Gambling is a common pastime for most Canadians. Since most betting alternatives rely heavily on luck, you can make massive wins at any random time. However, when it comes to gambling winnings, there are a few common questions.
Are there taxes on gambling income in Canada? Do land-based and virtual gambling destinations have different tax rules? What part of the winnings are free to claim? This article contains the answers to these questions and more.
Defining income in the Canadian context may seem a bit complicated, but it’s simple when it comes to gambling income. company (taxable).
For gambling income to become business income for a Canadian, the player must have profited significantly from betting on their favorite games using the trifecta of skill, intention and consistency.
On the other hand, windfall gains made during a period of play are called windfall gains. Generally, the taxation of gambling depends on whether the player had in mind to profit or not.
Sure wins vs skill based game wins
To better understand gambling taxation in Canada, it is essential to understand the differences between sure wins and winnings from skill-based gambling. Quickly, let’s look at both concepts.
Sure wins, as the name suggests, indicate winning combinations that occurred due to a fluke. In other words, these victories are not intentional. Also called windfall wins, game options that offer this type of win include:
- Slot machines
Unlike sure wins, skill-based game winnings are different. Here a player goes the extra mile to understand the inner workings of a game and adopt strategies to beat a real opponent or the RNG in online casino games. Notable skill-based games include:
Recreational and professional players
Most Canadian players are considered recreational players. These players buy lottery tickets, participate in their favorite casino games and place bets on sporting events for fun. Although there is a 50% chance of winning and losing, these people are not dependent on gambling revenue. Recreational gamblers often use reserve funds to support their gambling activities.
Conversely, professional gamblers make a living from gambling. Daniel Negreanu (Kid Poker) is a typical example of a professional gambler who has won millions by gambling. Negreanu has dedicated his time to poker betting and has earned millions over time, rivaling the best poker players in the world.
It should be noted that big wins do not qualify you as a professional player. Neither do long gaming sessions. However, a combination of the two can earn you the title. Professional gamblers usually spend a lot of time playing and constantly reap profits, even if only in small amounts.
Canadian taxation of games of chance: which player really pays taxes?
When playing big in a land-based casino or online platforms, it is typical to want to win. As discussed earlier, whether the Canadian government will tax your winnings depends on which player category you belong to.
As a recreational player, you don’t have to pay a cent in tax to the authorities. It doesn’t matter if you earn a few thousand or a few million; your winnings belong to you. Only Canadian professional gamblers have to pay tax on their winnings.
In addition, professional gamblers can deduct their losses and other gambling-related expenses. To do so, the gambler must complete a T5 slip and submit it to the Canada Revenue Agency (CRA). This is mandatory for players residing in Canada, and heavy fines are imposed on players who do not follow this procedure.
Canadians living in other countries will not be subject to this requirement but will of course have to follow the applicable laws where they reside. For example, Canadian players in the United States must pay a 30% tax on winnings over $1,200. Canadian employees terminated in the United States may request a tax refund by following the procedure required in their jurisdiction.
Who is a professional gambler, according to the Canada Revenue Agency (CRA)?
According to the Income Tax Act of Canada, there is no standard list of attributes defining a professional player. That way, you might be playing professionally for the first few years before the CRA gets wind of your activities. Additionally, since many recreational gamblers claim to be professionals to write off losses, it is difficult for the Canada Revenue Agency to accurately determine the authenticity of claims.
However, here are some activities that distinguish a professional gamer from a recreational gamer:
- Be a regular face at high-level professional tournaments
- Travel outside the country to compete against players from other jurisdictions
- Make physical or online gaming your main source of income
- Make decent and consistent wins over most of your playing periods or win more than you lose
- Watch YouTube videos created by gaming professionals to increase your chances of winning
Do different tax rules apply to online and offline gambling?
The simple answer to this question is a resounding no. The same tax rules apply whether you place bets in an online or land-based casino. As a recreational player, you can keep whatever you win.
However, if your betting pattern denotes professional gambling, you will have to pay tax on your online and offline winnings. Failure to remit CRA taxes that are due results in hefty fines for online and physical winnings.
Are there different regulations governing each province?
Following the 1970 amendment to the Canadian Criminal Code, each Canadian province is responsible for its own gambling regulations, and some are more open to the activity than others. Despite the different rules concerning games of chance in the various Canadian regions and territories, taxation remains a constant in all these areas. As long as you are a professional player, your winnings are subject to tax.