How Online Gambling Taxes Work In Canada
Many players aren’t too clued up on how the tax system works when playing at the legal online casino Canada sites on offer. So, it’s understandable that there’s some concern about whether or not tax is owed on winnings. The good news is that shouldn’t be a worry at all, as the law works in most players’ favour.
Let’s take a closer look at the current laws around tax and online gambling in the country, the difference between playing professionally and for fun, and more.
Tax And Online Gambling In Canada
Canada’s tax laws work in most players’ favour because they distinguish between players who gamble professionally and those who gamble for fun. Paragraph 40(2)(f) of the Income Tax Act defines the meaning of a professional gambler as, among other things, a person who makes a living from gambling.
However, as most players who frequent the legal online casinos Canada offers are there for the entertainment, they don’t need to declare their winnings. One of the reasons the government doesn’t tax for-fun gamblers is because their winnings aren’t a constant income source. Another reason is because that money wasn’t derived from property, employment, or another viable source.
That said, you might find yourself in a situation in which you would pay tax on your gambling winnings in a roundabout way. Let’s explore that.
Tax, Winnings, And Interest
Let’s say you landed a big, fat jackpot at one of the amazing legal online casinos Canada players love and we recommend. Instead of spending the money, you deposit it into a savings account so it can earn interest.
In this case, you will not need to pay tax on your winnings. However, you will need to pay tax on the interest you earn on it, as the interest is a form of regular income derived from the money in your savings account. You can legally declare the interest on your saved winnings on a T5 form when you do your tax submission. If you do not pay tax on the interest you earn on the winnings you save, and you’re caught by the government, you probably will be fined.
Professional And For-Fun Gamblers
As mentioned above, the only provision that Canadian law makes for taxing winnings is when those wins are made by professional gamblers. If you’re wondering what the difference is between someone who plays professionally and someone who plays for fun, you’re about to find out.
Professional gamblers – It’s not easy to be classified as a professional gambler as defined by Canadian law. Winning consistently or playing at legal casinos for hours every day isn’t enough to be considered professional. Instead, systematically applying skill to make a profit, gambling being your only income source, and running your gambling activities as you would run a business is what would make you a professional gambler. The law’s mention of the skill element is one of the reasons Poker and Pool players are more readily classified as professional gamblers.
For-fun gamblers – The overwhelming majority of players in Canada are for-fun gamblers. Whether they play online slots, Roulette, live dealer Blackjack, or other games, they’re do it because they enjoy it. Most players have a regular income source, and they don’t necessarily gamble every day – and any winnings they make are simply the cherry on top of a whole lot of fun.
Gambling In The USA
Winning money at a legal online casino Canada offers access to is one thing but winning if you gamble as a Canadian citizen in the USA is quite another. The rules are different, and if you win at a US online casino, you might be subject to a 30% withholding tax.
A special treaty allows the IRS to tax the winnings Canadians make when they gamble in the US. However, if you can prove that you racked up expenses or lost money when gambling, you can get back at least some of that money. You’ll need to apply for a US tax number and then complete the correct forms to reclaim the withholding tax.
Gambling At Land-Based Casinos
There’s very little distinction between gambling at land-based and online casinos in the Income Tax Act, and the same laws apply to both. This means that, as a for-fun player, you do not need to pay tax on your winnings.
Can I gamble online without being taxed?
You can gamble online in Canada without being taxed if you are a for-fun gambler. You will need to pay tax if you’re a professional gambler.
Who needs to pay tax when gambling at an online casino in Canada?
Professional gamblers who use skill to make a profit and for whom gambling is the only source of regular income should pay tax.
Are my online lottery winnings taxed at an online casino in Canada?
No, online lottery winnings are not taxed in Canada. You should pay tax if you earn interest on the winnings that you invest or save.
Is online gambling legal in Canada?
Canadian law does not prevent players from gambling online in Canada. Some provinces offer online gambling services.
What if I gamble online in the USA as a Canadian citizen?
If you gamble online in the USA, your winnings may be subject to a 30% withholding tax that may be partially reclaimable.
What is the maximum amount I can win before being taxed on my online winnings?
There is no maximum winning amount before being taxed. Canada does not tax online winnings.