How To Calculate Your Gambling Tax Liability In Canada
How To Calculate Your Gambling Tax Liability In Canada
If you are an online gambler in Canada, you may be interested to note that you live in a place where the Canada Revenue Agency (CRA) is going to essentially turn a blind eye to your winnings. That is because, in Canadian tax legislation, casino winnings are treated just like lottery winnings. And in Canada, if you win the lotto, it’s a tax-free jackpot. You read that correctly, all casino winnings are non-taxable in Canada. The reason for this is rather simple. The Canadian Government doesn’t consider lottery or casino winnings as a form of regular income. Therefore, you get to keep every penny without having to share any of it with the federal government. However, if you have taken up gambling as a job, things get a little more complicated. Essentially, Canadian tax law looks at this under two different categories.
Are You An Occasional Player Or A Professional Player?
Here’s where things change related to casino winnings. If you consider yourself an occasional player, you don’t have to claim anything. This includes all winnings collected from land-based casinos licensed to operate in and are located within the country of Canada. Oddly enough, if your winnings happen to be from online gambling, regardless of where that online casino is located (this would include offshore sites), you still have no worries about having to claim your jackpots as income. The only thing about offshore online gaming sites to keep in mind is that as long as your access them from within Canada, and that you are a Canadian resident, you are fine. But if you are a professional player, all bets are off. We’ve been trying to find a way to slip that cliche into this and finally got it to fit.
Where were we? Oh, right, professional gamblers. Well, if you gamble full-time to make a living from it, you are considered a professional gambler. If you gamble just for fun, you know, not daily and have an actual job that brings you a full-time or at least a part-time income, you are not a professional. We point this out because professional gamblers must pay taxes on their winnings according to CRA. Then it gets a little more complicated. For example, as a professional gambler, what you win at the land-based or online casino is now what the Canadian tax man considers to be "business income taxable". Bt you may be able to save a bit provided you add any related expenses incurred during the quest for jackpots on Schedule C of your income tax form under the category of self-employment income.
However, there is a bit of a silver lining in all of this. The CRA is not all that quick when it comes to assessing and auditing those individuals who file their income tax stating that their primary source of income is collected through gambling. That’s because of the notation above related to expenses incurred. During the operation of any kind of business, significant losses can accumulate as that business operates and those losses are usually written against income. So, if the CRA were to suddenly start to force professional gamblers to pay taxes, there could be some interesting situations developing where some of these individuals would end up in a tax position where their losses would outweigh their gains. Should you lie about your casino winnings to CRA? Of course not but you can write off some of your costs.
Gambling Losses Are Not Write-Offs
Just when it started to sound like a loophole, the Canadian Government essentially filled the gap and eliminated the possibility. Seriously, if business losses can be written off at tax time in Canada, you would think that losses from earning an income gambling should be as well. That was the case until a court ruling in 2012 brought an end to that. But the good news here is that you can still deduct some of your gambling losses. That is, provided your losses are not higher than your gambling income but to be able to do this accurately, your paperwork skills are going to have to be extremely detailed. Here is a breakdown of the data required so that you can properly file the correct information to qualify for deducting gambling losses according to the Canada Revenue Agency. Failure to meet these requirements ends your deduction.
If played at a land-based casino, the location of that casino and table number will be required. Also, for verification purposes, casino credit card details outlining if credit was extended at the booth or pit will assist with claiming costs associated with this table game.
To deduct losses incurred while playing Bingo, you must have a record of A) how many games you played over the income tax year, B) how much was spent on all Bingo tickets during the tax period, and C) receipts from the Bingo parlour or cashier to verify costs claimed.
The name and location of the land-based casino and the specific table number will be required. Casino credit card information will also be needed as well as proof of where the credit was provided (in the pit or from a booth).
In addition to the address and table number, you will require casino credit card details outlining if the credit was extended in the pit or at a booth.
You will be required to produce a record showing the number of races you attended, the amount spent on wagers, and how much you collected on winning coupons.
The information you will have to collect to claim deductions from these races will include the location of the track, how much you spent on wagers, how much you collected on winning coupons and how many races you attended and bet on.
Copies of all of the tickets you purchased will be required, provided they were approved by the casino. Also, you will need your credit records and details on your casino cashing of all winnings.
Your records will have to include the following: all tickets purchased, including dates of draws, all winnings claimed, and all losses.
The name and location of the land-based casino, the table number, and casino credit card details showing if the credit came from a booth or the pit.
You will have to collect the casino credit card information showing if the credit came from the pit or a booth. Along with this, you will be required to provide the location of the casino and identify the table number.
