Are gambling winnings taxable in Canada? Not as winnings, unless gambling is a business

Lottery and gambling winnings in Canada are not taxable income as winnings; they become taxable only when gambling is the winner’s business or the prize is really another kind of income. The tax result turns on how the person gambles and on the role of skill in the game, not on the product’s label: a lottery prize, a pari-mutuel payout or a poker pot is not taxable for a person for whom gambling is a pleasurable pursuit, and is business income for a person whose gambling is found, as a question of fact, to be a business.

Why a winning ticket or bet is not income

A windfall is not subject to tax under the CRA’s administrative position, effective July 3, 2020; gambling-business income is one of the listed exceptions. A prize from a lottery scheme is not taxable as income or as a capital gain, unless the circumstances make it employment, business or property income, or a prize for achievement under paragraph 56(1)(n).

The Income Tax Act closes the capital-gains route. Paragraph 40(2)(f) sets at nil the gain or loss from disposing of a chance to win a prize or bet, or a right to receive winnings, in connection with a lottery scheme or a pool system of betting under section 205 of the Criminal Code. The CRA treats a pool system of betting as a pool on two or more professional athletic contests or events, separated from a lottery by the skill involved in picking outcomes.

Where government’s share of gambling comes from

Government’s main share of gambling comes out of the money wagered rather than out of recreational players’ winnings. Criminal Code s. 207(1)(a) lets a provincial government conduct and manage a lottery scheme, which is the legal basis for crown lotteries. In Statistics Canada’s 2011 measure, gambling revenue was all money wagered on provincial and territorial government-run lotteries, casinos and VLTs, less prizes and winnings, excluding charity and on-reserve gambling.

In British Columbia, the British Columbia Lottery Corporation (BCLC) reported net income of $1.373 billion for 2025/26 and remits all net income to the Province. OLG in Ontario also paid $436 million to the Government of Canada in 2024-25 for GST/HST and for not participating in the sale of lottery tickets.

Horse racing: a levy on the pool, not on the bettor

Pari-mutuel betting, as OLG describes it, pools all bets of the same type and pays out based on the number of winners and the total wagered, so bettors bet against each other rather than the house. Criminal Code s. 204(4) requires the operator of each pool to pay the Receiver General a levy of one-half of one per cent of the total bet, or a greater fraction up to one per cent fixed by the Governor in Council. Under s. 102(1) of the Pari-Mutuel Betting Supervision Regulations, an association may deduct and keep up to 35 per cent of each pool; under s. 102(2.1), it may not deduct more than the percentage for that pool set out in its permit or authorization.

The Criminal Code’s definition of a lottery scheme in s. 207(4) excludes bets on any horse-race, including pari-mutuel bets. Horse-race winnings follow the same gambler-based test as other gambling: for a bettor whose betting is a pleasurable pursuit they are not taxable, and betting carried on as a business produces business income.

The professional-gambler tests

In Stewart v. Canada (2002 SCC 46), the Supreme Court of Canada held that a venture with elements of a hobby or personal pursuit is a source of income only if carried on in a sufficiently commercial manner, with both a subjective intention to profit and evidence of businesslike behaviour.

Whether a person carries on a gambling business is a question of fact, and the CRA weighs four factors: the degree of organization, special knowledge or inside information that reduces the element of chance, whether the person gambles for pleasure or for a livelihood, and the number and frequency of bets. The CRA treats profits from bookmaking or from operating a gambling establishment, legal or not, as business income.

In Leblanc v. The Queen (2006 TCC 680), Bowman C.J. sorted gambling cases into three categories. Gambling as a pleasurable pursuit is not taxable, even when regular, compulsive or systematic. Gambling gains have been held taxable where the gambling is an adjunct of a business, such as a casino owner gambling in his own casino, and where a person uses expertise and skill to earn a livelihood in a game where skill is significant.

Why volume at games of chance does not create a business

The Leblanc brothers bet on sports lotteries in Ontario and Quebec on a large scale, and the Tax Court allowed their appeals for 1996 to 1999. Its reason: “Betting on games of pure chance, like lotteries, simply lacks the badges of trade.” In an exceptional case, Luprypa (97 DTC 1416), a pool player who challenged inebriated opponents while sober was held taxable on his winnings.

Poker cases: taxable and non-taxable

Poker appears on both sides of the business-income line, so the game alone does not decide the result. In Cohen (2011 TCC 262), a lawyer left practice to play poker full-time and sought to deduct his losses; the Tax Court held his poker was not a business, noting no professional training, no business plan and little record keeping. In Duhamel (2022 TCC 66), the Tax Court held that the 2010 World Series of Poker Main Event winner’s winnings were not business income because he used no risk-management system.

According to the Supreme Court of Canada’s case summary, the Tax Court largely rejected the arguments of D’Auteuil, Fournier-Giguère and Bérubé and found their net poker earnings for 2008 to 2012 to be taxable business income, and the Federal Court of Appeal dismissed their appeals in 2025 FCA 112 (June 10, 2025). On June 4, 2026, the Supreme Court of Canada dismissed their applications for leave to appeal, with costs.

Deducting gambling losses

Paragraph 40(2)(f) sets losses on lottery and pool-betting chances at nil. Benjamin Alarie’s 2011 survey of Canadian gambling tax cases found no case in which a taxpayer successfully deducted gambling losses as business losses. In Leblanc, Bowman C.J. said that taxing frequent lottery players’ winnings would logically require allowing their losses, and called that a policy question for Parliament.

Annuity, non-cash and disguised prizes

A lottery prize paid as an annuity has an initial cost equal to its fair market value. For prescribed annuity contracts and others outside the accrual rules, the payments come into income under paragraph 56(1)(d), with a deduction under paragraph 60(a) for the capital portion. Take a $10,000 annual payment with a $9,000 capital portion: $10,000 is included and $9,000 deducted, so $1,000 is taxed.

Under subsection 52(4), a lottery winner is deemed to acquire a prize at its fair market value when won. Take a car worth $50,000 when won and later sold for $55,000: the win is untaxed, and the sale is measured from a $50,000 cost, not from zero.

Prizes won outside a lottery or pool betting fall into three groups. A gift is not taxed on receipt and is deemed acquired at fair market value. A prize received through employment, business or achievement in the recipient’s usual field is income. A prize won after paying an entry fee is not taxed on receipt, and the fee is its cost on a later sale.

Quebec: the same rule, costed

Quebec counts the non-taxation of lottery and gambling winnings as a personal income tax expenditure (2025 publication), introduced in 1972, harmonised with the federal rule and based on section 293 of the Taxation Act. Quebec’s stated objective for the exemption is that lottery and gambling winnings come from chance and are not a recurring source of income. In Quebec, the return portion of a prize paid in instalments is taxable income. Quebec’s finance ministry, in its 2025 tax-expenditure publication, projects the maximum Quebec personal income tax cost of the exemption at $496.4 million for 2026.

Winning in the United States

Under IRS Publication 515 (2026), the United States withholds 30% of the gross proceeds of most gambling won there by nonresident aliens unless the income is effectively connected with a US business or exempted by treaty. No US tax is imposed on a nonresident’s nonbusiness winnings from blackjack, baccarat, craps, roulette or big-6 wheel. Article XXII(3) of the Canada-US tax convention lets a Canadian resident taxed by the US on wagering gains deduct wagering losses to the extent a US resident could. It does not stop the withholding; the Canadian files a nonresident US return to claim a refund.