Taxes On Sports Betting? This Is The Direct Answer

Disclaimer: I am not a financial or tax advisor. You are trading at your own risk and should consult a financial and tax advisor for any investment decisions and decisions that affect tax returns. Do your own due diligence when considering investing, and this information is for education/informational purposes only. The article “Taxes on Sports Betting? This is the Direct Answer” and “do you have to pay taxes on sports betting” serves as educational content, not investing or tax advice.

Cover image by Image by Clarence Alford from Pixabay

How about those sports betting taxes eh? You know, I was wondering the other day whether or not sports betting winnings are taxable. The thought crossed my mind as now we have the NHL season starting, and I was looking into the different odds for games on the first night.

Generally, the understanding was that there were no taxes that needed to be paid on those winnings. But is this true? Are certain gambling winnings we may be required to pay taxes on them?

Well, that’s what I’m diving into. I’ve been requested to do some more content around taxes, so if you want to see other topics relating to that, please let me know in the comments or on Instagram.

Without further a due, let’s get into the topic at hand.

is gambling tax-free?

As I had mentioned, the general understanding was gambling income is tax free. Meaning you won’t have to reporting winning on yearly returns. At least for those who are just gambling for recreational or pleasure purposes. Well, I can state that this is true. You are not required to pay taxes on your gambling winnings.

The reason it is tax-free is that the Canada Revenue Agency can’t find a consistent legal determination to require taxpayers to report their gambling winnings on their income tax returns, at least according to Turbotax.

when do you have to pay taxes on sports betting?

So, there are certain instances where people may be required to pay taxes on their earnings from sports betting?

 Yes, there are. There are some criteria that the Canadian Revenue Agency reviews before they determine as to whether an individual should pay taxes:

  1. The degree of organization that is present in pursuit of the activity by the individual
  2. The existence of special knowledge or insider information that enables the individual to decrease the element of chance of winnings
  3. The individual’s intention to gamble for pleasure versus with the intent to gamble for profit as a means of livelihood, and
  4. The extent of the individual’s gambling activities, based on the number and frequency of bets

These criteria do indeed increase the chance that the CRA will require an individual to pay taxes on their winnings.

Seemingly as a given, those who are just gambling for their livelihood will be most affected by this criterion. But then again, we probably both expected that you wouldn’t go away scrape free from the CRA if you are betting as a source of livelihood.

Additionally, those who carry out gambling operations, like owning a casino, will be required to pay income taxes. This is because the CRA would consider these operations as a business.

how much taxes do you pay on sports betting?

So let’s say an individual has to pay taxes on their earnings. Well, how much taxes would they strictly have to pay? What’s the tax rate?

Well, according to Mondaq, gambling winnings, if met by the applicable criteria, will be considered business income for tax purposes. The keyword here is the gambling winnings. Wouldn’t it make much sense to include the amount in the bet on your end now, would it?

But with this information, we know that the gambling winnings are taxed at their total amount, rather than by 50% like a capital gain would be.

So then, it all comes down to how many winnings you will earn during a year. Those winnings will be subject to the federal and provincial income tax rates, which will determine the amount of tax you owe.

Example:

To include an example, let’s say we have Serge, a professional gambler and sports bettor who lives in Manitoba. Throughout the course of a given year, he has earned around $67,000 in gambling winnings.

The winnings are his primary source of income.

calculation of sports betting taxes

We’ll see that we calculate both the provincial and federal income taxes based on the tax rates for each applicable tax bracket.

Therefore, Serge will need to pay this $18,923.80 amount to the government. Maybe instead, we will say that Serge pays 28.24% tax on each of his winnings. So anytime he earnings $100, $28.24 goes directly to the government. Woohoo!

I calculated this amount by simply taking the total taxes he owes ($18,923.80) and divided it by the earnings he has endured ($67,000).

The capital gains method would be much more sufficient for these individuals as they would be required to pay much less in tax. Capital gains are typically taxed at 50%, meaning 50% of winnings would be reported as taxable income to the CRA.

Yet, this is not the method they enforce, and no, I do not know how to find a loophole for earnings to be taxed based on a capital gain basis.

how to pay taxes on sports betting

So, now that someone has to pay taxes on their sports betting winnings when required to make these payments are? Because it is considered likely that they did not pay taxes after each of their winnings.

Well, just like paying income taxes after a tax return, you are required to make the payment on the prescribed date. For 2020 taxes, the date was April 30, 2021.