The name and location of the casino will be needed as well as a record of the machine numbers of slots played and any winnings. All will have to be sorted by date and time played.
Wheel of Fortune
You will have to produce the location of the casino, the table number, and casino credit card details outlining if the credit came from a booth on-site or through the pit.
What If You Are Gambling Outside of Canada?
Pre-COVID, Canadians flocked to betting meccas like Las Vegas, Reno, Atlantic City, and most anywhere else there was a slot machine or poker table open. Canadians made up a high percentage of the revenues collected at these venues through holiday packages and casual vacations. And some Canadians hit it big in these locations. As a resident of Canada, playing the tables in Vegas (or any other casino in the United States) you would think that you probably could take it all home with you since it doesn’t seem to be such a big deal to be a casual gambler at home, right? Well, the United States may be our closest and biggest neighbor, but when it comes to winning at the casino, Uncle Sam makes it clear that you won’t be going very far before he gets his piece of your winnings.
You probably already know that American citizens have to pay almost half of their winnings in taxes. For Canadians gambling (and winning) in the US, it is not quite as severe, but your jackpot will have a big bite taken out of it before you leave the casino. Here’s how it works. You get to keep anything you win that totals less than $1,200 USD. Anything above that is subject to a 30% tax. And don’t try to hide it as the 30% tax is automatically taken off of your winnings (over $1,200 USD) as you cash out. However, there is one exception. If you are legally working in the US and are a Canadian citizen, you can deduct any of the gambling losses you collected while in the US and receive a tax refund based upon the verified information you provide.
A Brief History of Income Tax In Canada
In Canada, the income tax system is operated by the Canada Revenue Agency (CRA). They collect personal and corporate taxes on behalf of all the provinces and territories in the country. Income taxes make up the bulk of the revenues collected annually by the federal and provincial governments. However, at one time, Canada did not collect income taxes. Canada avoided charging income taxes before World War One and the fact that there were no income taxes made Canada an attractive place to immigrate to as just about every other country in the world had an income tax system in place. Canada relied on tariffs and customs income to provide revenue and natural resource management was what kept each province operating. That changed in 1917 with the introduction of the temporary Income War Tax Act. Wartime expenses were getting out of hand and the “temporary” solution to help offset these costs was the income tax act. Now, 104 years later, the temporary measure remains in place.
Canadian Income Tax Brackets For 2021
Not sure where you sit regarding your income level for the past tax year? Here is a quick review of the current federal (personal) tax brackets according to CRA:
- 15% on the first $49,020 of taxable income, plus
- 20.5% on the next $49,020 of taxable income (on the portion of taxable income over $49,020 up to $98,040), plus
- 26% on the next $53,939 of taxable income (on the portion of taxable income over $98,040 up to $151,978), plus
- 29% on the next $64,533 of taxable income (on the portion of taxable income over $151,978 up to $216,511), plus
- 33% of taxable income over $216,511
The provincial and territorial (personal) tax rates for 2021 vary from one province/territory to the next and are as follows:
- 10% on the first $131,220 of taxable income, +
- 12% on the next $26,244, +
- 13% on the next $52,488, +
- 14% on the next $104,976, +
- 15% on the amount over $314,928
- 5.06% on the first $42,184 of taxable income, +
- 7.7% on the next $42,185, +
- 10.5% on the next $12,497, +
- 12.29% on the next $20,757, +
- 14.7% on the next $41,860, +
- 16.8% on the next $62,937, +
- 20.5% on the amount over $222,420
- 10.8% on the first $33,723 of taxable income, +
- 12.75% on the next $39,162, +
- 17.4% on the amount over $72,885
- 9.68% on the first $43,835 of taxable income, +
- 14.82% on the next $43,836, +
- 16.52% on the next $54,863, +
- 17.84% on the next $19,849, +
- 20.3% on the amount over $162,383
Newfoundland and Labrador
- 8.7% on the first $38,081 of taxable income, +
- 14.5% on the next $38,080, +
- 15.8% on the next $59,812, +
- 17.3% on the next $54,390, +
- 18.3% on the amount over $190,363
- 5.9% on the first $44,396 of taxable income, +
- 8.6% on the next $44,400, +
- 12.2% on the next $55,566, +
- 14.05% on the amount over $144,362
- 8.79% on the first $29,590 of taxable income, +
- 14.95% on the next $29,590, +
- 16.67% on the next $33,820, +
- 17.5% on the next $57,000, +
- 21% on the amount over $150,000
- 4% on the first $46,740 of taxable income, +
- 7% on the next $46,740, +
- 9% on the next $58,498, +
- 11.5% on the amount over $151,978
- 5.05% on the first $45,142 of taxable income, +
- 9.15% on the next $45,145, +
- 11.16% on the next $59,713, +
- 12.16% on the next $70,000, +
- 13.16% on the amount over $220,000
Prince Edward Island
- 9.8% on the first $31,984 of taxable income, +
- 13.8% on the next $31,985, +
- 16.7% on the amount over $63,969
- 15% on the first $45,105 of taxable income, +
- 20% on the next $45,095, +
- 24% on the next $19,555, +
- 25.75% on the amount over $109,755
- 10.5% on the first $45,677 of taxable income, +
- 12.5% on the next $84,829, +
- 14.5% on the amount over $130,506
- 6.4% on the first $49,020 of taxable income, +
- 9% on the next $49,020, +
- 10.9% on the next $53,938, +
- 12.8% on the next $348,022, +
- 15% on the amount over $500,000
What Are You Going To Do With All That Money?
