Are Lottery and Casino Winnings Taxable in Canada?

A man filling in paperwork at a table — Photo: Airman 1st Class Naomi Shipley, Public domain, via Wikimedia Commons

For most people, no. The Canada Revenue Agency lists lottery winnings "of any amount" among the amounts you do not report on your return, unless the prize can be considered income from employment, a business or property. Casino and other gambling wins of a recreational player are treated the same way, because Canadian tax law does not regard casual gambling as a source of income. Two things change the picture: interest or other returns you earn by investing the winnings are taxable, and a person whose gambling amounts to a business is taxed on the profit. A win in the United States is a separate question, since the US taxes many gambling wins of Canadians at source.

This article is a reading of the CRA's published guidance, the Tax Court decisions and the IRS rules. It is general information, not tax or legal advice, and anyone with a large win or a regular gambling income should speak to a tax professional.

Why a win is not income: the windfall idea

The Income Tax Act taxes income from a source: employment, business, property and the other categories it lists. A lottery jackpot does not fit any of them. The CRA's Income Tax Folio S3-F9-C1, which covers lottery winnings and other miscellaneous receipts, says a lottery prize "is not taxable as either a capital gain or income" unless it is tied to employment, a business or property, or is a prize for achievement under paragraph 56(1)(n).

The folio also describes the broader category of windfalls, which are generally not taxable. Drawing on the Federal Court of Appeal's decision in The Queen v. Cranswick, it lists factors that point to a windfall, including that the recipient had no enforceable claim to the payment, made no organized effort to receive it, and had no expectation that it would recur. A lottery ticket fits that description neatly: you have no right to win, and nothing you do improves the odds.

The folio adds a technical point that often surprises people. Under paragraph 40(2)(f), no taxable capital gain or allowable capital loss results from the disposition of a chance to win. Selling a ticket, or sharing in a winning one, does not create a capital gain on the prize either.

Interest on winnings is taxable

The tax-free status attaches to the prize, not to what the prize earns afterwards. The CRA states it plainly: "any interest that you earn when you invest lottery winnings must be reported on your return." The same logic applies to dividends, rent or capital gains from investments bought with the money. A $1,000,000 jackpot arrives tax-free; the interest it earns in a savings account the following year is ordinary investment income.

For a large prize, that is where the tax actually begins. It also means the planning question after a big win is not whether the jackpot is taxed but how the invested proceeds will be taxed in later years.

When a prize can be taxed

The folio identifies situations where a prize stops being a windfall:

Employer draws. A prize from a draw promoted by an employer is generally employment income. The folio allows that it may instead be a lottery win where employees are only a small share of the participants, get no favoured position and face the same entry requirements as everyone else.
Prizes won in the course of a business. A prize received in the course of the recipient's business is business income under subsection 9(1).
Prizes for achievement. A prize received for an achievement in a field the recipient ordinarily works in can be income.
Gambling operations. Profits from bookmaking or running a gambling establishment are business income, even where the activity is illegal.

For group play, the folio says that where a syndicate wins, the tax consequences for each member are the same. A properly shared office pool is still a lottery win for every member.

The professional-gambler line

Casino, poker and sports-betting wins raise a harder question: at what point does gambling become a business? The CRA's folio says the intention to make a profit is not enough on its own, since every gambler hopes to win. It quotes the Tax Court's statement in Leblanc v. The Queen, 2006 TCC 680, that gambling, even regular, frequent and systematic gambling, is "not generally regarded as a commercial activity except under very exceptional circumstances."

Leblanc: winning is not the same as a system

As summarized by Borden Ladner Gervais, the Leblanc case involved two brothers who won consistently on government sports lotteries in Ontario and Quebec from 1996 to 1999. The Minister treated the wagering as a business. The brothers used agents to get around purchase limits, negotiated discounts and used a computer program to hedge their bets. The court still held that the winnings were not business income: the brothers did not assess and minimize risk in the way a business would, and the court rejected the argument that winning by itself proves a system. The case is a useful reminder that a run of success can be luck, a point our article on the psychology of gambling discusses from the player's side.

What the courts look at

The general test comes from the Supreme Court of Canada in Stewart v. Canada, 2002 SCC 46: whether the taxpayer intends to carry on the activity for profit, and whether there is evidence to support that intention. Applied to gambling, the CRA's folio lists factors such as how organized the activity is, whether the gambler has special knowledge that reduces the element of chance, whether the purpose is pleasure or a livelihood, and the number of bets. The folio points to cases where gamblers used inside information, knowledge or skill.

