Gambling and Lottery Winnings Cross-Border: Canada-US Tax

Canada and the US treat gambling winnings very differently, and the difference matters for anyone who crosses the border to gamble or wins a prize in the other country. Canada does not tax casual gambling winnings (they are treated as windfall income, not taxable income). The US taxes all gambling winnings as ordinary income and withholds tax at the point of payment. A Canadian who wins at a US casino or buys a winning US lottery ticket faces US withholding that may be partially or fully recoverable.

How does the US tax gambling winnings?

All gambling winnings are taxable income in the US, regardless of the gambler’s residency. For a non-resident alien (including a Canadian visitor), the casino or lottery authority withholds 30% of the winnings above certain thresholds. The withholding thresholds depend on the type of gambling:

• Slot machines: withholding applies when the winnings are $1,200 or more from a single play.
• Keno: withholding applies at $1,500 or more (reduced by the wager).
• Poker tournaments: withholding applies at $5,000 or more (reduced by the buy-in).
• Table games (blackjack, roulette, craps): generally no withholding at the point of payment, but the income is still reportable and taxable.

The casino issues Form 1042-S to the non-resident alien, reporting the gross winnings and the tax withheld.

Can I recover the US withholding?

Yes, partially or fully. A Canadian who had US gambling winnings withheld at 30% can file Form 1040-NR (US non-resident return) to:

1. Claim gambling losses as itemized deductions (up to the amount of gambling winnings). If you had $50,000 in winnings and $40,000 in documented losses during the same year, your net taxable gambling income is $10,000, and the tax on $10,000 at the applicable rate is much less than the $15,000 that was withheld (30% of $50,000). The difference is refundable.

2. Apply the graduated tax rates instead of the flat 30% rate. The 30% withholding is a flat rate; the actual tax on the net income may be lower at the graduated rates (10-37%).

The documentation requirement is strict: the IRS expects a gambling log (date, location, type of game, amount wagered, amount won or lost) and receipts. Canadian casinos do not issue tax slips for winnings (because Canada does not tax them), so the burden of proof for losses at Canadian casinos rests on the taxpayer’s own records.

Does Canada tax US gambling winnings?

For a casual gambler, no. Canada treats gambling winnings as a windfall, not income, under the general principle in IT-334R2. A Canadian resident who wins at a US casino does not include the winnings in their Canadian income, even if the US withheld tax on them.

However, if gambling is a business activity (professional gambling, poker as a primary income source), the CRA may treat the winnings as business income. The test is whether the activity has the characteristics of a business: systematic effort, organization, pursuit of profit, and a business-like manner of operation. Professional poker players and sports bettors who treat gambling as a livelihood may find their winnings taxable in Canada.

If the winnings are taxable in Canada (because they are business income), the US withholding is creditable as an FTC on the Canadian return.

What about US lottery winnings?

US lottery winnings (Powerball, Mega Millions, state lotteries) paid to a Canadian resident are subject to 30% US withholding. The treaty does not reduce the rate on lottery winnings. The winnings are not taxable in Canada (windfall income), so there is no Canadian FTC to claim for the US withholding.

A Canadian who wins a US lottery can file Form 1040-NR to claim losses (if any, from gambling during the year), but lottery tickets purchased are not deductible as gambling losses on the 1040-NR for non-residents (a limitation specific to non-resident aliens). The 30% withholding on a large lottery prize is therefore a permanent cost for a Canadian winner.

What about Canadian lottery winnings for US residents?

If a US resident wins a Canadian lottery, the winnings are not taxed by Canada (Canada does not tax lottery winnings regardless of residency). However, the US taxes the winnings as ordinary income on the US return. The winner reports the winnings on Form 1040, converts to USD, and pays US tax at ordinary rates. No Canadian tax was paid, so no FTC is available.

What about online gambling?

The source rules for online gambling are complex. If the server is in the US or the casino is US-based, the winnings may be US-source income subject to US withholding. If the server is offshore, the withholding and reporting rules depend on the platform’s jurisdiction and its reporting obligations.

For a Canadian using a US-licensed online gambling platform, the platform may withhold 30% on winnings above the thresholds, the same as a physical casino. The recovery process (Form 1040-NR) is the same.

What should I do next?

If you gamble across the border, keep a detailed log of all sessions (dates, locations, amounts wagered, amounts won and lost). If you had US winnings with 30% withheld, consider filing Form 1040-NR to recover the excess withholding by claiming gambling losses. The filing deadline is June 15 for non-resident aliens (with an extension to October 15 available).

• Cross-border tax return cost, what filing the 1040-NR costs
• Filing deadlines for cross-border returns, the June 15 NRA deadline
• Substantial presence test, whether frequent border crossings create US residency

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.