65

For the sake of title transfer and taxes, is this a gift or a sale?

This was a private game. We both tossed our keys into the pot. I won and the vehicle is now sitting on my driveway.

I live in British Columbia, Canada.

I don't know if this is pertinent but government sanctioned gambling (lotteries, casinos, etc.) are tax free in Canada. The game I won the car in wasn't exactly government sanctioned in the strict definition of such practices.

Rodrigo de Azevedo
  • 1
  • 8
  • 22
  • 64
    Not related to tax, and I don't know if I'm stating the obvious here, but make sure that the other guy's car/truck was actually fully his to give to you - particularly consider that he may still be paying it off to a bank or other lender, in which case they're not just going to transfer the title to you for free ... – brhans Sep 05 '19 at 11:29
  • 2
    @brhans - Thank you for that. I don't expect any liens beyond the value of the vehicle but I'll pay the extra couple of bucks for a title search before commiting to a title transfer. –  Sep 05 '19 at 11:33
  • 56
    Is this a major financial loss to the other person? If ya'll can throw cars around and it's no big deal, then that's great, but if this puts the loser into a desperate situation I might consider graciously forfeiting the car lest they come after you later. Desperate people do stupid things. – Hart CO Sep 05 '19 at 13:48
  • 27
    Unless the two of you explicitly had your vehicles in play before the hand began, then throwing in your car keys upon making a strong hand is against the rules of poker. You aren't allowed to add on to your buy-in in the middle of a hand. Of course, this was a private game so anything goes. Congrats on the win :) – Mr Anderson Sep 05 '19 at 14:46
  • 3
    @HartCO - if you're pretty sure your opponent would have kept the car had they won, then giving it back would be a statistically bad financial decision, since that means you made a bet where you can lose a lot, but win nothing. – TTT Sep 05 '19 at 15:23
  • 32
    @TTT Putting yourself at risk of being stabbed by a desperate gambling addict is also a bad financial decision as it curbs all future earning potential.... I'm just advocating for consideration of consequences unrelated to taxation. ;) – Hart CO Sep 05 '19 at 15:42
  • 18
    As a side note, possession of the keys does not translate in to being given permission to access, own or possess the vehicle the keys work on. The title to the car is still in someone else's possession. Since you drive off in that vehicle, they can report it stolen and have the police repossess it. This is why such a transaction should proceed through an escrow company which can verify ownership and facilitate the transfer in full. Do you have proof of car ownership? – Shorlan Sep 05 '19 at 17:50
  • 1
    @MrAnderson Depends on the rules of the game. Though in over 99% of cases you would be correct. The rule is called "table stakes" and means you can only bet up to the amount that you currently (at the beginning of the hand) have on the table. – xyious Sep 06 '19 at 14:44

2 Answers2

46

I am neither Canadian, a lawyer nor a tax-adviser. This is neither tax- nor legal-advice.

TL;DR: As far as Income Tax is concerned, it is very likely that there will be nothing to pay. You will, however, almost certainly have to pay Provincial Sales Tax (PST) (at probably 12% of the "fair market value" of the vehicle). In addition, should the vehicle appreciate in value, you would probably be liable for Capital Gains Tax (CGT) if you subsequently sell it.

Income Tax

According to Are Poker Winnings Taxable Income in Canada? on PokerNews (dated 2017), poker winnings are not treated as taxable in Canada, unless you are regarded as a professional player (and this is rarely the case).

If you don’t play professionally, the answer is easy: You don’t owe any taxes on your poker winnings. Lottery and gambling windfalls are not taxed in Canada because of the guiding principal that the gambling is done with after-tax dollars. Therefor, any winnings are exempt from tax.

The exclusion for "professional players" seems unlikely to apply. The same site says:

For a person to be in the business of gambling, it would have to be provable that they expect to receive a recurring income and that the income was earned by their pursuit of profit.

Although one might at first think the Canadian Revenue Agency (CRA) would be keen to class "dedicated" poker players as "professional" (so they could tax any winnings), this appears not to be the case. Again from the same page:

Of course, as a business, expenses incurred in the pursuit of earnings would have to be deductible. Travel, accommodation, buy-ins, software, computer equipment, and more would all be business expenses. Because of this, Canada Revenue Agency doesn’t want players to be able to easily declare their gambling a business, because anyone who visited a casino could declare all of their losses as business expenses.

The "official word" on the above appears to be contained in Income Tax Folio S3-F9-C1, Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime from the CRA's website, in particular, the section on Gambling profits.

