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© 2024 CasinoPilot.ca. All rights reserved.Taxation. The only other thing in life that is as certain to catch up with you as death – yeah? Perhaps not. At least not if we’re talking about any gambling winnings. And if you’re Canadian.
Whilst it does not seem so clear cut whether or not you get to keep all your spoils and avoid gambling taxation Canada, as a Canadian gambler, this guide should help you to work out when you get to keep the loot and when you might have to share it with those friendly folks at the CRA (Canadian Revenue Agency).
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Are Casino Winnings Taxable in Canada?
Well, the short answer is yes… and no.
The slightly less short answer is that it depends on whether you are a professional gambler or simply someone who dabbles at an online casino Canada real money every now and then for recreation.
The longer answer is rooted in how Canadian law recognises your activities in a casino for taxation in Canada. If your playing falls within the scope of the Income Tax Act, (paragraph 40(2) (f) to be precise) then you may be legally considered a professional gambler and therefore subject to taxation.
Someone who is classed as a professional gambler will have a legal obligation to declare any winnings in their tax returns. Failure to do so could lead to an uncomfortable, but polite, discussion with the CRA.
The good news is that as a Canadian recreational gambler, there is not a single cent siphoned off as tax from the old pot o’ gold, whether lady luck has delivered a modest $5 on the scratch cards, a fair few hundred at the tables, or enough for a comfortable mansion on the lottery. But the question remains, how do you prove you are gambling for fun, and what will the CRA do?
Is it Professional Gambling or Just for Fun?
Sometimes, the law can be clear and to the point with little to no ambiguity. Except when you have a system built upon a common law system, where centuries of court rulings and common practices have become established as precedent, piece by piece. It adds to the flexibility and adaptability of a legal system and is one of the great gifts that English law was able to bestow upon many parts of the world, including Canada.
Along with that came the principle that gambling as a hobby usually exempts the player from any form of casino taxation Canada on the winnings, irrespective of the type of game played.
The key concept in determining whether a gambler is professional or not comes down to whether they are earning a living from their gambling activities. That’s about as precise as the law gets on this point. After that, it’s for the CRA to identify features that could class someone as earning a living from their activities.
This could include but is not limited to operating like a business, such as making tax-deductible expense claims for anything from travel and accommodation to office equipment and other typical business overheads.
Consistently winning in a systematic way could also lead the CRA to determine that you are acting as a business toward a known and predictable outcome. This is one of the reasons why billiard or poker players are often considered to be professionals.
Of course, the other main potential give-away would be that the player does not have any other sources of income.
While this and some of the other tell-tale signs may make it look like the CRA can easily determine tax status, the reality is that it’s not that clear cut, and the CRA shy often away from classifying someone as a professional unless it is really obvious.
Is There an Upper Limit Before I get Taxed?
As a recreational gambler, the sky is literally the limit – at least in theory and to a large degree in practice. As we’ve already mentioned, the main threshold is defined in terms of whether or not the money being won is considered an income. And for this to be determined, it all boils down to how the player’s engagement in the gambling activity is assessed by the CRA. There have been scores of players, especially on the Canadian Lottery who have taken home many millions and the CRA accepted that these winnings were just that. Winnings and not earnings.
On the other hand, if you do choose to make gambling your career, then the usual tax brackets apply. This means that everything up to $48, 535 is taxed at 15%. After that, the brackets are as follow:
- $48,535 to $97,069 – 20.5%
- $97,069 to $150,473 – 26%
- $150,473 to $214,368 – 29%
- $214,368 and above – 33%
Now, on the whole, these tax rates are not too bad. Especially if you go down the route of running your gambling expeditions like a business and ensuring you save those receipts on all your expenses and other deductibles, just like any other professional outfit.
In this respect, keeping track of losses incurred in the pursuit of business is also an important task to keep a keen eye on. This not only includes day to day business expenses but also purchases and investments, something that includes stakes at the table that never saw their return.
Income Tax
Remember, income tax is based on your net income, so if you do choose to find yourself in the position of being a professional gambler, either by choice or by accident, it is extremely important to keep detailed records of all your expenses and income, gathering and storing receipts and keeping them safe. This way if the CRA ever decides to make any inquiries into your income, you’ll be able to satisfy any questions they may have.
If you are in any doubt as to your status, you should always consult a professional and regulated tax advisor versed in casino taxation Canada.
Is Online Gambling Taxed Differently?
Gambling taxation Canada is a gift that just keeps giving – and that can be said without a hint of sarcasm. The straightforward rules mean that there is no real difference between online casino taxation Canada or gambling done in real life. Once again the rules about taxation are based on whether the activity is conducted recreationally or professionally.
The rules make no distinction between playing in a casino online and offline gaming when it comes to either the amounts won or the types of casino games being played. Perhaps this pragmatic approach is something inbuilt to Canadian sensibilities?
Do Differing Provincial Rules Affect Gambling Taxation Canada?
As a nation made up of regions, there are a number of regulations that are devolved to provincial governments and this includes many rules and protocols pertaining to the gambling industry.
Thankfully, this again is an area where income tax sits nicely with federal law in the form of the Income Tax Act. This means that whilst the licensing of gambling establishments does largely rest within the remit of provincial regulations, taxation rules continue to only be applied to professional gamblers.
Additionally, the rates that apply to professional gamblers remain the same, as do the definitions for what constitutes a professional gambler. In short, this means that as a recreational gambler, you can play your game anywhere in Canada and not have to worry about observing any tax laws.
Equally, as a professional gambler, the tax rules are uniform across the provinces, so as long as you keep those records detailed and report your profits and losses then the CRA will be satisfied with your performance.
Do Canadian’s Pay Tax on Winnings From the USA?
This is where the rules change. Slightly. Gambling in the US, either online or in-person, does incur an automatic 30% tax deduction from any winnings. But, as Canadian residents and provided you are not a US citizen or a professional gambler, it is possible to claim some or all of that with-held tax back.
A significant difference to gambling in Canada is that not all games are treated equally – at least as far as the form filling goes. Games such as lottery or raffles are entered separately to table games and slots. However, the process to get a refund is basically a simple process thanks to the Canada-US Income Tax Treaty.
First, you would need to contact the IRS of the USA and get hold of an ITIN (Individual Tax Identification Number) by submitting form W-7. The process is detailed on the IRS website. Once you have this, you will need to file a US tax return for non-resident aliens. This is done using Form 1040NR and referring to the instructions for the 1040NR form. More detailed information can be found on the US government’s IRS website.
Summary
The key thing to remember here is whether you’re gambling as a hobby or if it is your career of choice, you need to evidence all your winnings and losses. Without this evidence, you could end up inadvertently leaving money on the table.
If the whole process of reclaiming taxed winnings seems a bit complicated, or forms are just not your thing, there are plenty of professional companies out there who will help Canadian residents to reclaim their tax from the USA. Some for a flat fee and others for a percentage of the claw-back.
So there you have it. The golden rule is to make sure you are clear about whether you are a professional or recreational gambler. Keep any evidence of your winnings and losses if you are gambling in Canada, especially if you’re a professional. And if you’re gambling in the USA as a non-professional, keep those records so that you can reclaim any winnings that are withheld by the casinos as tax.
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17/11/2021