O Canada?

Here are two worthy questions since the US Attorney’s indictments in US v. Scheinberg et al and related actions taken by the US Department of Justice were made public last month:

1. Will the indictments and the fallout foreshadow an exodus of Internet poker players from the United States that wish to continue playing online?
2. Should Canada be a destination country for any online players considering such a move?

Now that I’ve set up my own questions, I must confess that I can’t fully answer either of them. At least the first one is empirical. While emigration can be objectively measured, it’s too soon to say if players will actually move to pursue what for many has been a full-time and lucrative occupation. Brad Polizzano has told me that he knows people that are already in the process of leaving. I respect Brad’s opinion and I’m sure he’s right; it\’s just that, to date, I have heard more equivocation in my talks with people about this. Shane Schleger wrote a good piece in Slate last week indicating that he’s considering emigrating from the US, which is a useful perspective from a bona fide professional.

The second question is more difficult to address. Should one leave one’s home – in many cases, the land of one’s citizenship – to continue playing Internet poker? It’s an intensely personal question and, at least right now, a raw one.

Still, I want to frame the issues in a way that is true to the discussions I’ve been having with people over the last couple of weeks, and to get my thoughts out in a discrete post on the topic. As I mentioned to @ckbwop, I’m not interested in a sales pitch for Canada. As anyone who knows me well will hopefully attest, I retain an abiding skepticism about many aspects of my home country; Canadians are congenitally anti-American, we can be smug, and the political discourse at home is often picayune. However, there may be some factors about Canada worth considering if any player is seriously thinking about relocating outside of the US.

Factors

The three main factors I’ve addressed in the last little while are: a) the legality of play; b) taxes; and, c) immigration. I’ll look briefly at each.

a) Legality of Play

In the current environment, clearly this is the biggest concern. Is it illegal to play poker online in Canada? The short answer is that no-one knows for certain.

There are provisions in the federal Criminal Code that could theoretically ensnare an online poker player. (See page 41 of this article for a short discussion.) Also, cheating at play with intent to defraud under the Code was added to the list of “serious offences” under the Code last summer. While these provisions shouldn’t be considered lightly, it’s also true that the bulk of legal opinion in Canada believes that it would be difficult to sustain a successful prosecution of most Internet poker players under the current version of the Code. I share this view. More important, I’m not aware of any decided cases in which an online poker player has been prosecuted qua poker player or even of such a prosecution initiated by a Crown Attorney in Canada.

The legality of offering Internet poker as a business in Canada is more troublesome. Assuming that the Code applies to offshore private operators, most if not all forms of online poker that are not offered by the provincial lottery corporations are in breach of the Code. (There is a tension between the gaming provisions of the Code and the rights asserted by First Nations under the Charter of Rights, but that’s another post.)

I raise the point about operators because the shrewd player will surely – and fairly – ask: “If offering Internet poker is a legal grey area in Canada, what’s to stop the Canadian government from cracking down just like the US Department of Justice has?” While a full discussion of the differences between US and Canadian law enforcement is beyond the scope of a blog post, there are indications that the provincial and federal attorneys general are more concerned with operators that have a physical nexus within Canada (including game servers) that is outside of the Kahnawake Territory in Quebec.

Offshore poker websites advertise openly in Canada (including sites like www.partypoker.com, which has been switched off to the US since 2006). At the same time, no-one should be overly sanguine about the Canadian authorities’ approach to online poker. Things could change quickly, especially as more and more provinces roll out interactive offerings that they feel are threatened by foreign “unlicensed” operators. The same brand of complacency caught many in the industry unawares on April 15th.

b) Taxes

Canadian taxes are a mixed bag. The current highest marginal tax rate on income (not capital gains or dividends) received by an individual in Ontario that is ordinarily resident in Canada is 46.41%. That includes federal and provincial income taxes. Those taxes pay for decent infrastructure, universal health care (which is not perfect – it\’s rationed), and good public schools, among other things.

The picture may be better for individual poker players, depending on the player. There is a presumption against taxing gambling winnings in Canada, including poker. This is a key difference from the US where, at least federally, gambling winnings for professional and recreational players are presumptively taxable. If you are truly a professional poker player ordinarily resident in Canada and being a pro is your only business (inclusive of activity ancillary to your status as a professional – think of endorsement deals), then you will likely be taxed on that income in Canada as income from a business. However, the Canada Revenue Agency has historically been very careful not to extend this net too widely over poker players, likely because, once taxed, future net loss years attributable to poker will probably be deductible as against business and other source income and available for carry-forward and carry-back in the normal course.

If a US citizen immigrates to Canada, he or she must still file US tax returns; the United States levies taxes on the basis of citizenship, and not just on residency. Also: US residents living abroad for at least 330 days out of a 365 day period may be eligible to exclude up to US$91,500 of income earned abroad from US income tax. There are some caveats and further details to this exclusion (called the Foreign Earned Income Exclusion), but that\’s the general rule. US residents who are professional poker players considering a move to Canada should consult a tax professional to ensure proper steps are taken, if possible, to qualify for the exclusion. There are potentially significant tax savings at stake.

c) Immigration

This is probably the single biggest challenge facing any poker player thinking of making the move up north. Canadian citizens have an automatic right to re-enter the country and settle. For non-citizens wishing to immigrate, there are investor programs that allow for permanent residency with certain conditions attached under what effectively amounts to an interest-free loan of $800,000 to the Canadian government.

What can US citizens do to immigrate to Canada outside of making such a large investment? As has been pointed out elsewhere, a job offer from a Canadian firm or a course of study may be sufficient. US poker players may be able to fit themselves into the immigration structure, or they may not. In each case, it will depend on an assessment of the individual’s circumstances.

Other Issues

Some have indicated that it may be possible to remain in the US and play on foreign sites. If that’s possible under local banking rules (i.e., you don’t have to lie to your bank to do this) and if permissible on the site(s) on which you play, then fine. Some particular issues that may crop up under such an approach are addressed on Bill Rini’s blog here.

A more fundamental issue is whether the sites caught up in the proceedings in New York – or, indeed, any poker sites – can convince their players that such drastic action as moving abroad will be rewarded by safeguarding player funds. This remains to be seen.

Final Thoughts

Leaving one\’s home to move abroad can be a huge decision, especially so when that home is also where one is a citizen. Relocation can have financial, cultural, and political aspects and can profoundly affect one\’s family and loved ones. This post is really an attempt to engage with some of the key issues that will interest poker players who are seriously considering leaving the US to continue their online play.

Stu Hoegner is a gaming attorney and accountant in Toronto, Canada. This week he\’s in Las Vegas for the iGaming North America conference at the Monte Carlo doing a warm-up act for Dan Michalski. (Thanks to Brad Polizzano for his valuable thoughts and comments on this post.)