A Guide To The Canadian Taxation On Gambling Winnings

Taxation on gambling winnings in Canada can be complex. Professional gamblers are taxed according to their business, while Canadian citizens who gamble as amateurs are exempt from paying taxes on income earned through gambling. However, amateur gamblers must still keep records of their winnings and pay taxes on any interest earned. Keeping track of these earnings can be challenging if not handled with care. While gambling can be enjoyable, it’s important to understand the financial responsibilities involved in gambling responsibly.

Reporting Gambling Income: Amateurs and Professionals

Determining one’s income can be complex, but classifying gambling winnings is relatively straightforward. Gambling earnings can be categorized as either non-taxable windfalls 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 largely depends on whether the taxpayer expects to profit from their gambling activities. The Canada Revenue Agency may consider factors such as:

1. The extent of profit-focused organization in the gambler’s activities
2. Whether the gambler had access to specialized skills or knowledge that enabled them to adjust for the element of chance in play
3. The regularity with which the player engaged in gambling activities
4. Whether the taxpayer demonstrated an intention to rely for their livelihood on profits earned through gambling

Winnings from recreational gambling are typically not considered taxable as regular income. The Canadian government finds 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. However, all Canadian gamblers must still report their earnings on their annual tax forms.

Casinos in Canada and Around the World

The gambling industry in Canada is regulated by provincial governments, with seven out of ten provinces permitting some form of gambling. Ontario leads with the highest number of licensed casinos, boasting at least 25 establishments. The Kahnawake National Reserve plays a significant role in the country’s casino industry, and First Nations Tribal businesses find it easier to establish casinos compared to other ventures. Interestingly, many global casinos with servers in Canada also operate on the Kahnawake reservation, despite the country’s general policy of not issuing remote gambling licenses.

Canadian citizens are allowed to gamble at foreign casinos and can access any internet service provider for this purpose. Regardless of their location and method of participation, all Canadian citizens should maintain accurate records of their gambling activities and ensure that their documentation of winnings is complete and up to date.

Canadians Gambling in the United States

Some Canadians may engage in recreational gambling during extended stays in the United States. Canadian citizens who have spent part of the tax year in the United States while maintaining their residential ties in Canada are not obligated to report money earned from gambling in the United States, as these funds are not considered taxable income. However, other location-specific taxes may be collected at the cashier when the player cashes out their winnings. Canadian individuals participating in legal gambling activities in the United States have an advantage over their local counterparts, as Canadians are permitted to deduct their losses.

Since each financial situation is unique, recreational gamblers may consider seeking advice from a legal professional regarding the taxation of gambling winnings in Canada.

Gambling Income and Taxation Based on Game Type

Apart from the differentiation between amateur and professional gambling, there are tax regulations that distinguish between winnings from various types of gambling activities. Prizes from games of pure chance, such as lottery, slot machines, or roulette, are always considered windfalls and are not taxed, as these earnings are solely based on luck rather than the skill of the player. Similarly, money obtained from betting on sporting events is generally not taxed, as the gambler has little influence over the outcome. However, individuals who consistently “beat the spread” may be taxed based on their skill, intent, and anticipation of profit.

Earnings from skill-based games, like poker or blackjack, can be categorized as windfalls or income, depending on the circumstances. A professional gambler’s net profits throughout the year are subject to taxation, as their gambling activities are structured and expected to generate a profit. In such cases, both the gambler and the Canadian government treat gambling as a business. Even the winnings of a skilled amateur are typically not considered taxable income. 

To steer clear of any legal complications related to the taxation of gambling winnings in Canada, all gamblers should ensure they maintain precise records of their gambling activities. This involves retaining all receipts and documents to accurately determine the tax status of their earnings. By comprehending the tax consequences of gambling and seeking professional advice, Canadians can make well-informed financial decisions and sidestep legal entanglements.

Professional Gamblers and Taxation in Canada

Canadian tax law identifies professional gamblers as those whose main source of income is derived from gaming activities. These individuals utilize their gaming expertise to consistently generate substantial and long-term profits. This is why some poker enthusiasts and experts transition to professional status, participating in events like the Poker World Tour.

In addition to tax obligations, professional gambling can also offer tax advantages. If you are recognized for your gambling skills and maintain thorough records of your games, you may be eligible for a tax deduction when filing your taxes. In certain cases, you might even qualify for a tax refund if you have already paid taxes. Independent contractor professional gamblers are allowed to deduct game-related expenses such as tournament fees, transportation costs, and hotel expenses, unlike most other businesses.

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 as 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.