Nobody likes to pay taxes, but we all understand why we have to do it. How would our federal and state and local governments all pay their bills if we didn’t all chip in our fair share? Who’s going to finance these roads and schools and armies and services deemed necessary for our well-being if we don’t all pay our part?
OK, we’re all willing to pay our fair share of taxes if everyone else does too. But we wish our share didn’t have to be quite so much. And we slot and table players wish our taxable income didn’t have to include our gambling winnings at all. It doesn’t seem fair that we have to pay tax on money we won today if we give it all back when we play tomorrow.
Well, guess what - if we were residents of Canada, we wouldn’t have to pay tax on our gambling wins. Not on money won in Canada anyway. For recreational gamblers - which is what we all are - gambling winnings are tax free. Yes, you read that correctly. Recreational gambling winnings in Canada are tax free!
…for Canadian citizens.
Under Canada’s Income Tax Act, “windfalls” such as lotteries and sweepstakes are not taxable. Prescribed prizes awarded for meritorious achievement in the arts, sciences, or public service are also exempt from taxation. Canadian taxable income encompasses total income from just four sources: office, employment, business, and property. So, unless the gambling activity is in fact a business, our sensible neighbors to the north do not tax their resident’s gambling winnings. They recognize that almost nobody wins if they gamble long enough, and so they don’t require reporting either gambling wins or gambling losses at tax time. How lucky can our Canadian neighbors be!
You might wonder what happens when US residents cross the border and gamble in Canada. What if a US citizen gets lucky and wins at Windsor - will his gambling winnings be exempt from tax too? We just said Canada does not tax recreational gambling winnings.
Sorry. The answer is no. (You thought it would be, didn’t you?) The USA taxes all income you have no matter what the source, unless specifically excluded by law. The IRS doesn’t care whether you won your windfall in the United States or in Canada or on a boat in the middle of the Pacific Ocean. They don’t care if you won the money playing slots in a Native American casino or shooting craps in some back alley. They don’t care if the game was legal or was totally against the law. The IRS doesn’t care where or how you won the money. They just want you to include it on your 1040 Form and pay tax on it. Log it in your gambling diary. Include it on line 21 of your 1040 with your other gambling winnings. It’s all taxable income in the USA. Period.
It’s a little like winning a jackpot in Nevada, which does not have a state income tax, when you are a resident of California which does have a state tax. A very large one. You pay tax to California for your Nevada win. You pay tax to the USA for your Canadian one.
Fair? Unfair? Who’s to judge. Well, one thing’s for sure — it’s good for Canadians and it’s good for the IRS. It just might not be good for you and me. Coming soon, Canadians winning in the USA.
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