Canada’s Tax Law on Gambling Winnings

Easy money is everyone’s dream. Hence, many people started facing the opportunity to place bets on various games or events, hoping to bring home a bag of money. But pocketing the whole amount of money is in most of the cases a far-fetched dream, as the government will not miss the chance to reap its fair share. This immediately invokes one important question – how much is the tax on the winnings?
Unfortunately, it is hard to give one answer, which is valid for all the countries, as every country has a different tax system. But one thing is for sure – one of the best tax systems on gambling winnings is generally reckoned to be the Canadian one, as in most of the cases players can keep what they win, without paying anything. In other words, gambling winnings are exempt from taxes in Canada. Before the players start to jump for joy, it should be noted that there are certain exceptions to the rule, depending on the type of winning.
Lottery Winnings
The Canada Revenue Agency (CRA) does not require paying taxes on sweepstakes winnings, when the player wins from a Canadian lottery. The reason is that these are considered as windfalls, but not as a way of earning money. It is important to note that all the games, which feature 50:50 chance to win or lose are considered to be lotteries. This means that players can place their bets on the final result of a sports event without the need to pay taxes on their possible winnings. The players should keep in mind one important fact – the money, generated by use of the lottery earnings are taxable.
The bookmakers, on the other hand, are subjected to taxes, as their “winnings” are treated as income.
Casino Winnings
Following the same logic, many people might be misled by the idea that since the lottery winnings are exempt from taxes, the same law should be valid also for the casino winnings. But the things are a bit different when it comes to casino winnings. Under the Canadian Income Tax Act, all winnings from playing casino games are taxable.
At first, this may sound unfair and unreasonable, but the CRA treats casino winnings as “business income” due to the professional gamblers, who earn their money by placing bets in the casino. Hence, if you like to play casino games regularly, you are considered to “work” as a self-employed professional player.
But every cloud has a silver lining – even though the casino players need to pay taxes on their casino earnings, having the status of a “self-employed professional casino player” give them the right to claim business expenses.
Namely, that is the reason why the law is not completely clear when it comes to the casino winnings, as some players just like to play casino games and do not use this activity as a way to make money. Hence, it seems to be a hard task to determine if a particular individual is a professional player or not. In order to avoid cases, in which players deduct gambling losses in Canada as “business expenses”, the Canada Revenue Agency does not impose taxes on casino winnings, but also gambling losses are not deductible.
Winning Competitions at Workplace
Prizes and awards won at your workplace are not always exempt from taxes. Cash incentives are almost always taxable, as these are considered as part of your main income.
Winning in U.S.
In the eyes of the American law, all winnings are subjected to taxes. Even if Canadian players win American lotto, they are obliged to pay a certain amount of taxes. To ensure that the player will not leave the country before paying the taxes, the casinos are allowed to withhold part of the winnings.
However, the law offers a small loophole as the Canadian Income Tax Act does not impose any taxes even on lottery earnings generated outside Canada. Hence, the Canadian residents, who win an American lottery are obliged to pay only a 30% tax on their winnings to the US Internal Revenue Service (IRS).
Following the established British model, gambling winnings in Canada are not taxable, therefore gambling losses are not deductible. Canadian players can place their bets without worrying that the government will take a massive chunk of their fairly earned money. And taxed or not, it is the fun of the game that should be players’ drive.