So, as you have figured out by now, in Canada, you can play the lotto, place some sporting bets, and hit the casino (land-based or online) as much as you want with little to be concerned about in regards to getting taxed on your winnings. Remember, that is if you are gambling just for fun and not using it as an actual source of income. This means that all the jackpots you’ve won you get to keep every penny of. For some Canadians who are truly casual gamblers, that can translate to mean a fair chunk of change. With a lot more money on your hands, and we’re thinking of those who win a hefty lottery prize, comes a lot more responsibility. It’s easy to say that you’ll pay off all your debts, buy some toys and stash some of the rest of it away for schooling for your children or grandchildren plus a rainy day but the reality is that big winners tend to become big losers through a lack of understanding of the principles of effective funds management. In other words, budgeting for the future.
One of the first mistakes made by a Big Winner is to keep playing with hopes of increasing that jackpot. Provincial lottery corporations, which govern the gaming activities in their jurisdiction, have spent considerable time and effort promoting safe gambling habits. A common theme in these programs is the statement, “Know Your Limit, Play Within It.” That is because gambling addiction is a real problem and many casual bettors who hit a winning streak can be tempted to get far more serious about their gaming activities without really noticing what it is doing to their finances, relationships, and beyond. Here are a few tips to help you determine whether or not you or someone you know is starting to show the signs of gambling addiction.
This is one of the first signs of gambling addiction when the gambler starts using money that is not theirs to bet with. Doing this can also impact any budgeting that had been in place before the loan being received.
We’ve touched on this, but trying to chase after another big win after a string of medium-sized jackpots is a bad sign. You have to pre-determine when to quit and stick to that limit whether it is a cash amount or a time frame.
Even if you do not live on a tight budget, you still have to keep in mind that if you have incurred some losses and are about to add to them, how will it affect your finances? Will you be able to pay all your current bills?
No Gaming Plan
Casinos and online gaming sites make it easy for you to access your money so you will spend more of it. Instead of not keeping track of your costs, do the opposite. Plan to bet with just $50 and after that’s gone, leave.
Lying About It
One sure sign that you have a gambling addiction is lying about how much you’ve won and how much you’ve lost. It may convince you that you are doing well, but by staying true to yourself, you avoid this trap.
Not Taking Breaks
The key to being an occasional gambler is to do it occasionally. If you can’t pull yourself away from the slots or are at the casino from opening to closing daily, you have a problem. Find other distractions to occupy you.
Gambling And Drinking
This is probably the worst possible combination you can create. Even if you can hold your beer, alcohol in your system is going to relax your inhibitions which means you are more likely to make bigger - and bad - bets than when you are sober.
Gamblers in Canada have it pretty easy when it comes to dealing with the Tax Man. The CRA views casual gambling winnings as non-taxable income and that means if you win a giant lottery prize, you won’t be sharing any of it with the federal government. However, if you are a professional gambler - someone who spends their days in the casino, bingo hall, or online betting constantly, then you will have to face the music and pay your fair share. Fortunately, in Canada, you can deduct losses and as long as you can prove them and that your losses don’t exceed your winnings, you’ll be able to keep most of what you have earned as a full-time gambler. But if a Canadian goes over the Canada/US Border to drop a few coins into the slots in Reno or any other US-based casino or gaming site, any winnings over $1,200 USD is subject to a 30% tax. The bottom line? It’s good to be a Canadian gambler who dabbles in the lotteries and sports betting from time to time.
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