Taxes are more of a “nightmare” for many gamblers and gambling institutions. In Canada, the gambling industry in 2021 income will rise to 12.54 billion US dollars after it dropped to 12.75 US dollars back in 2020. In this amount, the revenue brought in by taxes can be over 5 billion, depending on the tax rates. However, many Canadians want to know whether one will have to pay taxes from the winnings accrued from relevant Canadian casinos! Winnings can be taxed or exempted from tax depending on the player and purpose for gambling. For instance, individuals gaming for fun aren’t required to pay taxes, but if making a regular income from casinos with no deposit bonuses in Canada as a professional, you may have to pay taxes.
- Gambling type: recreational or professional
- Regional tax rules on winnings
- Gambling losses: are they tax-deductible?
- Taxable game winnings
- How to calculate your taxes from gambling wins
Gambling Type: Recreational or Professional
The Canadian Income Tax Act defines a professional gambler as an individual whose source of livelihood or income is solely based on gambling. This individual uses their skills on a gambling platform to make a long-term revenue or profit. The Income Act is why Poker fans and experts become professionals when engaging in professional gaming tournaments like the Poker World Tour. Professional gamblers also include individuals who make most of their earnings from playing a game of luck or chances online and offline. The government expects anyone making such an income to pay taxes. It is also the reason why gambling institutions have to prepare and declare their profits for tax purposes!
The exemptions to the rule on paying taxes are on players in the game for entertainment purposes. The government firmly believes that it wouldn’t be kind or fair to most Canadian gamblers to pay taxes on their winnings. The main reason is that Canadian citizens play for fun or to pass the time, and gambling isn’t a career. Thus, players can pay taxes on property owned, employment opportunities, and any income from reliable and well-known sources. Canadian players must make declarations of their winnings of the T5 form even if exempted from the taxes.
Regional Tax Rules on Winnings
Canada is a vast country with several provinces. Each province is an independent entity with self-governing authorities and particular rules regarding gambling. In other words, whether you get to pay taxes for winnings from casinos is dependent on your region. The age limit, games on offer, and other limitations also vary from one province to another. The tax rates also differ.
If you are Canadian gambling in the United States, you have to pay a 30% tax on your casino winnings. Sometimes, the taxes paid on winnings go as high as half of the amount earned during your gambling session. Players have to declare their earnings while gaming in the United States. The process is automatic, and the tax is deducted at the cashiers when cashing out your wins. Canadian citizens legally working in the United States are better off, as the losses incurred in the process are deductibles. Also, you may become eligible for a tax refund! Plus, all players must pay taxes on winnings exceeding 1200 US dollars if playing in the United States.
Gambling Losses: Are They Tax-deductible?
Liability for paying taxes for a Canadian according to the Income Tax Act is to be a professional. But, what many do not grasp is when the Canadian Revenue Agency classifies an individual gambler as a professional. Only a few cases have had a clear-cut line, but in others, the lines seem blurred. Plus, the opposite has also occurred where players claim to be professional gamblers to write off casino losses. However, is gambling losses tax deductible?
The response to this question goes both ways (Yes and No). Others will say that it is dependent on whether you are a professional gambler in Canada or a recreational player. If gaming for a thrill and satisfying entertainment session, you incur any losses that aren’t tax-deductible. However, if playing like a professional and recording your wins and losses, you can receive a write-off when paying your taxes. However, if you have already paid your taxes, consider asking for a tax refund. Plus, professionals, according to the Revenue Agency, are freelancers, and in comparison to other businesses, the professionals can also deduct game-associated expenses. For instance, tournament fees or other travel and accommodation expenses!
How to Calculate Your Taxes from Gambling Wins
Professional gamblers have to pay taxes on their income (Winnings). In this instance, winnings become the income, while losses become the expenses and are deductible. What many punters forget is that Canada has 10 provinces and three different territories. Each of these has set gambling regulations and overall income tax rates. For instance, if gaming in Quebec, you would face the highest income tax rates in the entire country at 15% for income exceeding 43,790 Canadian dollars going to a maximum of 25.75% for winnings of 106,555 Canadian dollars. In Nunavut, the rates drop to a maximum of 11.5% for an income amount of 147,667 Canadian dollars to a low of 4% for amounts reaching 45,414 CAD. The tax rates described and listed above are for professional gamblers only.
Taxable Game Winnings
Even with tax rates for taxable winnings varying across the board, winnings from the Lottery are not present in your tax-liable wins. Unlike poker, Lottery is considered a game of “pure chance.” Poker may require specific knowledge and a level of skill to make it through and get multiple wins, thus the tax. But, Lottery is dependent on luck. You can never know the number combinations on the draw, and therefore, the tax exemption. Plus, the only way to improve your chances is through the purchase of more lottery tickets. Professional lottery players, in this case, are also exempted from paying taxes on their winnings.
The threat of paying taxes is a nightmare for many players. But, it is difficult to determine whether you are a professional or a recreational gamer. If playing to earn an income through casino winnings, you can pay the Canadian government taxes. Plus, players also get deductibles in the form of losses incurred in the period. However, laws are prone to change, and one must keep up to date with new legislation.