Guide to Gambling Tourism and Taxation for Canadians
From its horse races and charitable lotteries, Canada has become an intersection of leisure travel and gambling activities.
A leading media authority in big data analytics disclosed that Canada ranks eighth among countries spending the most on online gambling. According to Analytics Insight, there were over 19.3 million active online gamblers in Canada, with the government raking in approximately $1.2 billion in online gambling revenue alone. With the significant revenue that the government generates from Canadian online casino operations, provinces across Canada are starting to adopt regulations for this booming industry.
While the surge of casinos and online gambling offers recreational opportunities, it also presents varied tax implications for Canadians and tourists. This article aims to provide an overview of gambling tourism and will shed light on the intricacies of gambling taxation in Canada.
Basics of Gambling Taxation in Canada
Whether you play at a casino resort or place your bet on an online platform, you must know the tax implications of your gambling activities.
The General Rule
According to the Income Tax Act, paragraph 40(2)(f), winnings from gambling in Canada are not taxable. Regardless of the amount, residents and tourists are not required to pay taxes for their winnings from the casino, sports betting, horse racing, and online gambling platforms.
Winnings from gambling are categorized as windfalls. These are unexpected and non-recurring gains that are not derived from a typical source of income such as employment or business. Winnings are windfalls based on the premise that gambling involves chance, and it is unsound for the government to impose a burden on people for what is essentially their fortuitous gain.
However, despite winnings from gambling not being taxable, there are exceptions.
Winnings from Carrying on the Business of Gambling
Under the Canadian tax system, individuals who gamble in a business-like manner must pay taxes for their winnings. The Canadian Revenue Agency (CRA) classifies gambling activities as related to doing business using one or more of the following factors:
The player’s level of skill and knowledge in gambling activities
The amount of time invested in gambling
The organization and execution of the gambling activities
The volume of gambling transactions
The consistency of earning money from gambling
The CRA will impose taxes on your winnings if you approach gambling with the intent to earn profit. Professional gamblers or people who gamble to gain profit would have their winnings treated like business income under Income Tax Act 9(1).
Here’s a simplified computation of the tax liability of a professional online gamer in Ontario, Canada, who had net winnings of CAD 50,000 in 2022.
Calculation of Federal Tax
First, apply the federal tax rates using the percentage tax as shown in the tax brackets
-15% is computed on the first $50,197 income
-So, the federal tax for this example is 15%* $50,000 =$7,500
Calculation of the Ontario Provincial Tax
Second, use the provincial tax rates in Ontario
-5.05% on the first $ 46,226, plus 9.15% on the portion of income exceeding $46,226 but at most $92,454.
-The Provincial tax= (5.05%*$46,226)+ (9.15%*(50,000-46,226))
= $2,334.413+$345.321= $2,679.734
Total tax computation
Total taxes= Federal tax plus provincial tax
Total tax due = $10,179.734In the above example, the professional gambler who lived in Ontario would pay $10,179.734 in taxes for $50,000 winnings in 2022.
Interest Earned from Winnings
The CRA may be moderate in classifying winnings as income from a business. Despite winning a large sum of money, an individual may not be liable to pay taxes.
While winnings from gambling are generally not taxable, an individual must pay taxes on interest earned on winnings. The tax on interest income is computed similarly to a taxpayer’s general income.
Tax Implications of Online Gambling in Canada
The tax system is generally lenient to casual players in Canada. As presented above, you are not liable to pay taxes on your typical winnings unless you conduct gambling in a business-like manner.
Provincial Authority Over Gambling
Only provincial governments have the authority to regulate gambling activities in Canada. Each province has laws and regulations that apply to land-based and online gaming.
However, charitable or religious groups may conduct charitable gaming activities, provided these institutions secure a license to operate.
Gambling on International Online Platforms
In Canada, the tax implications for winnings on international online platforms are the same as gambling locally. An individual will pay taxes only on earnings derived through professional gambling.
That being said, gaming participants on international online platforms must get familiar with the rules of the platform and the jurisdiction it is under. Unlike in Canada, where winnings from gaming are generally not subject to tax, some countries impose taxes on non-residents’ gambling winnings.
The New Framework for Online Gaming in Ontario
In 2021, the province of Ontario established iGaming Ontario (iGO) to help regulate and oversee online gaming activities within its jurisdiction. As a subsidiary of the Alcohol and Gaming Commission, iGO supports efforts to expand and modernize the online gaming industry in Ontario.
The iGO uniquely grants operators a unique way to integrate into the iGaming market. However, the operators can only penetrate Ontario’s market after complying with rules, including standards set by:
Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA)
Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)
Ontario-specific standards, including the ACGO and iGO standards
The Sales Tax Implications of the New iGaming Market in Ontario
Under the iGO framework, the iGo could be considered a prescribed GST/HST filing registrant. This will have two significant implications for online gaming operators:
Commercial Activities and Input Tax Credits. In the context of GST/HST, the activities of online gaming operators would be categorized as commercial activities. Online gaming operators must explore their eligibility to voluntarily register for GST/HST, regardless of whether they are not required to do so under the general framework.
Distribution Status of Operators. Online gaming operators will be placed under the distributor’s category.
Tax Implications of Canadians Gambling Abroad
According to IPSOS, a global leader in market research, about 30% of Canadians admit to being registered in at least one online gambling platform.
Canadians who plan to participate in gambling activities abroad must familiarize themselves with the tax laws of the countries they visit. For example, US tax laws mandate a withholding tax rate of 30% on gambling proceeds won by non-residents.
Canada’s growing land-based and online betting industry offers residents and tourists exciting opportunities and experiences.
But with the changing tax regulations for gambling winnings, it is imperative to remain informed about the tax implications of gambling activities. Consult a tax expert to ensure who can provide guidance and ensure you remain compliant with relevant tax laws as you embark on your gambling tourism adventures.