Taxes on Gambling Winnings For Canada Explained

When it comes to taxes, Canadians pay more tax than their American neighbors, but winnings from gambling, lotteries, horse racing, and other games of chance are not taxed in Canada.

Income From Gambling For Canada Explained

According to Canadian law: If you are a Canadian citizen and not a professional gambler whose sole income derives from gambling, you do not have to pay taxes on gambling winnings. There are some cases where this can differ and we strongly advise that you consult your own tax adviser to determine whether you are liable for any taxes and to make sure you are complying with all local and federal laws as there are some cases where the Canada Revenue Agency (CRA) considers lottery winnings income from a business.

Are Gambling Winnings classed as a "prize" under the Income Tax Act?

Money received as scholarships and bursaries or "a prize for achievement in a field of endeavour ordinarily carried by the taxpayer" is taxable. The Tax Act does however use the term "windfalls" which are occasional lotteries and sweepstakes, for example, and these are not taxable.

Canadians who gamble seriously, or for a living, could have their winnings taxable as income from business. Taxable income encompasses total income from four sources - office, employment, business, and property. In this case, business is defined as "a professional, calling, trade, manufacture, or undertaking of any kind whatever..."(248 (1) of the Tax Act). For professional gamblers, this is a business and their income is taxable.

As it stands, today in Canada, gambling winnings and losses are unlikely to be seen by the tax authorities and courts as income or loss from business. This means that they are neither taxable nor deductible as expenses from losses. This is essentially good news for Canadian taxpayers who like to enjoy online gambling and take home some additional cash in doing so.

Income From Gambling in the United States Explained

Gambling winnings in the U.S. are fully taxable and they must be reported on your tax return. Gambling income includes but is not limited to winnings from lotteries, raffles, horse races, and casinos. This includes cash winnings and the fair market value of prizes such as cars or vacations. Gambling winnings are reported as "other income" on tax returns.

Gambling losses may also be deducted but the amount of losses you deduct may not be more than the amount of gambling income reported on your return.

So there you have it; if you live in Canada you do not have to pay taxes on your gambling winnings unless you are a professional gambler and this is your business and only income source.

Those who live in the United States must pay tax on all winnings but they can claim losses as expenses.