Gambling tax laws in Ontario can be ambiguous, so it's important to know whether you are legally obliged to pay gambling taxes in Canada. We have good news for most of you. Unlike in the U.S., a Canadian citizen who is a recreational bettor does not have to pay tax on gambling profits, such as online casino winnings.
If you are a professional gambler in Ontario, you must pay taxes on your gambling profits, whether your betting occurs online or offline. A professional gambler is defined as someone who makes a living gambling. In this case, gambling is considered a freelance business. There is also one caveat to take note of if you gamble recreationally. Even if you don't consider yourself a professional gambler, you will need to pay taxes if you earn interest on your profits.
All gambling winnings are taxable for professional gamblers in Ontario except for those that come from the lottery and scratch cards. Since the lottery isn't classed legally as a game of skill, winnings are not taxable by the Ontario Lottery Alcohol and Gaming Commission (OLG).
Here are examples of gambling and gaming for which pros need to pay Ontario online betting taxes:
If you gamble for fun, on the other hand, you do not need to pay taxes on any of your gambling profits, no matter how large they may be. However, you will have to pay taxes if you earn interest on your winnings, which is considered "investment interest." In this case, you have to report the interest on a T5 form (otherwise known as a "Statement of Investment Income").
Ontario online betting taxes for professional gamblers can range from 15% to 33% depending on your taxable income and earnings bracket. The average income tax payable from online gaming operators is about 20% in Ontario. When you compare this to certain U.S. states where you can pay income tax to the IRS at rates of 50% or even higher, it means Ontarians are getting a good deal. One other important detail to note: Ontario gamblers who win across the state border in the U.S. will be subject to an automatic 30% hold taxable on winnings over $1,200.
You have to file your own tax return to pay tax on your professional gambling winnings and investment income (interest accrued from profits). Pro gamblers operate a freelance business in the eyes of the Canada Revenue Agency (CRA) and, as a result, they are subject to pay taxes on their gambling winnings and need to declare all winnings from bets on their tax return form. The upside is that they can write off any revenue loss arising during the year against their Ontario gambling taxes.
Recreational bettors who visit are treated the same as natives of Canada who bet for fun, so if you're on holiday at the tables in the casino or the horse racing track in Ontario, you don't need to worry about paying taxes if you hit the jackpot! Of course, if you are a U.S. citizen things are different. The fact that your winnings were made abroad doesn't exempt them from income taxes in your home state. Both federal and local income taxes apply.
The short answer is no. The lottery is not classed as a game of skill and, if you are lucky enough to win, you can keep what is described as a "windfall." Canadian citizens and residents do not need to report OLG winnings as income. Most lottery winnings are exempt from tax under section 87 of the Indian Act. However, if you earn any interest on lottery winnings, it is treated as income and you must submit a T5 form with your tax return.
While professional gamblers must pay taxes on their gambling profits, they can also write off their gambling losses in the same way as freelance business owners do. Recreational sports bettors, on the other hand, can't claim gambling losses as tax deductions. They can, however, claim a tax refund on any gambling losses occurring in the U.S. as determined by the Canada-US tax treaty.
Proof of any gambling losses should be kept in the form of a diary, and it must show that losses exceeded the winnings. Suppose recreational gamblers want to claim losses that occur across the border in the U.S. In that case, they can apply for an Individual Taxpayer Identification Number (ITIN) through the Internal Revenue Service of the U.S. and then file a 1040NR form.
Canadian income taxes must be paid only if you are a professional gambler. You could be subject to a fine imposed by the CRA if you fail to file a tax return that includes the required information about your gambling profits. If you do need to pay taxes as a result of your gambling, it is recommended you seek the professional advice of an accountant.
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