It starts by reserving the right to treat an individual's gambling wins as taxable:

1.12 An individual’s gambling activities may result in taxable business income or a business loss. This will be the case if the gambling activities constitute a source of income (that is, carrying on the business of gambling).

before noting that, except for exceptional cases, most gambling activity would not be taxable:

Such a definition would usually be unexceptionable when one is talking about a commercial activity. If applied literally and mechanically it would include the activities of a person who consistently and regularly placed bets on horses, or played the lotteries or the gaming tables. It would mean that the gambling activities in every case that I have cited would be a business, yet we know that this is not so. Gambling - even regular, frequent and systematic gambling - is something that by its nature is not generally regarded as a commercial activity except under very exceptional circumstances. Leblanc v. The Queen, 2006 TCC 680, 2007 DTC 307.

These rules do not seem to specifically mention private poker games; however after covering Lottery schemes and Pool system betting, we get to Other schemes. Some relevant snippets include (emphasis mine):

Other schemes

1.21 Where a prize has been won otherwise than through a lottery scheme or a pool system of betting, neither paragraph 40(2)(f) nor subsection 52(4) will apply. The tax implications of receiving these other prizes will vary, depending on the following factors:

a) When the prize has been received as a gift, it is not included in computing income at the time of receipt. However, the recipient will be deemed to have acquired the prize at its fair market value pursuant to paragraph 69(1)(c), so that a subsequent disposition of the prize will result in a capital gain on any increase in value since the time of its acquisition. A prize can be reasonably considered to be a gift from the viewpoint of the recipient, even though chance and/or skill may have been involved in the win.

b) The prize will be received as income where it is received by virtue of the recipient’s employment pursuant to subsection 5(1) and paragraph 6(1)(a), received in the course of the recipient’s business pursuant to subsection 9(1), or received in respect of an achievement in a field of endeavour ordinarily carried on by the recipient pursuant to paragraph 56(1)(n).

c) Where the prize is not received as income as described in ¶1.21(b) and is not a gift as described in ¶1.21(a), no amount will be included in income upon receipt of the prize and the provisions of paragraph 69(1)(c) will not apply. Such a situation would arise where the contestant has incurred a cost towards winning the prize such as purchasing a ticket or paying an entrance fee entitling the contestant to participation in the contest. In such a case, while there are no tax consequences resulting from receipt of the prize, any subsequent disposition of that prize may result in a capital gain or loss. In computing any such gain or loss the taxpayer’s cost of the prize will be the original cost of the ticket or entrance fee rather than the fair market value of the prize as used in ¶1.21(a).

It seems clear (to me) that ¶1.21(b) does not apply (not part of your employment), and although it's not totally clear which of the others do apply, neither involve the win being counted as income, so there should be no Income Tax implications. (I probably favour ¶1.21(a), as it talks of "chance and/or skill" being involved, and ¶1.21(c) includes "Such a situation would arise where the contestant has incurred a cost towards winning the prize such as purchasing a ticket or paying an entrance fee" – my guess is that any ante you may have had to put in the pot won't count as an entrance fee).

Note: Questions have been raised in comments as to whether the above applies to a private wager. Certainly, the main thrust of the clauses in the cited document appear to be about "official" gambling/lotteries. However:

  1. It does not appear to explicitly exclude private wagers from any of the relevant clauses (as does the document below on PST).

  2. If it is a question of the legality of a private wager, the introduction to the section on Gambling profits (¶1.11) includes (in the context of establishing business income from gambling as taxable) the phrases "(carried on legally or otherwise)" and "earnings from illegal operations [...] such as illegal gambling [...] are not exempt from tax.". Although the corresponding clause (¶1.12) that deals with an individual's gambling activities does not include such language, it seems reasonable to assume that even if the wager were unlawful, its tax treatment would be the same.

Capital Gains Tax (CGT)

It should be noted that both sections ¶1.21(a) and ¶1.21(c) will treat the prize (=vehicle) as an acquisition for the purposes of Capital Gains Tax. The first section deems it to be acquired at "fair market value"; the second deems it was acquired at "the original cost of the ticket or entrance fee rather than the fair market value of the prize as used in ¶1.21(a).". However, this would only matter should you come to sell the vehicle, and it has gained in value.

Provincial Sales Tax (PST)

Note: All credit goes to DJClayworth and his answer for bringing PST to my attention and for the source document Bulletin PST 308: PST on Vehicles (PDF). I've added the details here simply for completeness.

The Overview of the above document sets the scene for PST (emphasis mine):

PST on Vehicles

You must pay PST on vehicles you purchase, lease or receive as a gift in BC, and vehicles you purchase, lease or receive as a gift outside BC and bring into the province, unless a specific exemption applies. You must pay PST, regardless of whether the vehicle is for personal or business use, even if you are registered for PST. The rate of PST you must pay varies (see PST Rates below).

