Are gambling winnings taxable in Canada? The windfall rule and its exceptions

Why is a jackpot not income in Canada?

Section 3 of the Income Tax Act brings income from all sources into your tax return, and the word that matters is source. A windfall has no source in the tax sense, and the CRA's Income Tax Folio S3-F9-C1 says plainly that an amount received as a windfall is not subject to tax. The folio adds that a lottery prize is generally neither income nor a capital gain unless the circumstances make it employment, business or property income, or a prize for achievement.

The CRA's own page on amounts that are not reported or taxed lists lottery winnings of any amount in the same way. There is no threshold: a C$500 slot hit and a C$5 million lottery prize sit in the same box. Nothing goes on your T1 and you do not keep a running tally of wins and losses for the CRA.

The flip side is that recreational losses are not deductible. Paragraph 1.12 of the folio says gambling can produce business income or a business loss only where it amounts to carrying on a gambling business. A losing year at the tables is a personal expense, like any other entertainment.

When does the CRA treat gambling as a business?

Paragraph 1.13 of the folio quotes the Tax Court in Leblanc v. The Queen, 2006 TCC 680: gambling, even regular, frequent and systematic gambling, is by its nature not generally regarded as a commercial activity except under very exceptional circumstances. Paragraph 1.14 says the exceptional cases involved taxpayers who applied inside information, knowledge and skill.

Paragraph 1.15 then lists the factors the CRA weighs. No single one decides the question:

• The degree of organization in the gambling activity;
• Special knowledge or inside information that reduces the element of chance;
• Whether the person gambles for pleasure or for profit as a means of earning a livelihood;
• The extent of the activity, including the number and frequency of bets.

The Supreme Court of Canada's broader test in Stewart v. Canada, 2002 SCC 46, sits behind this: does the taxpayer intend to carry on an activity for profit, and is there evidence to support that intention? For games of pure chance the answer is almost always no. Paragraph 1.12 notes that lotteries lack the badges of trade.

What did the courts decide in the leading cases?

Leblanc: big numbers are not a business

Brian and Terry Leblanc bet on government-run sports lotteries on a scale that the court called massive: they testified that C$200,000 or C$300,000 in a week was not unusual and estimated C$10 to C$13 million a year, with about 95% of bets lost. Each brother's agreed net winnings ran from C$418,178 to C$875,874 a year. Chief Justice Bowman found no system that reduced risk; buying large numbers of long shots was, in his words, the antithesis of minimizing risk. The appeals were allowed.

Luprypa: skill against chance

The folio's example of the exception. The taxpayer practised snooker in the afternoons and, late in the evening, played bar patrons who had been drinking while he stayed sober. Skill reduced the role of chance, and the court held his winnings taxable.

Cohen: when the player wants to be a professional

A Toronto associate lawyer left practice to play poker full time in 2006 and tried to deduct business losses of C$121,991.43. Justice Pizzitelli dismissed the appeal: there must be more than the hope of winning, namely a planned and reasonable expectation of winning more than losing. Owning poker books did not make him a professional, any more than heavy ticket buying made the Leblancs a business.

Radonjic and Duhamel: poker winners the CRA wanted to tax

Peter Radonjic had reported his online poker winnings to be safe, then asked the CRA to reverse them. The Federal Court quashed the refusal, finding nothing that set him apart from the usual enthusiastic and ever-hopeful poker player. In Duhamel, the 2010 World Series of Poker Main Event champion was reassessed for 2010 to 2012. Justice Lafleur held that his poker activities were not conducted in a sufficiently commercial manner, so his net gains stayed out of income for those three years.

So are poker players treated differently?

Not by rule. The Federal Court in Radonjic put it this way: there is no principle that the fruits of gambling cannot be taxable; it depends on whether the gambling is conducted in a sufficiently commercial manner. Poker involves more skill than a slot or a lottery, which is why the CRA keeps arguing these files. So far the reported poker cases have gone the player's way when the CRA wanted to tax, and against the player when he wanted to deduct losses. The factors in paragraph 1.15 still apply one player at a time, so a record of steady, organized, skill-driven profit is exactly what the CRA would point to.

