Grey Cup wagers tax-free in Canada: Except for pro gamblers: Tax relief available for Canadians hit for Las Vegas gains

National Post


Tomorrow is Grey Cup day and at the many parties being held across Canada,
millions of dollars of wagers will be placed on the game. In fact, even the
competing provinces' two Premiers are in on the action, with Ontario's Dalton
McGuinty putting 20 pounds (nine kilograms) of "Grade A, juicy Ontario beef
steaks" on the line while British Columbia's Gordon Campbell has wagered an
equivalent amount of B.C. beef.

The good news is that whoever wins the beef can accept it tax-free -- at
least for now.

Ironically, it was Mr. McGuinty's own Liberal party that, in the run-up to
Ontario's May budget, considered taxing lottery and gambling winnings to fight
the province's multi-billion-dollar deficit. He backed off. Gambling profits in
Ontario and across Canada are tax-free.

The non-taxation of gambling or wagering is longstanding tax policy in Canada
unless the Canada Revenue Agency concludes that you are "carrying on the
business of gambling" or, in other words, you are a considered to be a
professional gambler.

While the determination of whether or not you're a gambling pro will depend
on the facts of your situation, the CRA does provide several criteria that it
uses to determine if your gambling activities constitute a "business."

They include, among other things, both the number and frequency of your bets
as well as your intention of gambling for pleasure as opposed to gambling for
profit as a means to make a living.

Have you ever wondered, however, why Canadian tax policy exempts gambling and
lottery winnings from tax whereas our neighbours to the south typically tax
lottery winnings? The Department of Finance's 2004 report titled "Tax
Expenditures and Evaluations" released earlier this month provides some insight.

According to the report, since the proceeds from the sale of lottery tickets
are an important source of funds for provincial governments, charities and other
not-for-profit organizations, "there is already a considerable element of
implicit taxation of lottery and gambling proceeds."

Years ago, the government attempted to estimate the amount of lost revenues
they were "giving up" by not taxing gambling in Canada. For example, in its 2002
report, the government projected that by 2004, the non-taxation of gambling
winnings could cost the government coffers more than $6-billion.

This year, the government declined to estimate the cost due to the difficulty
in obtaining data on total gambling payouts for non-government run lotteries and
bingos, such as casinos, video lottery terminals, horseracing and racetrack

Interestingly, under federal-provincial agreements negotiated over 25 years
ago, the federal government agreed to refrain from re-entering the field of
gaming and betting in return for ongoing payments.

Finally, there may be some tax relief available for Canadians who travel to
Vegas and find their winnings subject to a 30% U.S. withholding tax.

Under the Canada-U.S. Tax Treaty, Canadian residents can claim gambling
losses, but only to the extent of gambling winnings. To do so, you should file
Form 1040NR "U.S. Nonresident Alien Income Tax Return" reporting both your total
gambling winnings and your total gambling losses. You would then attach a copy
of Form 1042-S, "Foreign Persons U.S. Source Income Subject to Withholding"
showing the taxes withheld by the casino and wait patiently for your refund from
Uncle Sam.

GRAPHIC: Black & White Photo: Fred Greenslade, Reuters; Edmonton Eskimos players
hoist the Grey Cup following their win over the Montreal Alouettes in the 2003
CFL final. The premiers of Ontario and B.C. have each wagered steak on this
year's game.