For most Canadians, no: the Canada Revenue Agency does not tax lottery winnings of any amount, and casual gambling wins are treated as windfalls rather than income. The exceptions are prizes that are really income from employment, a business or property, and people who gamble as a business.
Canadian winnings
Canadians do not report or pay tax on a lottery win of any size, as long as the prize is not income from employment, a business or property. Prizes that fall outside the income rules are windfalls and are not taxed unless they are business receipts.
The tax-free status covers the prize itself, not what it earns afterwards. Interest earned once the winnings are invested is taxable income in the year it is earned, like any other interest.
When gambling is a business
The rules change for someone who gambles as a business. In that case, gains and losses must be reported as business income, and losses can count against gains. For a recreational player who plays for entertainment, this does not apply.
Winnings from the United States
US lottery or gambling winnings are not reported on a Canadian return and are not taxable in Canada. The flip side is that no Canadian credit can be claimed for US tax withheld on them.
In the United States, the standard withholding rate on such winnings for non-residents is 30 percent. Non-residents can file US Form 1040-NR to seek a refund of tax withheld beyond what they actually owe.
Here Canadians have an advantage: unlike most other non-residents, Canadian residents can deduct US gambling losses against US gambling winnings. Keeping a record of losses on the same trip can therefore reduce the tax that is finally due.
The cross-border process can be complicated. If you win a large amount in the United States, a tax professional with cross-border experience is worth the fee.
Gambling is for adults (19+ in most provinces, 18+ in Alberta, Manitoba and Quebec) and costs money; free, confidential help is available from ConnexOntario on 1-866-531-2600 or your provincial helpline.
