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