So as we advance for the 2021 tax year, if nothing has been extended, the date will likely be April 30, 2022.

There are a couple of different methods that you can use to pay such taxes:

If you’re looking to pay online:

  • Online banking
  • Interac Debit, Visa Debit, or Debit Mastercard
  • Pre-authorized debit (PAD)
  • Credit card, debit card, PayPal, or Interac e-Transfer
  • Wire transfer

Ensure that you keep any receipts or other information related to the transaction in case an error occurs on someone’s end.

If you’re looking to pay in person:

  • Pay at a Canadian bank, financial institution, or credit union
  • Pay at a local Canada Post location

Instead, if you are old fashioned and want to pay via mail:

  • Cheque or money order.

To ensure you paid before the deadline, it may be helpful to ensure you do your taxes as soon as possible. And always remember, for tax consulting or advice, please always consult a professional tax experts.

How much money can you win gambling without paying taxes?

Well, suppose you are doing this for recreational purposes. In that case, I think I made it very clear that individuals that play recreationally or do not meet the criteria mentioned above do not need to pay taxes on their gambling winnings.

As for those who do it for a livelihood, then well, I don’t believe there to be a certain amount that can be exempt from taxes. All winnings would be subject to tax based on the applicable brackets and how much one earns.

However, if someone recreationally played and won around $100,000, whom that be taxed? That is honestly a difficult question to answer. The criteria mentioned above are usually what the CRA refers to decide on who should pay taxes.

Yet, lottery winnings are usually exempt from tax. We all know that there are people who win millions one-time.

So, if this is a continuing pattern and you are consistently winning much money each day or week from sports betting, well, I wouldn’t hold my breathe that the CRA would want a slice of that pie. Even I would like a cut of it.

In challenging situations like those, it’s best to speak with a tax advisor or CPA to prepare for what tax burden that could bring fully.

Can you claim gambling losses on your taxes?

I believe in this case, yes, you can primarily if you operate casino activities. Since the CRA is likely to consider that as a business and subject income as business income and/or revenues, it is expected they would subject losses as business losses.

Likely even as a professional sports bettor, your losses would help offset some of the gains you would have made throughout the years. The only disadvantage is that if you reported losses on your income related to gambling, well, then you had an abysmal year and have earned no money throughout it.

I’m assuming even as an individual that you can claim losses because you can claim or deduct gambling losses on your tax returns. As a sole proprietor, you can claim income and deduct losses on your tax returns. You are not required to do a tax return as a business. It would be all included with your other individual incomes. Instead, you would do a tax return if you formed another type of business, such as a partnership or corporation.

Do casinos take taxes out of winnings?

I thought this was an interesting question for me to include in a very related article. From what I have briefly researched through the course of the post, I can say no. Those who play recreationally do not need to pay taxes.

Even if you’re betting on sports online through a particular gambling company, they typically will not withhold any winnings you earn for tax purposes.

As for in-person, I do believe it is the same. When you cash out at a casino, they should hand you the total winnings you have earned.

An individual may need to pay tax eventually through the criteria above, but you should understand that now. 

Concluding Remarks

Who knows, maybe in a couple years, there will be a tax reform where the government wants to include taxing gambling winnings on tax returns. Then maybe we will see some new forms of tax deductions. Nothing seems impossible.

Just note, that while I do focus on sports betting as a whole here, all of this information applies to professional gamblers and recreational ones who play online casinos, online poker, or other forms of online gambling, including horse racing.

So, do you bet on sports? Let me know down below in the comments section.

I imagine that a majority of those who end up reading this already know that Canadians don’t pay taxes on winnings through sports betting or gambling in most cases. It’s one of those little facts about tax that many people know.

Yet, I hope this article served to educate you, and you learned something new from it, even if it is true that those who play recreationally don’t pay tax.

Please consider checking out some of my other content throughout the blog and follow me on social media.

I also decided to analyze 100 different virtual basketball games to understand an excellent strategy to use. Check that out here.

Disclaimer: I am not a financial or tax advisor. You are trading at your own risk and should consult a financial and tax advisor for any investment decisions and decisions that affect tax returns. Do your own due diligence when considering investing, and this information is for education/informational purposes only. The article “Taxes on Sports Betting? This is the Direct Answer” and “do you have to pay taxes on sports betting” serves as educational content, not investing or tax advice.

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