Though it’s hardly the first thing that comes to mind when you win big at an online casino, sooner or later, you’ll want to know if you need to pay taxes on your winnings. We shall tell you all about it in this guide.
There’s some good news here: with a few exceptions, Canadians don’t typically pay taxes on online casino winnings.
You see, Canadian law says that any form of gambling winnings are tax-exempt. It’s based on a British tradition and can be found in Canadian law as paragraph 40 (2) (f) of the Income Tax Act (“the Act”). As we mentioned, there are two exceptions to this rule:
As you can see from the information above, the answer to this question is: very rarely. Canada is not the most gambling-focused culture, but it does have a tradition of not taxing winnings of any kind. The Canada Revenue Agency (CRA), the main governing body for Tax & Revenue, has also indicated this will likely not change.
Currently, $1.2 million seems to be the threshold for reporting gambling winnings. In fact, The Canada Revenue Agency (CRA) recently launched a lawsuit against World Series of Poker (WSOP) winner Jonathan Duhamel. They claim he owed taxes on professional winnings from between 2010 and 2012. Note, the word “professional” there, and refer to the two exceptions we mentioned in the intro.
The lawsuit contends that professional poker players operate as a business. If they play at least 40 hours a week and have no other source of income other than that of a poker pro. Ultimately, this is a fair compromise. Though Canada is not interested in winnings, it is interested in people who generate business income. It’s only fair to other businesses that use skill and talent to earn money that poker players get taxed for doing the same.
Again, if you’re a Canadian citizen for whom gambling is a proven source of income from it, those earnings are taxable. And if you gamble in the U.S., which includes participating in jackpots, and progressive jackpot slots valued over $1200.00 USD, those are taxable as well. However, they’re being taxed by the U.S. Internal Revenue Service (IRS).
In fact, any winnings valued over 1200.00$ are taxed instantly because the casinos have to withhold the money by law. Fortunately, there’s a tax treaty between the U.S. and Canada, which allows winners to get a partial refund by documenting the costs of the win. For instance, if you spent $1000 and won $3000, your winnings would only be counted as $2000. A useful guide can be found here on IRS website.
If you conduct the business of gambling as your full-time employment or treat it as a professional trade, you would have to register with the CRA. In doing so, your earnings (winnings) would be taxed as any other type of income would. However, it also means you can write off the costs of conducting business, including operational and administrative costs. You can even write off losses in some cases.
As illustrated by the aforementioned case brought against Jonathan Duhamel, professional gamblers are actively being pursued by the Canadian tax authorities so that the CRA can clarify the differences between luck and skill. So while it’s unclear for the moment, it’s likely going to go in the CRAs favor. We’ll just have to wait and see.
In Canada, gambling taxes fall under the jurisdiction of the Canada Revenue Agency (CRA). Canadian residents that want to find out more about U.S. winnings and the possibilities of refunds should contact both the CRA and the Internal Revenue Service (IRS).
Whether you win big in the lottery, slots, live casino, game shows or sports betting, the winnings will be tax-exempt. It’s in the law, and it’s not likely to change any time soon. That said, Canadians who earn a consistent income via online casinos or any other form of gambling may need to register with the CRA so that their income can be evaluated. Though it’s more of a “grey area” at the moment, chances are it will result in your income being taxed as work-related. Again, this will only apply to around 1% of players, as most people still play primarily for fun.
Then you have those Canadian players who hit the jackpot south of the border. Having around 30% of your winnings evaporate due to U.S taxes can be frustrating, but Canada does have some mechanisms to help you get a portion of your funds returned.
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Frequently Asked Questions:
Does Canada charge taxes on Casino winnings?
No. Canada does not tax casino winnings, lottery jackpots, or any other legal gambling winnings.
Do foreign nationals need to pay taxes if they win big in Canada?
No. However, depending on their country of residence, their winnings may be considered income by their home nation.
Are there any exceptions when it comes to the taxation of gambling winnings?
Yes. When gambling winnings are defined by the Canada Revenue Agency (CRA) as one’s earnings. For instance, both individuals and companies that participate in gambling as a form of business may be required to pay taxes on what they earn. If that is the case, they will also be able to write off their expenses, just as you could with any other form of employment. Currently, this issue is being debated at the Federal level.
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