Are Winnings from Gambling Taxable?
The income coming only from a legitimate ‘source’ is considered taxable in the income tax system in Canada. The accepted sources of income are- employment, property rent/lease, business, and other sources.
Other sources include windfalls, gifts, lottery winnings, inheritances, and strike pay. Thus, winnings from gambling are slightly different as it is generally non-taxable. However, it becomes taxable when it becomes a source of regular income by being a part of any business regarding gambling.
So, read on to learn more about whether gambling comes under taxation in Canada or not.
Is Gambling a Hobby or a Business?
The Supreme Court of Canada has set up a test to determine whether gambling is undertaken as a business or a mere hobby. It is the Stewart test, a two-part test where the first part determines if the taxpayer’s activity is undertaken in pursuit of profit or is just a personal strive.
However, the second part determines whether gambling is a source of income, like a business or not or just a personal venture.
In this case, a determination is needed to clear out the confusion. If the test determines that gambling is a business activity, taxes will be levied on any earnings from the same.
Do You Have to Pay Taxes on The Winnings from Gambling in Canada?
In Canada, people usually do not have to pay taxes on the winnings from online casinos, horse racing, sports betting or lottery winnings, or any other games. However, if you earn interest income from your winnings, you must mention that on a T5 form. Because the interest income is taxable, and you could be fined for not paying the taxes.
Do Professional Gamblers in Canada Have to Pay Income Tax?
You must pay taxes if you are a full-time professional gambler, offline or online, and make a living out of gambling activities. Professional poker, blackjack players, or any other gamblers operating this as their own freelance business is taxable in Canada.
However, lottery winnings are non-taxable in Canada. Thus, if you are lucky, you can win millions and keep the winning amount.
How Does the CRA (Canadian Revenue Agency) Review You As a Professional Gambler?
The CRA will only consider you a professional gambler if you rely on the casinos for your livelihood and treat it as a venture.
The traits that make you a professional gambler are:
- Having proof of steady and long-term profit
- Giving a substantial amount of time to pursue these profits
- Travelling to tournaments frequently
- Sustaining vigilant records of wins, expenses, and losses
- Handling gambling operations as a business
- Consulting or employing experts to improve gambling skills for more profits
But it takes way more than just a chance to win consistently in gambling. Professional gamblers mainly focus on skill-based games like poker or blackjack and try to stick to that.
Luck-based games like roulette or slots are not always about skills. Therefore, professional gamblers usually refrain from participating in these games as there are chances of losses even if you have the longest record of winnings in gambling.
Are There Any Differences in Taxes for Online and Offline Gambling?
The income tax department does not differentiate the online or offline mode of gambling. If you play for fun, offline or online, you do not need to pay any taxes, even if you win consistently. But if your sole source of income is gambling, and you are relying on it to pay your bills, then after winning a bet, the bettors have to report the concerned authorities as they will have to pay income taxes for their gambling business.
Present Gambling Situation in Canada
Provincial officials license Canadian casinos, and almost seven out of ten provinces allow gaming. Ontario is the province with the highest number of licensed casinos. It has almost 25 casino institutions. However, except under special circumstances, Canada does not approve any gambling licenses.
But luckily, the Canadian Government does not outlaw citizens from playing at international casinos. Canadians can join online gambling sites and play slots, poker, or games without fear of government repercussions. If they win cash, they can keep the whole money without paying taxes.
Wrapping It Up!
Lastly, Canada is a large nation with many regions, and each province is a different entity with its self-governing agencies, gaming rules and regulations. Therefore, the taxation on casino earnings depends on one’s location. For example, if a Canadian plays in the USA, he must pay at least 30% tax on his casino earnings. Available games, age, and other restrictions differ from region to region, and tax rates vary in different provinces.
To sum up, income tax laws only apply to earnings from gambling when it comes across as a source of income and not just an occasional one-time earning. Therefore, if you are interested in gambling regularly, disclose it to the concerned authorities on time to avoid any significant penalties later.