Lottery winnings are not taxable in Canada.
If you win money through a lottery, like Lotto 6/49 or Lotto Max, it’s all yours to keep, whether it’s $100 or $10 million.
Under Canada’s Income Tax Act, money earned from a lottery is considered a financial windfall or, to put it another way, an unexpected surplus of cash.
And since financial windfalls aren’t subject to income tax, you’re not required to report lottery winnings on your tax return.
As per Income Tax Folio S3-F9-C1:
The amount or value of a prize received by a taxpayer from a lottery scheme is not taxable as either a capital gain or income.
This will be the case unless, due to the circumstances applying to the lottery scheme, the prize can be considered to be income from employment, business or property, or a prize for achievement referred to in paragraph 56(1)(n).
Remember that any income you generate from lottery winnings is taxable.
For example, you invest some of your winnings in the stock market.
In that case, you must report any dividends and capital gains you earn during tax season.
Similarly, if you use the money to start a business, the Canada Revenue Agency (CRA) will want its share of your profit.
Conversely, you cannot claim the cost of lottery tickets if you fail to win any money.
It’s only fair – since the CRA allows you to keep any winnings tax-free, you don’t get the privilege of deducting losses from playing the lottery.
What About Casino or Gambling Winnings?
Generally speaking, money won from gambling activities isn’t taxable.
Like a lottery, the CRA deems these winnings to be financial windfalls.
There’s no expectation of profit; any money won was due to pure luck and is unlikely to reoccur.
As a result, you’re free to keep every last nickel you win in a gambling venue.
However, there’s an exception to the rule.
Let’s assume that gambling is your profession, meaning you derive all or a significant portion of your income from it.
The CRA would view your gambling activities as a business in this scenario.
In other words, instead of collecting a financial windfall occasionally, you’re now earning a steady business income.
And like any business, you must report your profit on your tax return.
How does CRA determine whether a taxpayer should be classified as a professional gambler carrying on a business or a recreational player?
In the first place, they’ll assess the expectation of profit from the activity.
For example, certain gambling-related games are 100% luck-based, such as roulette and slot machines.
Since winnings from these games occur rarely and erratically, earning a reliable profit is not possible.
Therefore, if you regularly play these games, you can rest assured your winnings will never be taxed.
However, some games contain an element of skill, like poker.
In this case, an expert player has the potential to generate consistent profits.
They won’t win every time they sit down at a table to play, but in the long run, it’s possible that they’ll come out ahead financially.
If this describes you, you’re legally obligated to your winnings to come tax season.
You’ll pay tax on your net gambling income like any business owner.
In reality, differentiating between professional and amateur gamblers can be tricky.
Here are some factors that signify that you’re the former:
- You engage in your gambling activity frequently
- You follow proven strategies when playing to maximize your profit
- You pay for lessons, study your gambling activity, and regularly hone your skills
- You travel to attend tournaments and other events
- You invest considerable money into your gambling activity
- You generate a profit consistently
If you’re a professional gambler, the CRA permits you to deduct expenses against your winnings directly related to your profession.
For example, if you’re a poker player, you can claim the cost of travel expenses, accommodation costs, entry fees, and other expenses associated with earning income from poker.
Work with a trusted, certified accountant to determine if you would be considered a professional gambler.
Are Gambling Winnings in Vegas Taxable for Canadians?
Let’s say you fly down to Las Vegas for a quick getaway and get lucky at one of the local casinos, winning a huge chunk of cash.
Is 100% of the money still yours to keep even though you’re not an American citizen or resident?
In the U.S., gambling winnings are considered taxable income.
The IRS (Internal Revenue Service), requires non-residents to report money they’ve won from gambling activities, which includes slot machines, Keno, poker tournaments, lotteries, bingo, horse races, and gameshows.
To report money, you’ve won from gambling activities in the U.S, you must fill out and submit form 1040NR – U.S. Nonresident Alien Income Tax Return, to the IRS.
In general, gambling winnings are subject it a 30% tax rate.
This tax is withheld by the payer, such as a casino, before you receive your winnings.
Therefore, if you win money south of the border, you’ll only be taking home a portion of it back home to Canada.
The U.S/Canada tax treaty provides a little bit of financial relief for Canadians who win money from gambling in U.S casinos and other gambling establishments: you’re allowed to deduct any gambling losses you incurred against your winning, which will reduce your tax liability.
You may only claim losses up to the amount of your winnings and you cannot deduct other expenses like travel costs.
Consider keeping a diary of your winnings and losses.
Sometimes, the gambling venue can provide you with a statement that contains these details if you hold an account with them.
If you win money from gambling activities in the U.S, the casino or venue will provide you with either form 1042-S or W2G, indicating your winnings and the amount withheld for taxes.
You must attach these forms when you file your U.S non-resident tax return.
As a Canadian, any money you win in the U.S from Blackjack, Baccarat, Craps, Roulette, or Big 6 isn’t taxable.
Fun Fact!
As a Canadian, any money you win in the U.S from Blackjack, Baccarat, Craps, Roulette, or Big 6 isn’t taxable.
