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Taxes for Online Gambling

Taxes for Online Gambling

Gambling taxation in Canada is unique, as casual players typically enjoy tax-free winnings, while professional gamblers and casino operators face specific tax obligations. Understanding these rules is crucial to ensuring compliance and avoiding unnecessary liabilities. In this guide, we’ll break down tax laws for Canadian players, professional gamblers, and online casino operators, along with taxation on U.S. gambling winnings and deductions. Let’s start by examining how taxes apply to players.

Everett Campbell
Written by Everett Campbell - Updated 2025-02-27 - Reading time: 4 minutes.

What taxes do Canadian players have to pay?

For Canadian players, there’s excellent news regarding gambling taxes. Winnings from online gambling are generally not subject to taxation. The Canada Revenue Agency (CRA) considers gambling as a recreational activity rather than a source of regular income, making it tax-free for casual players. However, there are specific scenarios where taxes may apply.

Professional gamblers who rely on gambling as their primary source of income are treated as freelancers, and their earnings are taxable. The CRA assesses gambling as a business if a player consistently profits from skilled play, such as in poker. Taxes are calculated based on net earnings, meaning professional players can offset losses against winnings to reduce taxable income.

Interest on winnings must be reported. If you invest gambling winnings into an interest-bearing account or assets that generate taxable income, the interest earned is taxable and must be declared on your tax return.

U.S. gambling winnings are subject to taxation. The United States withholds a 30% tax on gambling winnings exceeding $1,200 for non-residents. However, Canadians can reclaim a portion of this tax by filing a U.S. tax return and claiming benefits under the Canada-U.S. tax treaty.

For casual players, the rules are simple: gambling winnings remain tax-free unless they generate taxable interest or are earned in jurisdictions with withholding taxes.

How are online casino operators taxed?

Online casino operators in Canada are subject to taxation based on provincial regulations. While taxation varies by province, operators generally face a 20% tax on gross revenue. This means if a casino generates $1,000,000 in revenue, it owes $200,000 in taxes, regardless of operating costs.

Casinos can reduce their taxable income through deductions. Eligible deductions may include operational expenses, software licensing fees, and marketing costs. These deductions help lower the effective tax rate, making the system fairer for operators.

Unlike some countries that impose taxes on both operators and players, Canada’s taxation system is considered balanced. It encourages a thriving online casino industry while ensuring tax compliance without double taxation.

The CRA acting slowly

The Canadian Revenue Agency (CRA) has been criticized for its slow processing of gambling-related tax matters, particularly for professional gamblers. Due to administrative delays, some players avoid declaring their earnings, but this is not advisable. Failure to comply with tax laws can lead to legal consequences, including penalties and interest on unpaid taxes.

For professional gamblers, understanding tax obligations is crucial. While CRA processing may be slow, accurate reporting ensures compliance with Canadian tax laws and prevents future legal issues.

Casual players can continue gambling without tax concerns as long as they are not engaging in gambling as a business.

Questions about gambling taxes in Canada

  • Are gambling winnings taxable in Canada?

    No, gambling winnings are not taxable for casual players in Canada. However, professional gamblers and any interest earned on winnings must be reported.

  • Do professional gamblers pay taxes in Canada?

    Yes, professional gamblers are considered freelancers and must pay taxes on their net earnings. Losses can be deducted to reduce taxable income.

  • How are Canadian players taxed on U.S. gambling winnings?

    The U.S. withholds 30% tax on gambling winnings for non-residents. However, Canadians can file a U.S. tax return and claim a partial rebate under the Canada-U.S. tax treaty.

  • What is the tax rate for online casino operators in Canada?

    Online casino operators in Canada are taxed at 20% of gross revenue. They can deduct operational expenses to reduce their tax burden.

  • Can gambling losses be deducted on taxes in Canada?

    No, casual gamblers cannot deduct losses. However, professional gamblers may offset winnings with losses when filing their tax returns.

  • How does Canada compare to other countries in gambling taxation?

    Canada has a favorable taxation system for casual players, as winnings are tax-free. Some countries impose taxes on both winnings and operator revenue, leading to higher overall tax burdens.