Gambling Taxes in Canada: Winnings & Losses in Online Gambling

Whether you’re just about to place your first bet, or already have a couple of wins in your pocket, you’re probably going to be wondering about the application of Canadian income taxes to your gambling winnings at one point or another.

I’m here to provide you with general information on the subject. This article will review, amongst others, the following questions, which may be of interest to you:

• Are gambling winnings taxable?
• Are gambling losses tax deductible?
• Are there different rules for land-based casinos, online betting (such as on bet365), and crypto winnings?

Elise St-Louis

Elise is a seasoned Canadian tax professional with nearly a decade of expertise, specializing in catering to a variety of clients, ranging from public corporations to smaller businesses and individual clients. Her extensive experience showcases her versatility in navigating the intricacies of taxation across different sectors.

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Are Gambling Winnings Taxable In Canada?

In most cases, NO!

Unless you are considered to be exploiting a “Gambling Business”, gains from gambling will be tax-free in Canada as they are not considered to be a source of income.

Under the Canadian Income Tax Act (“ITA”), Canadian resident taxpayers will be taxable in Canada on their sources of income earned inside and outside of Canada (par. 3(a) ITA).

The ITA provides an exemption from taxation on gains from winnings on lottery or gambling (sub par. (40(2)(f) ITA), and it is generally accepted that these are not a source of income in Canada (i.e.: employment or business).

There are exceptions, of course, which may apply if the taxpayer is a “professional” gambler and is considered to be carrying on a “gambling business”.

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Elise St-Louis, CPA, M.Fisc

About Author

Elise is a seasoned Canadian tax profession with nearly a decade of expertise, specializing in catering to a variety of clients, ranging from public corporations to smaller businesses and individual clients. Her extensive experience showcases her versatility in navigating the intricacies of taxation across different sectors.

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Where chance is the determining factor of winning (i.e.: when playing Bingo or the slot machines), it is unlikely that winnings will be considered as a source of income.

The definition of a gambling business requires the examination of all the facts and circumstances of the taxpayer.

In the following section, I’ll provide some guidance to help you determine whether there is a risk that you could be considered a professional gambler and carrying on a gambling business.

What Is a Gambling Business?

Although still exceptional, the most common (and well-known) cases of assessment of gambling businesses have occurred for professional poker players, as this game is one of chance and skills.

However, other games that are not ones of pure chance could fall within the scope of the gambling business as well.

A business, gambling or otherwise, will generally exist when a taxpayer carries on a commercial activity with the intent of making a profit.

However, the intent for profit is inherent to all gambling and does not lead to the conclusion that all gambling or even those who gamble frequently are carrying on a business (Balanko v. M.N.R., [1981] 81 DTC 887).

The tax authorities will therefore focus on the existence of a commercial activity.

This may sound confusing, so below are the exact points that the authorities may consider when determining whether someone is a professional gambler.

There have been a few cases where poker players have been reviewed by the courts in recent years.

You will find below a very brief summary of the Tax Court of Canada’s (“TCC”) decision in the case of Jonathan Duhamel (Jonathan Duhamel v. Her Majesty the Queen, [2022] 2022 CCI 66) and the case of Martin Fournier-Giguere ([2022] 2022 CCI 132).

Cases of Poker Players Reviewed for Gambling Business

Jonathan Duhamel became well-known for having won the Main Event of the 2010 World Series of Poker.

In the following years, he kept playing poker and was earning some profits from his activities, leading the CRA to assess the poker gains as being a gambling business.

The Tax Court of Canada (“TCC”) has reviewed the case in four points and concluded that the Taxpayer was not carrying on a business.

Points Reviewed

1. The taxpayer’s training, ability, knowledge, and competence.

While the taxpayer had a bachelor’s in business, he did not have specific training in poker likely to give him an edge over his opponent.

2. The taxpayer’s intention.

While the taxpayer has spent a significant amount of time playing poker, the game did not occupy most of his time and he did not have a serious business plan and did not keep a close eye on his winnings and losses.

3. The taxpayer’s gains and losses.

Over the years in question, the taxpayer has made some winnings, however there was no consistency or progression in the gains. Thus the courts did not conclude that there was a capacity for profit.

4. The existence of a risk management system.

The taxpayer has mostly played in tournaments, where seats were assigned randomly. Hence he could not choose his opponent based on his evaluation of their skills.

In the case of Giguere, the courts concluded that the taxpayer did carry on a gambling business, for the following reasons:

Points Reviewed

1. For the years in question, the taxpayer devoted most, if not all, his free time to poker (when he was not partying, sleeping, or eating).

2. The taxpayer also earned significant profits, showing a capacity for profits, and lived as someone who expected that he could make a living out of his poker activities (i.e.: purchasing properties while having no other occupation than poker).

3. The taxpayer also used strategy and adapted it based on the skill and strength of his opponent. He would also use software allowing him to review his opponent’s data, and he also reviewed his own monthly stats.

4. All of his earnings were reinvested in further poker games.

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Elise St-Louis, CPA, M.Fisc

About Author

Elise is a seasoned Canadian tax profession with nearly a decade of expertise, specializing in catering to a variety of clients, ranging from public corporations to smaller businesses and individual clients. Her extensive experience showcases her versatility in navigating the intricacies of taxation across different sectors.

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To conclude simply, if you are consistently making profits that are enough for you to make a living out of, and are devoting a significant portion of your time to the game, your poker winnings may be considered as business income and thus subject to tax.

However, as a reminder, each situation is different and must be reviewed based on its own set of facts and circumstances.

If you believe that you could be considered as carrying on a gambling business, I invite you to reach out to a tax expert.

Internet search should be able to provide you with both smaller and bigger firms to choose from, and both should be able to assist you.