In the first section of this answer, it is seen that gifts do not count as income for income tax purposes. However, this is not he case for PST. From the above document (emphasis mine):

Vehicles Received as a Gift

If you receive a vehicle as a gift you must pay PST on the fair market value of the vehicle, unless a specific exemption applies. If you receive a vehicle as a gift outside BC and bring or send the vehicle into the province, the PST is calculated based on the fair market value as of the date the vehicle enters BC.

So, you will have to pay PST unless an exemption applies. While the bulletin does have a section for "Prizes, Draws and Awards" (shown below; emphasis mine), it does not appear to apply in the OP's situation:

Prizes, Draws and Awards

You are exempt from paying PST on a vehicle if you won the vehicle in a lawful lottery (such as a BC Lottery Corporation lottery), contest, draw, game of chance or skill, or you received the vehicle as an award for an achievement in a field of endeavor, including an athletic or sporting event, and the person who provided the vehicle:

  • paid an applicable tax or another province’s sales tax on the vehicle and has not received and is not eligible for a refund, credit or rebate of that tax, including input tax credits,
  • was exempt from PST, TDP or SST that would have otherwise been payable, or
  • received the vehicle as a gift in BC prior to April 1, 2013.

Note: The only consideration that can be provided by the winner to be entered into the draw is an entrance or admission fee, ticket fee or similar charge. The exemption does not apply if the person received the vehicle as a result of a private arrangement, including a wager, between 2 or more persons.

Of particular note is the last passage that I have emboldened. Unlike the CRA document dealing within Income Tax/CGT, this document does distinguish between an "organised" lottery/draw/game-of-chance-or-skill and a "private arrangement, including a wager", and the latter is explicitly excluded from being an exemption (to the default requirement of having to pay of PST).

If the vehicle in question is a passenger vehicle (including trucks/vans up to ¾-ton), then the applicable rate of PST will be 12% (assuming the fair market value is below 125,000 CAD).

