– An American citizen who has moved to Canada for six months (what Canada allows Americans to visit without a visa).
– He makes his living gambling on online poker, which the US doesn’t allow, but Canada does. Thus, his temporary (i.e. six month) move to a Canadian city–so he can gamble online, and make a living.
– He seems to feel that even though he’s earning income in Canada, he owes no tax obligation to Canada. He’s American, on a six-month tourist visa, after all.
– Similarly, because he’s outside of the US, he owes no tax obligation to the US. If he doesn’t report out-of-country earnings that the IRS cannot confirm, then…?
This all seems to me to be wrong. He’s earning income, so he owes a tax obligation to one or the other, Canada or the US.
Notably, this person has no Canadian SIN (which is necessary to file a Canadian income tax return); he seems to have no intention to get one; and is technically a tourist. Yet he’s earning money here.
Dopers, is this guy exploiting a loophole in he treaties between Canada and the US? Or is he mistaken somehow? I myself, as a Canadian, don’t want to see us cheated out of income tax money somehow, and I expect Americans don’t either (however it is earned).
I understand that the US taxes its citizens, no matter where. There is a tax treaty in place between the US and Canada that allows American citizens in Canada to file a tax return in Canada; and as long as the American’s declared income does not exceed $X (not sure what), the IRS doesn’t care.
But that’s not happening here. The American claims that he does not need to file in Canada, as he’s a tourist (though tourists are not allowed to work here); and that as an offshore American, he’s out of reach of the IRS, which cannot confirm his income.
His main claim is that he sits in an apartment in a Canadian city, on a six-month lease, playing online poker, so who’s to know? To Canadian officials, he’s a tourist; to American officials, he’s an out-of-country tourist. Yet, he’s earning money in Canada–and Canada does tax people who gamble for a living. (It does not tax people who win a lottery, or other unexpected windfall winning, such as a slot machine jackpot).
Not only is he required to file a US tax return reporting the income, but if at any time during the year he has any foreign financial accounts exceeding $10,000 in the aggregate, he must file a Report of Foreign Bank and Financial Accounts (FBAR). The penalties for failure to file an FBAR can be more severe than those for failure to pay income tax.
The Treasury Department does have several schemes to monitor the flow of money into the United States. Unless he’s just going to leave the money in Canada or wherever, he runs the risk of tripping across one of these. And he may think he’s clever getting a debit card from a foreign bank or whatever, but the Treasury has heard of all of these.
All sorts of people evade taxes because the IRS doesn’t know about what they are doing. This ranges from the day laborer who works for cash under the table to major financial institutions. Some get away with it, some eventually are caught. What your friend is doing is no different. He may get away with it for a long time and convince himself that he found some sort of tax loophole. Or eventually he may end up on the IRS radar and pay some heavy penalties.
Let me add that I don’t know about Canadian tax regulations, although I believe certain sweepstakes and lotteries many be tax-exempt. If what he is doing in Canada is taxable by Canada, he may be entitled to a foreign tax credit for any taxes paid to Canada.
And if he is judged to be engaged in an active scheme to willfully evade taxes, rather than just a misunderstanding of the tax law, his conduct could also be subject to criminal penalties in addition to tax penalties.
He’s no friend. He’s somebody who is earning income in Canada, and is not paying income tax on it (nor does he plan to). As a Canadian, I’ll say that this bothers me. Generally speaking, tourists cannot earn money; those who are lawfully admitted as foreign workers can, though they are subject to Canadian income taxes (depending, of course, on tax treaties between their home countries and Canada).
I agree, and that’s not a problem. If he declares taxes paid to Canada, and the IRS finds that those taxes fall under the threshold established by the IRS, then he’s in the clear.
Thank you! That’s what I thought. Because this is the SDMB, can you cite American sources for this? (Not that I doubt you; I’d just like to be able to point him towards this thread so he can prove to himself what his obligations are.)
Overall, I just think he has got some bad information from wherever; and I think we Dopers (Americans and Canadians) can set him straight. Or, if you prefer, we can fight his ignorance.
I assume that the gambling site is not itself based in Canada? My guess is that he will argue that the mere fact that he is in Canada while gambling does not generate a sufficient taxable connection. Imagine instead that he was on the phone to his broker in London from time to time while in Canada, authorizing trades that generate capital gains. Should those gains be taxable in Canada?
Or suppose he runs a legitimate business wholesaling fruit and vegetables in the Caribbean. While in Canada on a tourist visa, he uses a computer to negotiate some transactions by email. Or suppose he signs a completed sales contract and uses the scanner in the Halifax hotel to send the signature page by pdf to the buyer in Dominica. Has he generated taxable income in Canada?
I honestly don’t know what the Canadian authorities would say the answers are, and I recognize that each of these hypotheticals is a bit different from the real situation. I’m just throwing them out there to generate some thought and dialogue about the assumption about earning income in Canada.
I agree that he is risking huge trouble with US authorities. And if he is in fact earning income in Canada, I also wonder if he is violating the terms of his visa and rendering himself subject to deportation?
Makes perfect sense to me so far. I’m sorry but I don’t understand your problem with it.
He is playing by exactly the same rules you or I are playing by, he’s just allegedly better at poker.
Canada does not tax gambling winnings, full stop; there is no tax owing if you win money gambling. Where a poker player would have to start paying tax is if his poker income clearly and unambiguously constitutes a profit-making business and is no longer “Gambling.” At least in theory - in practice, the CRA simply doesn’t regard poker as a legitimate source income, and there aren’t any recent cases of them doing so. What precisely defines the point at which a poker player becomes a “Business” for income tax purposes is therefore not well established, but a couple of winning 6-month sessions isn’t it (and it’s not necessarily a matter of total winnings, either.) That is not enough data to support the conclusion that his poker is in fact a real income. That doesn’t even convince me the guy’s good enough to support himself.
Remember, too, that if the government of Canada decides you’re a gambler by trade, you can also take appropriate deductions. Indeed, that’s why the CRA stays the hell away from poker players; they’re saving you money. The moment poker is an income, the CRA is going to have thousands upon thousands of people claiming losses and other expenses as deductions - and how could you possibly deny them? You can’t logically say poker is an income, and then deny the filing party the right to take perfectly logical deductions against that income. (The IRS does in fact do this, a position acknowledged by virtually everyone as inherently unfair and moralistic.) So by nabbing this guy for his income you’re opening the floodgates to thousands upon thousands of people paying less tax by writing off poker losses. If you decided to arbitrarily define a certain level of success at poker as the cutoff for being legitimate income/deductions - well, best of luck with that. Whatever you get in tax from this guy, we will lose in overhead a thousand times over trying to create and enforce what will be a hideously complex set of rules.
What he is doing is not materially different from an American who visits Niagara Falls for a weekend and hits a progressive slots jackpot, winning $250,000. That tourist owes the Canadian government nothing. He made a ton of money, he just did it a lot faster than Mr. Poker Player.
Now, he absolutely IS cheating the IRS, if he’s won enough.
But I don’t get why you think Canada’s being cheated here. We are not out any money by virtue of his choosing to play here; Canada would in fact get LESS money if he chose to play elsewhere, since he would not be paying rent in Canada, buying groceries in Canada, and the like. He’s pushing the tourist visa as far as it can be pushed, but he is playing by the rules and going no further. I don’t see the problem, to be honest.