Customers who contact us to recover taxes paid on lottery or casino winnings in the United States are often surprised to have seen part of their jackpot being withheld by the US tax authorities. Largely Canadians, these winners have never experienced such a situation from casinos in any province of Canada.
The reason is very simple. Gambling winnings are not taxable in Canada. Whether it’s a casino or a lottery win, the law is very clear. These amounts are not considered taxable income. The only exception to this rule would be for a person playing a casino game with a reasonable expectation of revenue. Any income subject to these conditions in the Canadian Tax Code is subject to taxation as business income. Whether this is possible in the case of gambling, however, is far from clear. The Canadian Court has always ruled against taxing on such issues.
Does the United States have the right to tax me on gambling winnings made within their borders even though I am Canadian? Absolutely. Any income made in the United States is subject to their tax code. Unlike us, Americans have to pay taxes on their gambling and lottery winnings. They declare this revenue on their annual tax report.
The opposite is also true. If Americans will not have tax withheld on their winnings in Canadian casinos, they are expected to report these revenues on their annual US tax reports.
However, as a Canadian, you obviously do not automatically fill out such a US tax return. That’s why the casino makes sure to tax you on your gross winnings immediately when they happen. They therefore make sure to collect the absolute maximum amount that you might have to leave in Uncle Tom’s pockets. That is also why, as a Canadian entitled under the tax treaty that binds both countries to be treated just like an American, that money is often recoverable. By completing a tax return in the United States, a Canadian winner will recover some or all of the taxes paid.
Note that this is happening this way specifically because Canada does not tax gambling winnings. Most other countries that also tax gambling gains have agreements with the United States to avoid double taxation. In short, as the country where the winner resides will tax these winnings, this same winner will not be subject to US tax. This is the case of residents of France for instance. Well prepared, they can completely avoid tax withholding in the United States. If they pay 30% of their earnings, they can automatically recover this amount from the US tax authorities, regardless of the amount of their losses.
This leads to another question. If gambling winnings are not taxable in Canada, is my tax refund on my gambling winnings in the United States taxable? Your Canadian tax professional will be better able than anyone else to answer this question beyond a reasonable doubt, but those with whom we discussed this issue were unanimous. Since this tax is an overpayment on gambling winnings for any Canadian able to recover the amount withheld, the initial nature of the revenue as a gambling win does not change when it is refunded. As a result, this money coming back from the US Treasury would not be anymore taxable than the 70% of the win you originally brought home.
If you were charged 30% on a casino or lottery win in the United States, it is virtually certain that some or all of that amount can be recovered. GamblingTaxes.ca offers a turnkey solution, taking care of the entire tax procedure on behalf of its clients. Contact us for a completely free consultation.