After gambling became legal in Canada, many Canadians found themselves enticed to the thrill of potential winnings offered by online, brick-and-mortar casinos and sport betting venues. As more and more individuals were making money through gambling both online and offline, many law-abiding citizens started looking for answers about the taxation of their winnings. Naturally, players who made losses sought if they could deduct them from their tax payments.
In Canada, the tax treatment of wins and losses depends on whether someone is involved in gambling as a personal activity or as a trade. To this end, the tax authority and courts have already developed a clear set of tests to identify recreational and professional gamblers. Keep reading to find out more about legal gambling and betting in Canada, learn about tax treatment of winnings and losses and check if you should report your gambling money in the tax return.
Are Betting and Gambling Legal in Canada?
The short answer is ‘yes.’ Canadians of the ‘gambling age’ (18 in some provinces and 19 in most) can make use of real money online casino Canada operators, lotteries, horse race tracks and sport betting platforms. Once illegal, gambling and betting are allowed in most provinces with few limitations. For example, Canadian-based online gambling casinos are available in Ontario only and are non-existent in other provinces as of the day of this article. Other Canadian provinces, like Newfoundland and Labrador, still don’t allow land-based casinos within their territories.
Meanwhile, residents of all provinces can visit gambling and betting platforms available in other jurisdictions, for example, in other provinces or foreign countries, including the United States. Canadians can gamble in foreign casinos and make bets in sportsbooks, register in gambling apps and websites and connect to any service provider for these purposes.
When Should You Pay Income Tax on Your Winnings in Canada?
In Canada, you are expected to pay tax on your winnings only if you are a professional player who makes a living from gambling or betting activities. Unlike amateurs, professional players expect profits from gambling, rely on their skills and gamble as a business. The tax authority treats professional gambling as a business and levies taxes on these activities similar to other business income.
At the same time, non-professional players who occasionally gamble or make bets for thrill or entertainment do not have to pay tax on their winnings in any type of gambling, including skill-based games like poker or blackjack. In addition, prizes from lottery, roulette and slot machines are not taxed because they are based on chance and are considered windfalls.
When deciding if someone is a casual gambler or a pro, the tax authority and courts may apply a number of various checks, for example, whether someone:
- spends time practicing their skills in gambling,
- has any systematic method to obtain consistent winnings,
- regularly engages in any gambling or betting,
- relies on gambling for a living.
Speaking about taxes, it goes without saying that no individual case is the same. For example, even if someone is a skillful player, their winnings are not automatically taxable in Canada. On the other hand, the tax authority may consider you a professional player based on other factors, for example, the portion of your regular income from gambling. For this reason, it is always a good idea to seek legal advice to find out whether your winnings could be taxable under your circumstances.
When Can You Write Off Losses from Gambling?
Similarly, in Canada, only professional gamblers can deduct their losses from their taxable income. Besides, those who are involved in gambling or betting as a business have the privilege of deducting their travel and other expenses related to their participation in professional gambling activities.
On the other hand, casual gamblers cannot deduct their losses from tax obligations. Even when someone claims to be a professional player to write off their losses, they do not automatically become eligible. The tax authority and the courts will apply the system of checks to identify casual players and professional gamblers and oblige the former to pay their other taxes in full without any deductions for gambling losses.
For example, in a famous court case of Giuseppe Tarascio v Canada 2002, the player claimed to be a professional gambler for horses, slots, casino games and lotteries. He deducted $40,933 in 2002 and $56,000 in 2003 based on his claims, but the Canadian tax authority disallowed the deductions. The player went to court but was turned down because the court ruled that Tarascio didn’t practice his skills and lacked any systematic method for gambling.
Do you need to report your gambling winnings in Canada?
While recreational gamblers do not pay tax on their winnings, all professional players must show their gambling income in their tax return. However, even if you gamble just for fun, it is always a good idea to keep records of all your gambling activities, including documents and receipts confirming your winnings.
Keeping such records for non-professional players would safeguard against potential complications in the future and help to establish the source and nature of obtained income. Besides, if you earn interest on your winnings, you need to declare it and pay tax on such interest, even as a recreational gambler.
Disclaimer
The above explanation of tax treatment of gambling winning and losses in Canada is for general purposes only and doesn’t constitute legal advice. It is recommended to seek consultation with a legal or tax professional in Canada tailored to your specific situation.
