and I should be allowed to claim the gambling losses.”

The government argued that his gambling was “not carried out in a commercially reasonable manner.”

Mr. Tarascio’s case was hurt by his own testimony that while he liked to win, he gambled, win or lose, because he loved the thrill of gambling and his admission that he spent no time practicing his skills, especially after he switched his principal gambling from horse racing to slots and the casino, Justice Eugene Rossiter ruled.

Giuseppe took a gamble and took his case to the Federal Court of Appeal where he presented arguments to argue his gambling experience and degree in mathematics, including probability theory, constitute his special knowledge and skill as a gambler.

Instead of cutting his losses, Mr. Tarascio rolled the dice again: He took his case to the Federal Court of Appeal where he did not have any better luck.

Mr. Tarascio argued his gambling experience and degree in mathematics, including probability theory, constitute his special knowledge and skill as a gambler.

“The fact that in previous years Mr. Tarascio may have reported his gambling activities as a business without being audited is not relevant in determining whether the reassessments for 2002 and 2003 were justified,” wrote Justice John Evans in a decision released Monday.

He lost the appeal and was ordered to pay the government’s costs of $1,000.

It seems like unless you possess special skills to increase your odds, the likelihood of the Canada Revenue Agency letting you call gambling losses a business expense are very slim.

Every case needs to be treated in an individual manner but it is a good idea to consult with a tax professional before making claims that can be rejected later on. By the same token, it could also be that revenues earned from gambling are not taxable income to many if they are deemed to be casual gamblers.

 

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