Taxes on Casino Winnings

Do you Get Taxed by Canada on Your Casino Winnings?

Land some wins over a rolled reel or dice? Do you wonder if you will get to keep all the wins? Or do you have to pay tax for any of your wins? We shall tell you all about it in this guide.

With a few rare exceptions, Canadians don’t pay taxes on online casino winnings. But we do have to put up with the Neighbours…

In Canada, online casinos, or any form of gambling winnings, enjoy tax-exempt status. This principle follows historic British tradition and is codified in Canadian Law as paragraph 40(2)(f) of the Income Tax Act (‘the Act”). Two exceptions to this rule occur; one is for conducting the business of gambling and/or as a professional trade… The other is for Canadians betting in the US market.

Do you have to pay taxes on casino winnings in Canada?

For 99% of Canadians – never. No. Nada. Doesn’t happen. Canada enjoys a proud heritage of letting us keep all of what we win based on a long-standing tradition of not taxing gambling windfalls that is older than the country itself. Online casinos in Canada are looked upon as a sporting event involving the elements of chance where the prospect of losing is every bit as real as that of winning.

Asked and answered. Done and dusted. Canada doesn’t tax casino winnings. The lid on any Pandora’s box of complicated taxation burdens you thought might arise is firmly shut. Don’t simply take our word for it, the Canada Revenue Agency (CRA) has reported this.

cra canada revenue agency canada casinos
Canada Revenue Agency (CRA) is the main governing body for Tax & Revenue for Canada

What winning amount do you have to report in Canada?

For the other “One Percent” of us, about $1.2 million or thereabouts seems to be the latest threshold, and even that number is dubious. The Canada Revenue Agency (CRA) has launched a lawsuit against World Series of Poker (WSOP) winner Jonathan Duhamel for that amount claiming it is owed taxes on professional winnings he accumulated between 2010 and 2012. The lawsuit contends that the professional poker player was operating as a business, namely by;

  • Playing at least forty hours a week (full-time employment) with no other source of income other than that of a poker pro.
  • Spending $4.1 million during the 2010 WSOP in Piece Swap Agreements to minimize his losses during the tournament. The agreements are taxable under Canadian law.
  • Signing a $1 million Brand Ambassador agreement with Pokerstars in 2011 in which a percentage of payment was allocated to tournament expenses. On this last point, the CRA case concludes that the poker pro’s winnings were recognized as having been achieved with skill and talent and not by chance, and so are therefore taxable.

Duhamel – among the world’s most successful poker players with $18 million in winnings and three WSOP titles to his name, disputes this and maintains his poker success is the result of “Luck.”

While the One-Percenters – namely the many other poker professionals who’ve taken up residence in Canada specifically for the advantages that the tax-exempt status on gambling winnings bestows on the extremely lucky – will watch the legal case progress with an abiding personal interest in its outcome, the other 99% of us can rest easy either way and continue to make bank tax-free as recreational players. At the time of writing, a verdict remains to be published.   

What are the exceptions when I might have to pay taxes on gambling winnings?

For Canadians, there are a few rare exceptions when it comes to tax-exempt status on gambling winnings. For those who are directly involved in the business of gambling and earn a proven source of income from it, said earnings are taxable. For Canadians who gamble south of the border, any jackpots, including Jackpot Progressive slots, that are valued higher than USD$1200.00 are taxable – by the Internal Revenue Service (IRS). Put another way; 30% of what’s won in Vegas, stays in Vegas…

Gambling as a profession

  • An appropriate definition would be if you conduct the business of gambling as your full-time employment and practice it as a professional trade. If registered with the CRA to do so, your earnings (resulting from winnings) will be taxed as income. That said, the costs of conducting business, namely operational and administrative costs – and losses – are all legitimate claims for deductions. Examples of this would include racehorse owners who maintain, train and bet on their own horses to win purses or businesses like casinos and lottery retailers who receive earnings from gambling winnings (the earnings are taxable).
  • As illustrated by the CRA case brought against Canadian Poker Pro Jonathan Duhamel, professional gamblers – particularly professional poker players – are in a grey area that is being actively pursued by the Canadian tax authorities in order to clarify the differences between luck and skill – and the associated potential tax liabilities the business of gambling with skill should/could warrant.

Canadian residents gambling in the US

  • “Nothing is certain but death and taxes.” Popularized by Ben Franklin, and totally inaccurate in reference to the topic, some Canadians might sight the American proverb as yet another reason why there isn’t any need for a border fence, while some others might smile silently at the thought of having been the only foreign power to occupy Washington and torch the White House in 1814 upon hearing that 30% of their winnings are being withheld by the IRS.
  • Any jackpot valued at more than USD 1200.00 is taxed instantly and the casinos withhold these funds according to law. For Canadian residents, a tax treaty between the two countries exists whereby winners can claim a partial refund. This is accomplished by documenting the costs of the win i.e. how much it cost to achieve. If a player spent 1K to win 2K, the jackpot value is only 1K. With an application and some paperwork sent to the IRS, the player could reduce the holding tax from $600 to $300 and be refunded the balance. A guide to this procedure will provide you with more concise informatio.

How and where to report your winnings if you are so required.

In Canada, gambling taxes – like all taxes – fall under the jurisdiction of the Canada Revenue Agency (CRA).

For Canadian residents inquiring about US winnings and the possibilities of refunds, more information is available from the Internal Revenue Service (IRS).

Conclusion

In Canada, taxes on casino winnings – whether they are lottery, slots, live casino or any other game winnings, it is tax-exempt. Asked and answered. Canadians don’t pay taxes on gambling windfalls. It’s the law.

Canadians who earn a consistent income may be required to pay taxes on earnings derived from online casinos or any other form of gambling. However, this area remains grey as even professional poker players remain exempt (for now). The onus to prove that gambling windfalls derived from skill alone and a full-time commitment of employment to achieve the same remain the responsibility of the CRA – and a legal argument the national courts of Canada have consistently frowned upon. Day-to-day online casino players in Canada need not give this exception a second thought.

For Canadian players who struck a jackpot south of the border either in person or online, the 30% cash grab made by the US government can come as a shock. Depending on the value, the effort to recover some of those funds could be worthwhile and mechanisms exist to pursue that option. For the rest of us, perhaps a well-known Canadian proverb is more fitting for our neighbours to the south than Franklin’s; “Good Luck with that…”

Frequently asked questions

No. Simple answer. Canada does not tax casino wins, lottery jackpots, or any other legal gambling winnings. It’s the law.
Yes. When gambling winnings are redefined by the Canada Revenue Agency (CRA) as gambling earnings. Individuals and companies who carry out the legal business of gambling as a professional trade and earn a consistent income from those efforts may be required to pay taxes. For individuals like professional poker players, the bar to establish beyond doubt that winnings are more than luck is exceptionally high, and the responsibility to prove otherwise remains on the CRA. For individuals like racehorse owners and casino operators who bet on their own investments and performance, these earnings, even when derived from winnings, are considered taxable.
No. Foreign nationals are not required to pay any Canadian taxes on winnings. Depending on the country of residence, the winnings may be considered income by their home nation. Professional advice on the particular taxation policies of that country with respect to gambling winnings should be sought out.