The decisions show how the factors play out:

Luprypa v. The Queen, 97 DTC 1416: a skilled pool player who played bar patrons for money was found to be in business, and his winnings were taxed.
Cohen v. The Queen, 2011 TCC 262: a taxpayer who claimed poker losses as business losses was found to have no reasonable expectation of profit, so the losses were not deductible.
Duhamel c. La Reine, 2022 CCI 66: the court found that a professional poker player's net winnings were not business income.
Fournier Giguère c. Le Roi, 2022 CCI 132: the court reached the opposite result for another professional poker player, describing poker as "a game of chance where skill is a strong factor" and finding his winnings were business income.

Borden Ladner Gervais reads later Quebec poker decisions as moving towards taxing profitable players. The line is drawn case by case.

The trade-off

Being treated as a business cuts both ways. Business status makes the profit taxable, but it also makes losses deductible. Losses from gambling as a hobby are not: the folio states that for an activity that is not a business, an excess of expenses over receipts is a personal or living expense. That is why Cohen involved a taxpayer arguing that he was in business.

Winning in the United States

A Canadian resident who wins at a US casino, or on a US lottery such as Powerball, deals with a different system. IRS Publication 519 says nonresident aliens are generally subject to a 30% tax on the gross proceeds from gambling won in the United States, where the income is not connected with a US trade or business and is not exempted by treaty. Publication 515 says this is collected by withholding at 30%, and that the tax withheld and the winnings are reported on Forms 1042 and 1042-S.

There is a notable exception. According to the IRS, no tax is imposed on nonbusiness gambling income a nonresident alien wins playing blackjack, baccarat, craps, roulette or big-6 wheel in the United States. Slot jackpots, lottery prizes and many other wins fall outside that list.

The Canada–US treaty and gambling losses

Most nonresidents cannot deduct gambling losses against US winnings. IRS Topic 419 says that generally, nonresident aliens of the United States who aren't residents of Canada can't deduct gambling losses. The Canadian exception comes from paragraph 3 of Article XXII of the Canada–United States tax convention, added by the protocol signed on March 17, 1995. It provides that losses incurred by a resident of one country on wagering transactions, the gains on which may be taxed in the other country, are deductible there "to the same extent that such losses would be deductible if they were incurred by a resident of that other State."

In practice, that means a Canadian may be able to set US gambling losses against US gambling winnings and recover some or all of the tax withheld. IRS Topic 419 says nonresident aliens who must file for US-source gambling winnings use Form 1040-NR. It also stresses records: winnings and losses have to be documented. Bringing the cash home raises its own questions, covered in our guide to crossing the border with casino winnings.

What to report, in short

Recreational lottery or casino win in Canada: not reported, according to the CRA.
Interest, dividends or gains from investing the win: reported as investment income in the year earned.
Prize from an employer draw or won in the course of a business: potentially taxable; see the folio's rules above.
Gambling carried on as a business: profit is business income and losses may be deductible, but the CRA treats this as exceptional.
US win with tax withheld: keep the Form 1042-S and records of wins and losses; a Form 1040-NR claim may recover withholding using the treaty.

Real-money gambling in Canada is for adults: 19 and over in most provinces, 18 and over in Alberta, Manitoba and Quebec. A tax-free win is still a win against the odds, and if gambling has started to feel like a way to earn money, our responsible gaming page lists support by province.

Questions readers ask

Do I pay tax on lottery winnings in Canada?

Generally no. The CRA lists lottery winnings of any amount among amounts that are not reported, unless the prize can be considered income from employment, a business or property.

Are casino winnings taxable in Canada?

Not for a recreational player. Gambling is treated as a business only in very exceptional circumstances, in which case the profit is business income.

Is interest on my lottery winnings taxed?

Yes. The CRA states that any interest you earn when you invest lottery winnings must be reported on your return.

What did Leblanc v. The Queen decide?

The Tax Court held that two brothers' large sports-lottery winnings were not business income, and stated that gambling is not generally a commercial activity except under very exceptional circumstances.

Will the US take tax from my winnings there?

Often. The IRS generally withholds 30% of a nonresident's US gambling winnings, though nonbusiness wins at blackjack, baccarat, craps, roulette and big-6 wheel are not taxed.

Can Canadians deduct gambling losses in the US?

Article XXII(3) of the Canada–US tax convention lets Canadian residents deduct US wagering losses to the same extent a US resident could, claimed on Form 1040-NR with records of wins and losses.