On this page
- What Article XXII(3) of the tax treaty between Canada and the U.S. Says About Gambling Losses
- Why Canada’s Treaty Provision Is Different From Every Other Country’s
- What Losses Qualify Under Article XXII(3)?
- How the Loss Offset Changes Your Refund Amount
- Why the Treaty Benefit Is Never Applied Automatically
- What You Need Before the Treaty Offset Can Be Claimed
- Frequently Asked Questions
What Article XXII(3) of the tax treaty between Canada and the U.S. Says About Gambling Losses
Article XXII(3) is the part of the tax treaty between Canada and the U.S. that deals with gambling losses. It allows Canadian residents to deduct documented U.S. gambling losses against their U.S. gambling winnings in the same tax year, which reduces the tax they owe and sometimes removes it. It is not a full exemption from U.S. gambling tax. It is a loss-offset right, and it only applies when you claim it correctly.
At U.S. Tax Recovery, we apply this treaty provision for our Canadian clients when we prepare and file their refund claims. Citing the article precisely, and documenting the losses properly, is what determines how much of the withheld 30% can be recovered.
Why Canada’s Treaty Provision Is Different From Every Other Country’s
Most countries that have a tax treaty with the United States have no specific language on gambling income. Their residents recover withheld casino tax, if at all, through general nonresident rules, with no treaty shortcut for losses.
Canada’s treaty is different. Article XXII(3) gives Canadian residents the same loss-deduction treatment that U.S. residents receive for gambling. A Canadian who lost money at U.S. casinos in the same year a jackpot was withheld can apply those losses to reduce taxable winnings, just as a U.S. resident would. No other country’s treaty with the United States includes this gambling carve-out in the same way.
This is the legal foundation behind most Canadian casino tax refund claims. Without it, Canadians would owe tax on the full gross winnings and could net losses only against winnings from the same session.
What Losses Qualify Under Article XXII(3)?
Only losses from U.S. gambling in the same tax year as your winnings can be applied. The rules are specific, and understanding them early helps avoid mistakes that reduce your refund.
What counts
- Losses at U.S. casinos during the same calendar year as the jackpot that was withheld
- Losses from any type of U.S. gambling, such as slots, table games, poker, keno and bingo, as long as they are documented
- Losses from several U.S. properties in the same year, each supported by a win-loss statement from that property
What does not count
- Losses at Canadian casinos, because the treaty only covers U.S.-source gambling
- Losses from a different tax year, since losses cannot be carried forward or backward
- Untracked losses, because play without a player’s rewards card produces no casino record and generally cannot be supported
- Self-reported figures with no independent documentation, because the IRS does not accept your own estimate
One important limit is that losses can reduce your taxable gambling income to zero but cannot create a net negative figure. Article XXII(3) allows an offset, not a deduction that generates a refund beyond what was withheld.
How the Loss Offset Changes Your Refund Amount
The 30% the casino withheld is based on your gross winnings, not your net result for the year. Article XXII(3) lets you recalculate what you actually owe based on net winnings after losses, and the difference between what was withheld and what you owe is what can come back as a refund. The IRS decides the outcome.
| Scenario | Without Treaty Offset | With Article XXII(3) |
|---|---|---|
| Gross slot winnings | Taxed at 30% | Losses subtracted first |
| Documented U.S. losses same year | Not considered | Applied against winnings |
| Taxable amount | Full gross winnings | Net winnings (or zero) |
| Refund potential | Little or none | Some or all of the 30% withheld |
The size of the offset depends on how well your losses are documented. A win-loss statement from every U.S. casino you visited that year is the most accepted form of evidence. Our guide on using a casino win-loss statement on your U.S. return explains what the IRS looks for.
Why the Treaty Benefit Is Never Applied Automatically
The casino does not apply Article XXII(3) at the cage. It withholds 30% of your gross winnings and issues you a Form 1042-S, and that is all it is required to do. The treaty offset only comes into play when a return is filed that cites the article and includes the supporting documentation.
If no return is filed, the IRS keeps the withheld amount. There is no automatic review, no refund issued without a claim, and nothing that applies the treaty on your behalf. Time limits for claiming a refund depend on the tax year and are checked case by case, and once a limit passes, the withheld amount stays with the IRS.
One practical reason to work with our team: the treaty article has to be cited correctly, the figures on your return have to match your Form 1042-S, and the loss documentation has to stay within the limits Article XXII(3) permits. A missing citation or a mismatched figure can lead to extra IRS review. You can read our complete refund process from start to finish to see how each step fits together. As an IRS Certifying Acceptance Agent, we also verify your passport in our office, so you never have to mail your original passport to the IRS.
What You Need Before the Treaty Offset Can Be Claimed
Several documents need to be in order before a return that applies Article XXII(3) is prepared.
- Form 1042-S from the casino, showing your gross winnings and the 30% withheld. Every 1042-S from every U.S. property in the same tax year is needed.
- Win-loss statement from each U.S. casino you visited in the same year, covering the full calendar year. This is the primary evidence for your loss deduction.
- A valid ITIN. The IRS requires a taxpayer identification number on every return it processes. A Canadian visitor who is not authorized to work in the United States is not eligible for a U.S. Social Security Number, so an ITIN is required. If you have an existing ITIN, it may have been deactivated after three consecutive years without use.
- Proof of Canadian residency, to establish your eligibility under the treaty.
For a closer look at what a 1042-S contains, our guide on what IRS Form 1042-S reports covers the form.
Frequently Asked Questions
Can I use losses from a Canadian casino to offset my U.S. winnings under Article XXII(3)?
No. Article XXII(3) of the tax treaty between Canada and the U.S. only permits the deduction of U.S. gambling losses against U.S. gambling winnings. Losses at Canadian casinos, even in the same tax year, do not qualify. The loss must come from U.S. gambling and be backed by an accurate diary or similar record plus receipts, tickets, statements or other records. A U.S. casino win-loss statement is the most common support.
What if my documented losses are larger than my winnings?
Article XXII(3) allows losses to reduce your taxable gambling income to zero, but not below. For tax years before 2026, if your documented U.S. losses for the year equal or exceed your U.S. winnings, your taxable amount is zero and a full refund of the withheld tax may be possible, but the excess losses do not generate an additional refund or carry over to another year. From 2026 only 90 percent of your losses are deductible, so your losses must be at least about 111 percent of your winnings to bring the taxable amount to zero.
Does Article XXII(3) apply to all types of U.S. gambling winnings?
Yes, for winnings that are taxed. The treaty provision covers U.S. gambling income broadly, such as slots, poker tournaments, keno and bingo. Winnings from blackjack, baccarat, craps, roulette and the big-6 wheel are not taxed for nonresident aliens at all, so they are left off the return. The type of game does not change your eligibility to apply the loss offset. What matters is that both the winnings and the losses occurred at U.S. venues in the same tax year and are properly documented.
Disclaimer: This article is for general informational purposes only and does not constitute tax, legal, or financial advice. Tax rules change; consult a qualified tax professional regarding your specific situation. U.S. Tax Recovery services are subject to individual eligibility.
