Understanding Gambling Winnings Tax in Canada
Thanks to an optimistic tunnel vision, the majority of gamblers focus all their attention on potential winnings. This often goes hand in hand with the dream of turning professional and living from betting activities. Yet once Canadian tax is factored in, it might be better to remain a recreational player. After all, in the Great North, all winnings are tax-free, providing gambling isn’t the main source of income.
Understanding Gambling Income and its Taxation
In the eyes of the taxman, gamblers are divided into two distinct groups: professional and recreational. Professional gamblers are those who use gambling as a way of making a living. Conditional to their gambling profits, professional players will have to pay Federal tax under the following rates:
| Income Tax | Income Range |
|---|---|
| 15% | C$46,605 |
| 20.5% | C$46,603 |
| 26% | C$51,281 |
| 29% | C$61,353 |
| 33% | C$205,842+ |
Over 99% of Canadian gamblers fall under the recreational title. Although many will spend considerable sums on games, sports betting, or buying lottery tickets, gambling isn’t their prime income source. So there’s no excise to pay on any winnings. In other words, you can check an online gambling review, choose a casino, and play for fun once in a while. In this case, winnings will go straight to your pockets.
Factors Determining Gambling Winnings Tax Canada
As seen below, the law doesn’t simply assume a gambler pulling in millions of Dollars is a professional. The Revenue Agency considers a number of factors to decide what qualifies as gambling professionally.
- Main source of income is gambling
- Extended periods of gambling earnings
- Have a gambling education and practice habitually
- Routinely play in tournaments and travel to gamble
- Enjoy a highly organised gambling schedule
- Intention to rely on gambling for their livelihood
Reporting Gambling Winnings
Any additional earnings due to gambling such as dividends from paying stock or interest on saving deposits that originate from casino or sportsbook winnings, must be declared to the CRA using a T3, T5 or T5013 form. Depending on the income, presume to pay 15% – 33%.
Probably the easiest and fastest way to file gaming taxes in Canada is through registering for direct deposit or online filing, with electronic returns normally processed within a couple of weeks. The annual deadline for filing returns is April 30. All payments owed must be settled by May 1st. It’s always a sensible idea to follow Canadian tax law to talk with a Canadian tax lawyer to ensure everything is in order.
Claiming Gambling Losses
Professional gamblers can claim back gambling losses as a business expense, as with any other business costs. For this, players need to maintain accurate records of their gambling activities, with receipts and documentation helping verify their gambling income. It goes without saying that recreational players get no tax write-offs for their gambling losses.
What’s Exempt from Tax and What Isn’t?
All Canadians, including gamblers, are entitled to a tax-free allowance (Basic Personal Amount) of C$14,298. Income above this amount is taxable. In view of the grey areas of what exactly constitutes a recreational or professional gambler, the CRA is rather slow when looking to audit professional gamblers.
Distinction Between Amateur and Professional Gamblers
In 2002, the Supreme Court set out criteria to help decide whether gambling is considered a hobby or a business.
- Is the gambler betting for personal gain or one that has the intention to make a profit?
- If betting is not for personal gain, does the income come from a business?
The underlying problem is that, on a subjective level, every gambler wants to turn a profit. But for the average bettor, enjoying casino games or sports betting without it being their primary source of income, there’s no need to worry. There is no gambling winning tax Canada to pay.
Special Cases of Gambling Taxes
With so many different types of betting available, let’s look to see the Canadian taxpayers’ obligations across various gambling activities.
On Lottery Winnings
Unlike in the US, lottery winnings north of the border aren’t taxable. They’re considered “windfalls,” which are the results of games of chance as opposed to games of skill. However, when lottery winnings go towards a savings plan or financial portfolio, regular taxes on lottery winnings Canada come into force. Also, if some of this new-found wealth is given to relatives or friends, expect to pay a donation charge.
Pay Taxes on Casino Winnings Canada
Providing that gambling isn’t the player’s business or livelihood, all winnings stemming from casino games, whether played online or offline, are totally duty-free.
On Poker Winnings
The majority of poker players consider the game to require great skills but, if there’s talk of taxation, lots will suddenly become nervous and revert to saying poker’s a game of chance! That’s because there have been a number of court cases trying to determine the level of skill that could lead to poker being included as taxable income. Still, these have tended to focus on how the winnings were earned, organized poker training, and the player’s capabilities to turn a profit. In short, a trained poker player who regularly makes a profit will have to pay income tax.