Being the house is a different matter. Paragraph 1.11 of the folio treats profits from bookmaking or from operating a gambling establishment as business income, whether the operation is legal or not, and says earnings from illegal gambling are not exempt from tax.

Is the interest on your winnings taxable?

Yes. The CRA's page on non-taxable amounts says income earned on lottery winnings is taxable, and gives the example of interest from investing them. The prize itself stays tax-free; everything it earns afterwards is ordinary investment income.

A worked example, with an assumed rate for illustration only: you win C$50,000 and leave it in a savings account paying 3% a year.

• Interest for the year: C$50,000 × 3% = C$1,500.
• The C$50,000 is not reported. The C$1,500 is reported as interest income.
• Next year the interest is taxable again, on whatever balance the account holds then.

The folio also covers prizes paid out over time. Where a prize takes the form of an annuity, the annuity payments are taxed under the annuity rules in paragraphs 56(1)(d) or 56(1)(d.1), with the starting cost based on the annuity's fair market value when you acquired it. If you are deciding how to claim a large provincial lottery prize, our guide on lottery prize claims and publicity covers the steps before the money arrives.

What happens when you win in a US casino?

The US taxes nonresidents on gambling won there, and it collects at the source. IRS Publication 515 says nonresident aliens are generally subject to 30% withholding on the gross proceeds of gambling won in the United States, reported on Form 1042-S. Canada is not on the IRS list of treaty countries whose residents are exempt from US tax on gambling income.

Two things work in your favour:

• Table games are exempt. Publication 519 says no US tax is imposed on non-business gambling income a nonresident alien wins at blackjack, baccarat, craps, roulette or big-6 wheel. Slots, keno, lotteries and sports bets are not on that list.
• Canadians can deduct losses. Article XXII(3) of the Canada-US tax convention lets a Canadian resident deduct US wagering losses against US wagering gains, but only to the extent a US resident could deduct them. The US Treasury's technical explanation adds that this does not stop the 30% being withheld up front; you recover it by filing.

About Form W-8BEN: Publication 515 says it is not required to get the table-game exemption, but a payer may ask for one for Form 1099 reporting and backup-withholding purposes. Handing it over certifies that you are a foreign person. It does not by itself get you the loss offset, which only comes through a return.

How do you get the US withholding back?

You file Form 1040-NR for the year of the win. The 2025 instructions say a resident of Canada who is not in the business of gambling enters all gambling winnings, including lottery and raffle proceeds but excluding the table games above, on line 10a. US-source losses go on line 10b, deductible up to the winnings, and the net goes on line 10c. A net loss is not deductible.

A worked example. You hit a US$10,000 slot jackpot in Nevada and US$3,000 (30%) is withheld. Over the same year you have US$4,000 of documented US slot losses.

1. Winnings on line 10a: US$10,000.
2. Losses on line 10b: US$4,000.
3. Net on line 10c: US$10,000 − US$4,000 = US$6,000, taxed at the 30% rate: US$1,800.
4. Already withheld: US$3,000. Refund claimed: US$3,000 − US$1,800 = US$1,200.

From the 2026 tax year, US Publication 505 says the itemized gambling-loss deduction is limited to the lesser of 90% of losses or winnings. Because the treaty ties your deduction to what a US resident could claim, check the Form 1040-NR instructions for the year you file. On the same numbers, a 90% cap would allow US$3,600 of losses: tax on US$6,400 is US$1,920, and the refund falls to US$1,080.

Practical points for the claim:

• Keep the Form 1042-S the casino issues; the 1040-NR instructions require proof of the withholding you are claiming back.
• Keep a record of losses: the IRS says you need an accurate diary or similar record plus receipts, tickets or statements that show both.
• You need a US identifying number on the return. If you do not have one, the IRS issues an ITIN through Form W-7.

If the payout comes in US dollars and you bring it home, the conversion cost is a separate leak; our piece on USD accounts and conversion fees works through it.

What about winnings from Canadian online casinos?

The same windfall rule applies to the regulated sites in your province, whether that is Ontario's licensed market or a provincial lottery site. The folio does not distinguish by venue or channel; the question is always whether you were carrying on a business. This article explains the CRA's published position and the case law. It is not tax advice for your situation; if your gambling looks like the factors in paragraph 1.15, talk to a tax professional before you file.