Are Gambling Winnings Taxable in Canada?
When you’re placing a bet, whether it’s on a hockey game or at the poker table, taxes are probably the last thing on your mind. However, it’s important to know the basic tax consequences of gambling. This brief guide provides clarity as to when gambling gains can be taxable as income. Please note that each situation is unique, and if you are gambling and think your income may or may not be taxable, you should consult with a lawyer for a true determination.
What is Income?
Determining what is income is usually very complex, but for the purposes of gambling, it’s much simpler. Gambling revenue will either be a windfall gain, which is not taxable, or business income, which is taxable. To be classified as business income, the taxpayer must have had a reasonable expectation of profit from the activity, which is based on their skill, consistency, and intention. By contrast, any unexpected gains are seen as windfalls. Ultimately, this means that gambling revenue being classified as income or not is based on whether the taxpayer expected to profit from their gambling.
Some categories of winnings that are fully luck-based will always be seen as windfalls, such as lottery, slot machine, or roulette winnings. Because these are luck-based, taxpayers cannot have had an expectation of consistently profiting, and therefore these gains will not be taxable.
Winnings from Skill-Based Gambling
Because of the skill elements in games like poker or blackjack, winnings from these games can be seen as either windfalls or income, depending on the person earning it. The information below aims to provide a general guide for when skill-based gambling gains can be taxable.
Professional vs. Amateur Gamblers
Professional poker and blackjack players are taxable on their net gains throughout their year because they have an expectation of profit. Professional gamblers expect and intend to make money and are highly skilled at their trade. In other words, they approach gambling the same way they would approach running a business, resulting in business income. That being said, what defines who is considered a professional gambler can be very complex. You should consult with a lawyer if you think you are a professional gambler.
If you are not seen as a professional, but rather you are an amateur gambler then your gains will likely not be considered taxable income.
If you are a semi-professional gambler, the analysis can get quite complex.
Factors that support the finding that you’re a professional gambler:
- Attending poker tournaments frequently;
- Travelling for play;
- Gambling as your primary income source;
- Having a strategy;
- Practicing / taking classes;
- Consistently earning money on an aggregate basis (you don’t have to win every time); and
- Having earned money from poker for a long time.
Factors that support the finding that you’re an amateur gambler:
- Gambling infrequently;
- Playing poker only at casinos;
- Drinking alcohol while playing;
- Attending the casino socially; and
- Not winning consistently.
Please note this list is not determinative and is only placed above to provide further clarification for the purposes of this blog post.
Sports betting has recently been legalized in Ontario, but does that mean it’s taxable too? Because of the more random nature of sports betting, it is generally unlikely that income from sports betting is taxable. However, the rare people that can consistently “beat the spread” (predict the right outcomes for sports events) may be taxable depending on the same aforementioned factors of skill, intention, and expectation of profit.
If you’re at all concerned about the tax consequences of gambling, you should keep every receipt. It’s much easier to prove that you got lucky on a one-time slot machine payout if you have records. Similarly, if you want to declare business losses from professional poker, it’s important to keep records that would prove that you play poker professionally.
If you have any concerns about your gambling earnings, or want to review to determine whether the gains are taxable or not, please contact us today! We are here to help!
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.