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

Canada and the US treat gambling winnings differently. Canada does not tax casual gambling winnings (they are treated as windfall income, not taxable income). The US taxes a US resident’s gambling winnings as ordinary income, but takes a flat 30% of a Canadian visitor’s gross winnings at the point of payment (winnings from blackjack, baccarat, craps, roulette and big-6 wheel are exempt; poker is not). A Canadian who wins at a US casino or lottery faces US withholding that may be partly or fully recoverable.

How does the US tax gambling winnings?

Most gambling winnings are taxable income in the US, whatever the gambler’s residency. For a non-resident alien (including a Canadian visitor), the casino or lottery authority withholds 30% of the gross winnings. Unlike the reporting thresholds that apply to US players (such as the W-2G slot threshold), there is no minimum: IRS Publication 515 applies the 30% to the gross proceeds. One exception matters a lot.

• Table games (blackjack, baccarat, craps, roulette, big-6 wheel): no US tax at all on a non-resident alien’s nonbusiness winnings, so there’s nothing withheld and nothing to report.

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:

• Deduct your US gambling losses (up to the amount of your US gambling winnings). Residents of Canada report winnings on Schedule NEC line 10a, losses on line 10b, and the net on line 10c, column (c), which is still taxed at the flat 30%. If you had $50,000 in winnings and $40,000 in documented US losses during the same year, your net taxable gambling income is $10,000, so the tax is $3,000 (30% of $10,000) instead of the $15,000 that was withheld (30% of $50,000). The $12,000 difference is refundable.
• The rate stays at 30%. Net gambling income of a non-resident alien isn’t taxed at the graduated rates (10% to 37%) unless it’s effectively connected with a US trade or business, so the refund comes from the losses, not from a lower rate.
• The documentation requirement is strict: the IRS expects a gambling log (date, location, type of game, amount wagered, amount won or lost) and receipts. Only US-source losses count against US winnings, so losses at Canadian casinos don’t help on the 1040-NR.

Does Canada tax US gambling winnings?

For a casual gambler, no. Canada treats gambling winnings as a windfall, not income, as explained in Income Tax Folio S3-F9-C1 (which replaced 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 and deduct US gambling losses for the year, including the cost of non-winning US lottery tickets, up to the amount of the US gambling winnings. On a large prize the losses are usually small next to the win, so most of the 30% stays with the IRS, and because Canada doesn’t tax the prize, there’s no Canadian credit to offset it.

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% of the winnings, 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 without US wages, and Form 4868 can extend it by up to 6 months, to December 15.

• 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.