Taxation on gambling winnings in Canada can be a tricky business. While professional gamblers are subject to taxes appropriate to their line of business, Canadian citizens who gamble as amateurs benefit from an exemption on income earned through gambling. Even amateur gamblers, however, are required to keep track of their gains and pay taxes on any interest earned. Such tracking can pose headaches if not managed carefully. Gambling can be a fun and enjoyable pastime, but gambling responsibly requires familiarity with the financial implications involved. Call Jeremy Scott Law at (902) 403-7201 to review gambling income with an experienced Canadian tax lawyer.
Reporting Gambling Income: Amateur vs. Professional
Calculating one’s income can often be a complicated process, but the classification of winnings earned through gambling the process is relatively straightforward. Gambling earnings can be classified as either a non-taxable windfall or taxable business income. For the latter, the payer must have had a realistic expectation of profit based on their skills, consistency, and objectives. Any unexpected earnings are considered windfalls. Ultimately, whether gambling money is income or not depends largely on whether the taxpayer expected to profit from their gambling activities. Some factors the Canada Revenue Agency may take into consideration include:
- The extent of profit-focused organization in the gambler’s activities
- Whether the gambler had access to specialized skills or knowledge that enabled them to adjust for the element of chance in play
- The regularity with which the player engaged in gambling activities
- Whether the taxpayer demonstrated an intention to rely for their livelihood on profits earned through gambling
Winnings earned through recreational gambling are not typically considered taxable as regular income. The Canadian government deems it unfair to tax many Canadian players, who gamble for fun or as a pastime and do not pursue gambling as a profession. Amateur gamblers are only required to pay taxes on their property, employment, and any income obtained from legitimate and established sources. All Canadian gamblers are still required to report their earnings on their annual tax forms, however.
Casinos in Canada and Abroad
The gambling industry in Canada is overseen by provincial governments, with seven out of ten provinces allowing some form of gambling. Ontario boasts the largest number of licensed casinos, with at least 25 establishments. The Kahnawake National Reserve is an important part of the country’s casino industry, and First Nations Tribal merchants find it easier to build casinos compared to other businesses. Interestingly, many global casinos that have servers in Canada also operate on the Kahnawake reservation, despite the country’s general policy of not granting remote gambling licenses.
Canadians are not prohibited from gambling at foreign casinos and can connect to any internet service provider for this purpose. Regardless of location and mode of participation, however, all Canadian citizens should keep accurate records of their gambling activities and make sure that their documentation of winnings remains complete and up to date.
Canadians Gambling in the United States
Some Canadians may gamble recreationally during extended trips to the United States. According to the Canada Revenue Agency, Canadian citizens who have spent a portion of the tax year in the United States while maintaining their residential ties in Canada are not required to report money gained from gambling while in the United States, as these funds are not considered taxable income. However, other taxes specific to the location may be collected at the cashier when the player cashes out their winnings. Canadian individuals who engage in legal gambling activities in the United States have an advantage over their local counterparts, however, because Canadians are allowed to deduct their losses.
Each financial situation is unique, so recreational gamblers may wish to consult a legal professional on the taxation of gambling winnings in Canada.
Gambling Income Depends on the Game Played
In addition to the distinction between amateur and professional gambling, there are tax rules that distinguish among the winnings from different types of gambling activities. Prizes from lottery, slot machines, or roulette are always considered windfalls and are not taxed since those earnings are always based on chance, rather than the skill of the player. Similarly, money gained from betting on sporting events is generally not taxed since the gambler has little influence over the ultimate outcome. However, someone who consistently “beats the spread,” may be taxed based on talent, purpose, and profit anticipation.
Earnings from skill-based games, such as poker or blackjack, can be classified as windfalls or income, depending on the circumstances. A professional gambler’s net profits throughout the year are taxed since their gambling activities are designed and expected to earn a profit. In these cases, both the gambler and the Canadian government treat gambling as a business. Even a skillful amateur’s winnings, however, are not typically considered taxable income. Defining who is a professional gambler can be tricky, so it can be helpful to seek legal advice. Jeremy Scott Law is a Canadian tax attorney who regularly helps clients in these matters.
Keeping Records of Gambling Winnings in Canada
To avoid any legal issues regarding the taxation on gambling winnings in Canada, all gamblers should make sure to keep accurate records of their gambling activities. This means saving all receipts and documents to correctly establish the taxability of earnings. By understanding the tax implications of gambling and seeking professional advice, Canadians can make informed financial decisions and avoid legal complications.
Professional Gamblers May be Taxed Like Other Business
Canadian tax law distinguishes professional players as those whose primary source of income comes from gaming activities. These individuals leverage their expertise in gaming to generate consistent and long-term profits. This is why some poker enthusiasts and experts turn professional, competing in tournaments such as the Poker World Tour.
In addition to tax liability, professional gambling can confer tax benefits. If entertainment professionals approach you for your gambling skill and you maintain records of your games, you may qualify for a tax deduction when filing your taxes. In some cases, you might even be entitled to a tax refund if you have already paid taxes. Professional gamblers who work as independent contractors are permitted to deduct game-related expenses such as tournament fees, transportation costs, and hotel expenses, unlike most other businesses.
Gambling Losses May be Deductible for Professionals
Can someone deduct gambling losses from taxes in Canada? While the Income Tax Act outlines the criteria for professional gamblers, it can be unclear for individuals who do not fit into that category. Some have even claimed to be professional gamblers to write off their losses.
The same distinction between recreational and professional gamblers that determines whether winnings are classified income vs. windfall is often applied in determining whether gamblers may write off their losses as a business expense. Gambling losses that are incurred for the sake of thrill and entertainment are typically not tax-deductible, whereas those incurred by professional gamblers may be subject to the same consideration of business-related expenses as other operating costs. Gamblers who have incurred significant losses in skill-based games may wish to consider consulting an experienced Canadian tax attorney to seek help in evaluating their options.
Tax Attorney Explains Taxation on Gambling Winnings in Canada
If you are exploring the taxation on gambling winnings in Canada, partnering with a Canadian tax lawyer is an option to explore. Working with a tax lawyer can help you through the complicated tax processes with the Canadian Revenue Agency. Call Jeremy Scott Law at (902) 403-7201 to discuss gambling income and deductions.