Generally speaking, most Canadians enjoy tax-free online gambling winnings, with a few rare exceptions, although it may feel like we have to deal with the regulations imposed by our southern neighbors…
The top online casinos in Canada ...and most gambling profits are regarded as tax-exempt. This practice can be traced back to British law and is specifically stated in Canadian legislation under section 40(2)(f) of the Income Tax Act ('the Act'). There are two noteworthy exceptions: one applies to individuals who operate a gambling business or earn a livelihood from it, while the other relates to Canadians placing bets in the United States.
Is it necessary to pay taxes on winnings from casinos in Canada?
For 99% of Canadians, the answer is a definitive no. Absolutely not. There’s nothing to worry about. Canada has a long-standing tradition of allowing us to keep what we win without tax implications, a practice first established long before Canada came into existence. Online gambling in Canada is treated more like an event where luck plays a pivotal role, similar to a sporting match, where the chances of losing are as significant as those of winning.
Question resolved. Case closed. Canada does not impose taxes on casino winnings at all. The idea of facing complicated tax obligations is a non-issue. And don’t just rely on our assurances; the Canada Revenue Agency (CRA) has confirmed this.
What amounts need to be reported by winners in Canada?
For the remaining “One Percent,” the current reporting threshold is approximately $1.2 million, although that figure has been contested. The CRA is pursuing a case against Jonathan Duhamel, a winner from the World Series of Poker (WSOP), claiming he owes taxes on amounts he won professionally between 2010 and 2012. The CRA argues that Duhamel's gambling activities constituted a business endeavor due to his:
- Engagement in at least forty hours of play weekly (considered full-time), with poker being his sole source of income.
- Investment of $4.1 million in Piece Swap Agreements during the 2010 WSOP to lessen his financial losses. According to Canadian law, these agreements are taxable.
- Entering into a $1 million deal as a Brand Ambassador with Pokerstars in 2011, which allocated part of his payment to cover tournament expenses. The CRA asserts that his winnings resulted from skill rather than luck, thus they should be taxed.
Duhamel, who ranks among the top poker players globally with $18 million in winnings and three WSOP titles, disputes this characterization, insisting that his success is attributed to sheer luck.
While the ‘One Percenters’—including many professional poker players who have moved to Canada to take advantage of the favorable tax regulations on gambling winnings—are keenly observing the legal proceedings, the remaining 99% can feel assured and continue enjoying their gaming experiences tax-free as casual players. As of now, there has yet to be a ruling on the matter.
Under what circumstances might I incur tax obligations on gambling winnings?
There are a few rare instances for Canadians where gambling winnings may lose their tax-exempt status. For individuals engaged in the gambling business who derive a consistent income from their activities, those earnings will be taxed. Moreover, any progressive jackpots won in the U.S. that exceed USD $1200 are subject to taxation by the Internal Revenue Service (IRS). In other words, 30% of casino winnings in Las Vegas are likely to end up being taxed...
Gambling as a profession
- A fitting description would be anyone who treats gambling as their full-time job and operates it as a professional trade. If registered with the CRA, any earnings gained through your gambling activities will be taxed as income. However, legitimate business expenses—like operating and administrative costs, as well as incurred losses—can be deducted. This could apply to racehorse owners who maintain and bet on their horses to earn purse money, or businesses such as casinos and lottery retailers that receive income from gambling activities (which is taxable).
- As demonstrated by the CRA's case against Jonathan Duhamel, professional gamblers—especially poker players—are positioned in a gray zone under scrutiny from Canadian tax authorities, who are seeking to clarify the complex interplay between skill and luck and what kind of tax obligations the business of gambling may entail depending on the circumstances.
Canadians engaging in gambling in the United States.
- “The only certainties in life are death and taxes.” This quote, made famous by Benjamin Franklin, doesn’t apply when discussing gambling. Some Canadians may see this saying as a humorous reminder of why there’s no need for a border wall, while others might chuckle at the historical irony of being the only foreign force to capture Washington and set fire to the White House in 1814 after hearing about the IRS taxing 30% of their winnings.
- Any jackpot exceeding USD $1200.00 is taxed right away, with casinos required by law to withhold those funds. Fortunately for Canadian residents, there is a tax treaty between Canada and the U.S. which allows winners to claim back some of their taxes. This can be done by providing evidence of winning costs, meaning if a player invested $1000 to win $2000, they would only be taxed on the net gain of $1000. With the proper application and relevant paperwork submitted to the IRS, players could reduce the withholding tax from $600 to $300 and reclaim the difference. A guide offers more detailed information on this process.
How and where can you report your winnings if necessary?
In Canada, the topic of gambling taxation falls under the jurisdiction of the Canada Revenue Agency (CRA).
For Canadian residents who want to know about winnings from the United States and potential refunds, there’s additional information available from the Internal Revenue Service (IRS).
Conclusion
In Canada, all casino-related winnings—be they from lotteries, online slot casinos , live casino or any other gambling activities—are tax-exempt. The topic has been clarified. Canadians aren’t liable for taxes on gambling rewards. This is the legal standing.
Canadians who receive a regular income might have to pay taxes on their earnings from online casino reviews or another form of gambling. Nonetheless, this area remains murky, as even professional poker players can currently maintain their tax-exempt status. The onus of proving that such windfalls originate from skill rather than sheer luck falls upon the CRA—a legal challenge that Canadian courts have largely disallowed. Ordinary online casino gamers in Canada can disregard this nuance entirely.
For Canadians who hit a jackpot while in the U.S., the immediate 30% tax withholding by the American government can come as a startling surprise. Depending on the amount won, it could be worth the effort to recover some of those taxes, and there are procedures in place for pursuing that possibility. As for the majority of players, perhaps a different Canadian saying is better suited for our friends to the south than Franklin’s: “Good luck with that…”
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