Canadian Rules for Winnings, Taxes and Lottery Support for American Players
The Canadian lottery is one of the most extensive and profitable lotteries in the world. All of the Canadian provinces are involved in lottery activities and lottery players enjoy a wide range of options, ranging from the interprovincial Lottery 6/49 which includes players in all provinces to the provincial 649 and Lotto Max lotteries along with a number of scratch card, poker and other smaller lottery options.
Canadians love their lottery — it’s estimated that over one quarter of Canadians over the age of 18 play the lottery more than once a week. The number of Canadian players jumps significantly when you look at the percentages of Canadians who play several times a month or even once every few months.
South of the border, American have their own lotteries in 43 of the 50 states. Still, a significant number of American citizens cross the border to play the Canadian lottery. Why? Some players think that the odds are better in Canada while others believe that they can evade American taxes by winning in Canada.
American Tax Laws
There are no income taxes on Canadian lottery winnings for Canadian citizens. Canadian tax authorities do not consider lottery earnings to be taxable for purposes of Canadian income tax. However, U.S. winners are required, by American law, to report their tax earnings to American authorities.
If you’re an American, playing in one of the Canadian lotteries, you should be aware of the process for collecting your lottery earnings.
Once you present your ticket to collect your win you can walk away with your winnings, with no upfront fees of any kind. The prizes are paid out in Canadian currency. Each province has its own rules and regulation regarding non-Canadian citizens collecting their Canadian lottery prizes. Since most non-Canadian citizens play the Ontario lottery, we will examine the OLG regulations as a guideline for what needs to be done to collect on a OLG winning ticket.
If you win less than $10,000 in the Ontario lottery you can provide the Ontario lottery with an Ontario address to which OLG will send your cheque together with your American address. It is your responsibility to claim your win, since OLG doesn’t use third parties to locate winners, and to report these earnings to the American Internal Revenue Service and pay all required taxes on those wins.
OLG will not send cheques with lottery winnings, or wire transfer prize payments to winners in the United States, since this is contrary to American postal laws.
If you won over $10,000 in the Ontario lottery you are obligated to attend the prize ceremony in Toronto at OLG headquarters.
Regulations for the other provincial lotteries are similar to those of OLG.
Different Type of Lottery and other Prize Earnings Under Canadian Tax Code
The legalities surrounding other winnings from lotteries, contest and pools vary in Canada, For the most part, Canadians can collect winnings on games of chance without fear that taxes will eat up their wins but it’s still a good idea to consult with an accountant on individual cases.
People who bet in pools are exempt from any kind of tax on their winnings. The Canadian tax code defines pool systems of betting as betting on any combination of two or more professional athletic events or contests. The tax code regards these bets as a type of wager that involves a degree of skill in selecting the outcome of the sporting event and since the prize involves cash from the pool, the winnings are not taxable.
For people who receive a prize from a give-away contest which is specifically not a pool system or lottery, the Canadian taxman will not be interested. Since the winner didn’t pay for a ticket and didn’t earn the prize through merit or skill the give-away is regarded as tax free UNLESS the winner receives the prize through a business or as an achievement in a field of endeavor. In such a case the prize could be taxable and consultation with an accountant is advised.
Employees who win a prize from their employer may find themselves paying taxes on the earnings. This is because the Canadian tax authority regards these “prizes” as a type of salary. Regardless of the form of the prize (property, additional cash, additional pension benefits, use of a car, etc), the value of the prize will be taxable under the terms of employment income. If, however, you enter a lottery scheme in which you and other employees make up a small percentage of the participants AND you don’t have any type of advantage over other participants, your prize may be considered a lottery winning and will likely be tax-free.
If you win a sizeable amount in annuities and receive the prize over time — paid, perhaps, as a specific amount each month — the interest on the annuity is taxable. The principle is a tax-free amount but the annuity payments, which include a partial return of this tax-free capital plus interest on the capital, involve a tax on the interest portion of the payments.