When Does the State Take Taxes on Gambling Winnings?

Many Canadians have been eagerly awaiting the start of the new fiscal year, which was October 1st this year. As well, there has been a significant amount of curiosity about the recently passed legislation that would overhaul Canada’s taxation system. While some might consider the changes quite progressive, owing to the reduced rates of income tax and increased exemptions, there is still a great deal of uncertainty surrounding the legislation. What is certain is that we are in for some significant changes that impact the way we live and play. Here are some details about the new taxation system:

Gambling Winnings Are Tax-Free

If you’re reading this, congratulations! You’re probably already aware of how much money you’ve won playing games of chance. Whether it’s at a casino, a lottery, or at the poker tables, if you’re able to take your winnings and put them in a money market account or some other low-risk investment, you’re going to be happy you did. The recently passed legislation provides some exemptions from federal income tax for certain wagering activities. If you meet the criteria, you will not be required to pay income tax on your gambling winnings. Let’s take a closer look at the legislation:

The Basics

There are two major changes provided for in Bill C-33. The first allows for the taxation of gambling winnings in accordance with a player’s place of residence. Previously, all income was federally taxed. Now, a key factor in determining your tax rate is where you live. If you’re a resident of British Columbia, for example, your average tax rate is 12 percent (not including applicable exemptions). If you’re a New Brunswick resident, your average tax rate is 11.5 percent. You can also look up your province’s tax rates at https://goo.gl/forms/6ZkCeMGD7tFDyk2.

The second change provides for the taxation of gambling winnings in accordance with your total income. If you’ve made more than $200,000 in gross income over the past year, your tax rate is going to be determined on the basis of 28 percent. If you’ve made less than $200,000 in gross income, your tax rate is going to be based on your income level. So if you’re a single filer making $80,000, you’ll pay only 16 percent in federal income tax. Dividends, interest, pension income, and capital gains are also going to be subject to taxation.

Where Do I Play?

It’s important to note that not all online gambling is created equal. Some jurisdictions, such as the U.S., still consider internet gambling to be illegal. In these cases, you would not be able to play online. However, most casinos, lotteries, and poker sites are currently available for use in Canada. Here’s a breakdown of where and how you can play:

Online Gambling

If you’re playing online in a licensed jurisdiction, you’re going to be in good shape. Most online gambling platforms in Canada are going to remain tax-free, as they are considered to be playing in an offshore environment. What this means is that the country’s 26 province and territories have zero per cent tax on all winnings. This also means that residents of the province of Manitoba can enjoy playing at casino sites in other jurisdictions. Other notable exceptions include the U.S. and Costa Rica. If you’re unsure about the legality of online gambling in your area, it might be smart not to play. While the risk of getting in trouble is minimal, you still have to consider the legal implications. In some places, like the U.S., you could face severe penalties for playing online. So, before you log on, make sure you’re in a legal state of mind.

Land-Based Gambling

For those of you who are lucky enough to live in a place where online gambling is legal, you’re going to be faced with deciding where to play. If you want to stay within the boundaries of your home province, you’re going to have to play in a resort or a casino outside of it. This is because the gaming industry has a great deal of control over where they can establish franchises. Typically, casinos and land-based lotteries are only available at certain locations and times of the year. If you want to take advantage of these opportunities, you might have to travel outside of your home province. Fortunately, you can also play online from the comfort of your home. Consider all your options before making a decision.

What About Residence?

If you’re a Canadian citizen or a permanent resident, you will not be required to pay income tax on your gambling winnings, provided you meet the conditions for the federal government’s voluntary disclosure program. What is this program? It allows certain high-income earners to report their income and pay only 40% rather than the standard rate of 70%. For more information, visit https://www.canada.ca/en/services/news/voluntary-disclosure-program-news-article-2139.html.

New Rates For Previous Tax Breaks

If you’ve been playing the game of chance for a while and built up a certain level of savings, you might be affected by the recent legislation. In the case of gamblers who are prescribed medicine for addiction or problem gambling, the Canadian government is aware that their income is significantly affected by their condition. As a result, the government provides certain tax breaks and waivers to ensure that these individuals can continue to play. One of the most significant changes imposed by the newly passed legislation is that it increases the amount of income that is exempt from federal taxation. This means that previous tax breaks and exemptions will only apply to a proportion of your income. For example, if you’re a full-time student and made $50,000 in 2017, $5,000 of that amount would be taxed at the standard rate.

If you’ve been paying attention to the financial news, you might also be aware that the recent U.S. tax reform bill provides some relief for individuals and businesses in similar circumstances. While the specifics vary from state to state, in many cases people and businesses will be able to claim deductions and exemptions that were previously unavailable. This could prove to be quite beneficial for those who qualify.

More For Non-Profit Or Charitable Organizations

Non-profit or charitable organizations, such as churches, are also going to be covered by the newly passed legislation. If you’re a member of a non-profit church and make a donation to it each month, you’re going to be able to claim that amount as a tax deduction. Moreover, if the church has assets that it don’t have to spend on operating costs, you’re going to be able to claim that as a tax deduction. Keep in mind that if you’re an individual who is a member of a non-profit organization, you would have to complete a yearly IRS Form 1098-T to claim your allowable deductions.

Although there are many pros to the new taxation system, it does have its drawbacks. For example, the inability to claim some of the most significant losses you’ve incurred in the past as a deduction. Additionally, only certain income and savings are going to be tax-free. Those of you who have large amounts of cash savings might want to consider converting some of it to an RRSP or other investments that are subject to taxation. While there are some situations where you might not have to pay taxes on your gambling winnings, it’s still best to consider the fact that you’re going to be paying federal taxes to a greater extent than before. Moreover, if you play in a resort or a casino, you’re going to be paying local taxes as well.