On Sports Betting
Canadians have enjoyed sports betting since 1985. But up until August 2021, solely parlay bets and pari-mutuel gambling via the provincial lottery systems were legal. Though a change in the law now allows single-game sports betting, there still remain very few retail sportsbooks. Thanks to this, most Canadian sports bettors utilized offshore sports betting platforms. Providing sports betting isn’t the main income source, then no amount of winnings is taxable.
On Cryptocurrencies
Similar to recreational betting, cryptos are not subject to Capital Gains and Ordinary income tax unless used for professional reasons. The former takes into account the rise and fall of your crypto “assets”, and capital gains are taxed at 50%. On the other hand, crypto-staking and mining rewards carry a 100% ordinary rate. Holding crypto in a wallet doesn’t warrant duties. Nonetheless, the following scenarios will:
- Selling crypto
- Trading or exchanging crypto
- Gifting crypto
- Using crypto to buy goods and services
- Converting crypto to Canadian Dollars
So, using crypto to fund an online gambling account for gambling is tariff-free.
Provincial Variations in Gambling Tax Laws
Canadian players who make a living by playing online games or sports betting not only have to pay a Federal tax of 15% – 33% but also a provincial tax. These add a minimum of around 4% – 10.8% on top. Let’s examine each province’s min/max tax rates:
Ontario
- Min – 5.05% – First C$46,226 of income.
- Max – 13.16% – C$220,000+
Alberta
- Min – 10% – First C$131,20 of income.
- Max – 15% – C$314,928+
British Columbia
- Min – 5.06% – First C$43,070 of income.
- Max – 20.5% – C$227.091+
Manitoba
- Min – 10.8% – First C$34.431 of income.
- Max – 17.4% – C$74,416+
New Brunswick
- Min – 9.68% – First C$44,887 of income.
- Max – 20.3% – C$166,280+
Newfoundland & Labrador
- Min – 8.7% – First C$39,147 of income.
- Max – 21.8% – C$1,000,000+
Northwest Territories
- Min – 5.9% – First C$45,462 of income.
- Max – 14.05% – C$147,826+
Nova Scotia
- Min – 8.79% – First C$29,590 of income.
- Max – 21% – C$150,000+
Nunavut
- Min – 4% – First C$47,862 of income.
- Max – 11.5% – C$155,625+
Prince Edward Island
- Min – 9.8% – First C$31,984 of income.
- Max – 16.7% – C$63,969+
Quebec
- Min – 15% – First C$46,295 of income.
- Max – 25.75% – C$112,655+
Saskatchewan
- Min – 10.5% – First C$46,773 of income.
- Max – 14.5% – C$133,638+
Yukon
- Min – 6.4% – First C$50,197 of income.
- Max – 15% – C$500,000+
Taxation of Canadian and International Casinos
A Cunuck gambler who, for example, crosses the southern border on a gambling trip to Las Vegas, will have to declare winnings over $1,200 to the IRS, with 30% of winnings being deducted as duty. But there is some good news in that it’s possible to deduct gambling losses at the same time (these deducted losses cannot be greater than any winnings). In the casino, fill in Form W-7 to obtain an Individual Taxpayer ID Number and file a Non-Resident tax return.
FAQ
How to avoid Canadian gambling taxes?
According to Paragraph 40 (2)(F) of the Canadian Income Tax Act, providing the player doesn’t live from betting, the winnings are completely free of taxation.
Are Canadian lottery winnings taxed?
No, they’re not. The Tax Office doesn’t view lottery winnings tax Canada as necessary as these types of wins are classed as “windfalls” – unexpected payments akin to inheritances and gifts.
Are gambling winnings taxable in Canada?
Generally, no. The single proviso is that the winner should be a professional gambler. As with all incomes, winners will have to pay duty on their annual net profits.
Is sports betting taxable in Canada?
No, it’s not. Winnings earned thanks to recreational betting aren’t considered taxable.
How much tax on gambling winnings Canada?
Professional gamblers must pay taxes of 15% – 33% on net yearly income from gambling. Recreational players can keep their winnings tax-free.
Are gambling losses deductible?
Only providing it’s a professional gambler living from betting.
How Does Canadian Tax Law Differentiate Between Gambling as a Hobby and a Business?
A lot depends on whether gambling is a hobby or run like a business. This is a fine line, but a lot is down to the player’s intentions. If a hobby is being pursued without any profitable intention, it’s not regarded as a business, and there should be no Canada gambling tax. However, if the majority of income originates from gambling, duty will need to be paid.