Community
  • 1
TripeHound
  • 9,173
  • 1
  • 26
  • 45
  • 3
    Thank you for this. It gives me ammunition for my insurance agent in the morning. IYDM, I'll suspend clicking the answer check mark until the title has been actually transferred. –  Sep 05 '19 at 08:19
  • 7
    Hope it helps. As regard the check-mark, that's absolutely no problem: questioners are generally advised to wait at least a day after a first answer appears in case someone else (perhaps in a different time-zone) can come up with something better (in this case, since what I wrote was from scouring the 'net, someone with personal experience may be able to provide a more authoritative answer). – TripeHound Sep 05 '19 at 08:26
  • @Jeeped This answer discusses Canada income tax, but be aware that you will likely need to pay British Columbia Provincial Sales Tax of 12% on the fair market value of the “gifted” vehicle. – Ben Miller Sep 05 '19 at 11:41
  • 2
    Insurance agent? Please elaborate. – Glen Pierce Sep 05 '19 at 11:44
  • 1
    @BenMiller - That was exactly what my original question asked. In BC can you gift a vehicle to someone with no taxes involved. Is 'I lost it in a bet' a sufficient or plausible reason? –  Sep 05 '19 at 11:49
  • @GlenPierce - I'm sorry but there isn't enough time and space in the comment section to accurately explain ICBC. –  Sep 05 '19 at 11:53
  • 5
    @Jeeped Obviously, no. Unless you won it from someone in your family who can claim it as a gift (there are special exceptions for gifting vehicles within a family, to a spouse or children, etc) you will definitely need to pay the normal taxes to take ownership of the vehicle and those will be based on the fair market value of the vehicle, regardless of how much you actually bought it for. Otherwise this 'gambling' schtick would be a collosal loophole that everyone would be exploiting. Nobody would sell vehicles anymore, they would just have mutually huge gambling losses to each other... – J... Sep 05 '19 at 13:46
  • 1
    @Jeeped In fact, people wouldn't buy or sell anything anymore. Think about it - want to buy my boat? Forget about taxes - I'll lose a poker game to you for $12k and you lose a game to me for a boat and we'll call it even - no taxes, all under the table. Forget about it. Not going to happen. – J... Sep 05 '19 at 13:48
  • @J... you're just describing fraud. Setting aside the question of how different kinds of betting arrangements fit into the legal framework, most jurisdictions define plenty of different kinds of transactions, some of which are subject to more favourable tax conditions than others. For a private individual buying a boat, there's almost certainly some kind of transaction you could disguise this sale as, resulting in a lower tax burden. This misrepresentation would, however, be fraud. Some people commit it, but it turns out such opportunities don't upend the system of private transactions – Will Sep 05 '19 at 14:36
  • 1
    @Will Well, exactly. Not paying taxes when you're supposed to is fraud, yes. My point is that, just because one can make a convincing argument to themselves why what they're doing is above board does not make it so. – J... Sep 05 '19 at 14:37
  • 2
    @J... this isn't a question about a car purchase disguised as a bet though; it's a bona fide bet which we're to assume actually happened. The answer above quotes relevant law which entertains the possibility that winnings from bets are gifts. The fact that fraudulently disguising a purchase as a bet wouldn't be above board illustrates nothing about arguments relevant to this question. – Will Sep 05 '19 at 14:44
  • 1
    @Will Yes, and this is a case where IANAL puts you in serious peril. Winning a car as proceeds from gambling (ie: win a car on a Timmy's Roll-up-the-rim) is a different situation than a private bet. The former is a licenced contest under the management umbrella of the provincial gaming authority - the government gets its money in other ways so the winner does not pay taxes. Most of the law above means gambling of the government-managed type. For a private transaction you simply cannot disguise it as anything that gets you out of having to pay certain taxes (in this case PST, at very least). – J... Sep 05 '19 at 15:24
  • @Will In any case, there's no path to fraud here because the PST would be due when OP goes to register/insure the vehicle. The only way to actually commit the fraud would also require not registering the change of ownership (ie: the other guy still technically owns the vehicle) or driving it without insurance (depending on how the PST is collected in BC...). – J... Sep 05 '19 at 15:37
  • @J... the idea that the law cited in the answer above applies only to licensed contests, but then entertains the idea that the prize may be a gift, seems a bit absurd to me. Is that really what you're saying? – Will Sep 05 '19 at 15:51
  • @Will 1.21.a) refers to anything. If it was a house it would be a capital gain for income tax purposes, but if it were a secondary residence then the normal taxes and fees for transfer would still apply. If it was just a set of golf clubs then it would just be treated as a gift. Because it is a vehicle, however, even though it does not have a significant impact on income tax reporting there are still taxes to be paid to transfer the ownership registration. This has nothing to do with whether the item is income or not, it's a separate issue but there are still taxes to be paid. – J... Sep 05 '19 at 15:56
  • @J... I'm a bit late realising you're talking about a different tax to the one in the answer. As it is, both income tax and PST have exemptions relating to gifts and gambling, and if a transaction qualified for those exemptions (although in this case I don't think it qualifies for the PST exemption) then it doesn't matter how tempting it would be for other people to fraudulently represent their actual sales as the same sort of bet.. – Will Sep 05 '19 at 16:09
  • "[T]he guiding principal that the gambling is done with after-tax dollars" So is shopping but there's still sales tax. – David Richerby Sep 05 '19 at 18:43
  • I wonder why this is not used to transfer money between people without paying taxes? Donations are taxable (at least in France above 100k€ every 10 years) so if someone needs to donate a large part of their estate that would be a great way to do it. – WoJ Sep 05 '19 at 20:39
  • 2
    @WoJ It's not used because it's transparent tax evasion. Sure, you and I can agree to pay a game of chance in which you stake €1 and I stake €500,000 but, when I pay you the money, the bank will report the transaction under anti-money-laundering regulations and then we'll both have to convince the tax authorities that, even though I've never shown any interest in high-stakes gambling before in my life, this really was an honest gambling transaction. They won't believe us for a second. Likewise if you try to avoid income tax by getting paid by "gambling" with your employer. – David Richerby Sep 07 '19 at 09:42
  • 2
    I ended up paying the full 12% on the estimated value. tldr; If I had won 5K in the lottery and bought a truck or won a truck as a prize the money or the truck would have been free to me but my government still wants 12% of the value of the truck or car to title register it as mine. They're different taxes. Believe me, everly dollar we earn is taxed on several levels. I cannot imagine how much they've garnered from my beer, cigarettes and gas. –  Sep 10 '19 at 10:59
29

This is a supplement, not an alternative, to TripeHound's excellent answer.

In BC you are required to pay tax (PST) on private vehicle sales. Moreover you are usually required to pay tax on the market value of the vehicle, even if you say you bought it for less (because it's far too easy for buyer and seller to report a price lower than they actually paid and avoid the tax). So you may be expected to pay 12% of the car's market value to the government.

DJClayworth
  • 33,328
  • 7
  • 87
  • 120
  • 2
    And if this amount you have to pay in tax sours the winnings, you might instead negotiate with the poor loser you won the truck from to return it in exchange for some amount of cash. – R.. GitHub STOP HELPING ICE Sep 05 '19 at 15:32
  • 16
    It would be worth noting that the linked bulletin addresses the scenario in the question quite directly under its provisions for exempting gambling winnings. To boot: "The exemption does not apply if the person received the vehicle as a result of a private arrangement, including a wager, between 2 or more persons.". Since no payment was made for the car, this means PST is almost definitely payable on the fair market value for this transfer of ownership. – Will Sep 05 '19 at 16:20