Gambling Taxes: The Canada-US Tax Treaty
It’s a fact: Canadians like to gamble. Whether we’re hitting the local casino for the night, or taking a jaunt down to Las Vegas for a week, we love the thrill of a game of chance, and the possibility that this time, just maybe, we’ll be the ones to win big. Of course, the culture surrounding gambling differs slightly between Canada and the US, and there is one significant difference that often blindsides Canadians visiting US casinos: the gambling winnings tax.
In Canada, gambling winnings, be they from casino games or from playing the lottery, are generally not considered a taxable source of income – these winnings are clearly not generated by an office, employment, or property, and barring a few anomalous instances, gambling is not considered by Canadian law to be a business. It relies too much on chance, and almost no one is capable of making a steady income at gambling. So for Canadians gambling at home, what we win is what we get, whether it’s $100 from playing quarter slots, or $1,000,000 from playing a provincial lottery.
This isn’t the case in the United States. Under US law, substantial gambling winnings – which typically means wins over $1200 – on games other than blackjack, baccarat, craps, roulette, and the big-6 wheel are considered taxable income. For Canadians (and other non-resident aliens), the gambling winnings tax is 30% of the total win. This tax is withheld at the source, so while you might walk out with $100 if that’s all you win in a US casino, if you win $1500, you’ll be walking out with $1050. That’s a not-insignificant loss of money, and the more you’ve won, the more you’ll lose in casino withholding taxes.
Prior to 1996, that would have been the end of it. A Canadian gambling in the US would have to walk away from the casino with their winnings, less the gambling withholding tax, and be happy for the amount they were able to keep. However, the introduction of Article XXII of the Canada-US Tax Treaty changed this. Under the Treaty, Canadians are now allowed to deduct US-source gambling losses from their US-source gambling winnings, and obtain a casino tax refund based on that amount.
To qualify for casino tax recovery as covered by Article XXII of the Canada-US Tax Treaty, you need to be able to substantiate all US-source gambling losses. To this end, it’s a good idea to keep a diary of all wins and losses made in the US, including dates, times, locations, and amounts won and lost. Also acceptable as proof are statements issued by the casino, wager tickets, casino credit records, and bank withdrawal statements.
In order to file for casino tax recovery, you’ll need to obtain an ITIN, or Individual Taxpayer Identification Number, from the IRS if you don’t have one already, and file a non-resident tax return. This will cover your gambling wins and losses for the entire year. Improperly completing either the application for your ITIN or the tax return form can drastically lengthen the wait time, or in the latter case, potentially result in you not getting any of your money back. To prevent this, you would be well advised to engage the services of a refund management firm familiar with the process of casino tax recovery to fill and file the required forms, and to ensure that you have all the necessary documentation on hand. US Tax Recovery is a good bet for all your casino tax recovery needs.