Are There Taxes on Gambling Winnings in Any of the Canadian Provinces?

Provinces generally follow the Canadian Income Tax Act to determine the taxation of income.

The only Canadian province with its own income tax act is Quebec.

While it differs from the Canadian Income Tax Act in various ways, it’s still in line with the federal act.

However, since Ontario is the only Canadian province with a fully regulated online gambling market, it’s sensible to wonder whether things could also be different there in terms of taxes.

Luckily, they aren’t. The same rules apply for Ontario as they do for the rest of Canada.

Provided you aren’t exploiting a “gambling business” as previously described, you won’t be paying any taxes on gambling winnings.

Are Gambling Losses Tax Deductible in Canada?

The rules for gambling losses are pretty much the same as they are for gambling winnings.

Just like winnings are generally exempt from taxation unless you are exploiting a “gambling business”, gambling losses are tax deductible only if you are exploiting a “gambling business”.

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Elise St-Louis, CPA, M.Fisc

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Elise is a seasoned Canadian tax profession with nearly a decade of expertise, specializing in catering to a variety of clients, ranging from public corporations to smaller businesses and individual clients. Her extensive experience showcases her versatility in navigating the intricacies of taxation across different sectors.

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The standards for something being considered businesslike behaviour in gambling are very high, making it difficult even for professional gamblers to claim tax deductions.

It is important to keep in mind that the tax authorities will generally be very happy if you decide to add winnings to your Canadian tax return.

However, deductions and losses have a greater risk of being audited and denied.

Moreover, it would be unlikely that the CRA would grant a deduction of losses that exceeds the amount of winnings in the year.

You should also make sure to keep track of your winnings and losses.

Land-Based, Online Betting, and Crypto Winnings

You might be wondering whether the rules for taxing land-based gains, online betting wins, and crypto betting winnings differ.

Online Gambling (Such as on bet365)

As I previously explained, gambling winnings earned by casual gamblers are not taxable in Canada. This includes gambling made on international websites like Bet99, bet365, or Sports Interaction.

Therefore, provided that you are a Canadian tax resident, you can bet and win all you want at, for example, bet365, and you won’t have to worry about Canadian gambling taxes.

The situation may be different if you are a tax resident outside of Canada.

The only exception is if you are carrying on a gambling business.

In that case, regardless of whether you do your work at bet365 or another sportsbook, you’ll be taxed on your winnings according to Canadian tax law.

Crypto Gambling

Crypto gambling is taxed like any other type of gambling in Canada. Unless you’re carrying on a business, it’s tax-free.

However, keep in mind that any increase in the value of your cryptocurrency will be taxable in Canada when you sell your crypto (which I’ll discuss in further detail below).

Land-Based Gambling

Just like online gambling, land-based gambling in Canada is tax-free, provided that you’re not carrying on a gambling business.

Investment Income Earned From Gambling Winnings

While your gambling winnings in themselves are likely exempted from taxation in Canada (based on the above), the investment income earned with the gambling winnings will be included in your taxable income in Canada.

The only exceptions are if you invested through a TFSA (tax-free savings account) or an RRSP (where you’ll get a deduction of the income you put in, and then a tax deferral on the investment income earned in the account).

The effective tax rate applicable will depend on the following factors:

• Your total taxable income – Higher tax brackets are applicable to higher taxable income.
• The province in which you are a resident – Each province applies its own tax brackets.
• Type of income earned:
  • Capital gains – Only 50% of capital gains are taxable in Canada.
  • Dividends – Dividends are grossed up in income but a dividend tax credit is then granted.
  • Interests – Included in income when cashed.

Quick Comparison of Gambling Tax Rates in Various Countries

To give you the full picture, I wanted to check how Canada’s general tax rate compares to other countries’ gambling tax rates.

As it turns out, not taxing citizens for gambling winnings is pretty common amongst different countries, with only France, our southern neighbors, and to a degree, Germany, being exceptions.

Claiming a Refund from Other Countries Withholding Tax

If you’re a Canadian resident and you made some decent money (at least $1200) gambling in a foreign country, you will be subject to the country’s gambling tax law.

Depending on the country in which you have earned your gambling winnings, the amounts may be subject to withholding tax.

For example, winnings you make south of the border will be subject to a 30% withholding tax.

It is the casino’s (or other gambling establishment’s) responsibility to apply withholding correctly.

On the basis that you are not their citizen, you should be entitled to claim a tax refund from the country’s tax authorities (the IRS), provided that you aren’t carrying on a gambling business in the country (that’s a rule that follows us around the globe when it comes to taxation of gambling winnings).

Obtaining a tax refund is a two-step process:

1. Request an Individual Taxpayer Number (ITIN) – This can be obtained by filing form W-7 with the IRS. Some establishments may be able to assist you at the time of cashing out your winnings.
2. File a Non-Resident Tax Return (1040NR) – The tax return should be filed by April 15 of the year following the one in which you have earned your winnings. The gambling establishment should provide you with form 1042-S, confirming the amount of your winnings and the withholding tax applied. The IRS also recommends that you keep track of your spending (losses).

However, the total losses deducted cannot be higher than the total winnings acquired in the country.

Disclaimer: While we seek to provide well-researched information to our readers, the contents of this article shouldn’t be seen as legal advice. Remember that each situation may be different and if you are unsure about the application of the Canadian tax law in your case, please refer to a Canadian tax expert.

Sources:

Australia: https://www.ato.gov.au/individuals-and-families/investments-and-assets/crypto-asset-investments/transactions-acquiring-and-disposing-of-crypto-assets/crypto-asset-prizes-and-gambling-winnings

United Kingdom tax info

US tax info

France tax info 1

France tax info 2

Germany tax info

Australia tax info 1

Australia tax info 2