Online poker tax a shady area

New Zealand's top online poker players are raking in the money - and not a drop of it is getting to the taxman.

The players, who pull in up to US$200,000 per tournament, are making their millions on the same kind of gaming sites caught in a US-Government sting last week.

The FBI announced on Friday it had charged 11 people, including the founders of three of the largest internet poker companies in the US, with bank fraud, money laundering and illegal gambling offences.

Hazy laws mean professional New Zealand gamblers can have the money put straight into their bank accounts under the tax radar.

Technically, professional gamblers are supposed to pay income tax on their winnings, but the players rarely do.

Those involved in poker are mainly young, bright and keen to avoid the drag of a nine-to-five job. They often start with very little cash and quickly make their way up the prize-pool ladder.

Stuff.co.nz spoke to one of the country's top-ranked online earners who said he began with only $50 in his Party Poker account, five years ago. He's since earned more than $400,000.

"It's pretty awesome. I was at university but I dropped out to play poker full time," the 24-year-old said.

The man, who did not want to be named, said he'd never paid tax on his winnings.

"I feel I'm reasonably generous with the money I've won though so I'm not worried about it," he said.

"I've given some to my dad and helped out friends. I do quite a bit of share trading too."

He said that while he didn't have a full-time job, poker was only a hobby, which he played around ten hours a week.

The sites, such as Party Poker, took a bite of the cherry as well. He said he would have paid the sites around $100,000.

The man said when he gambled, he used two 22-inch screens to play up to 16 tables at a time. Entering the tournaments was costly, with each entry costs between $50 and $250.

"It's pretty intense. You have to make sure you have good bankroll management."

According to the website Pocketfives, the top online poker earner from New Zealand is ex-pat Richard Grace, who's cashed out more than $1.5m. He's now living in the UK.

The top 10 earners on the list are estimated have won another $3m to $4m between them.

Inland Revenue said it was aware of the increasing use of online gambling sites.

Generally, gambling winnings were not regarded as being taxable income because for most people gambling was indulged as a hobby or pastime, it said.

However, where the gambling was undertaken as a means of producing income (i.e. more than as a mere hobby/pastime) then the person's winnings may be taxable.

IRD was not aware of any investigations being currently undertaken into those earning income from poker, but it would continue to monitor online gambling sites.