Gambling Losses Tax Deductible Canada

In general, it is not possible to deduct gambling losses in Canada. It may be that, if and when the Canada Revenue Agency decides to tax significant gambling winnings, it will interpret net winnings as income from a business. In the meantime, the Revenue Agency will continue to deny the deduction of significant, documented gambling losses. Little Rhody, Rhode Island, changed its tax structure for 2012. Rhode Island eliminated itemized deductions (but did increase the standard deduction). Thus, an amateur gambler with $50,000 of gambling winnings and $30,000 of gambling losses will owe tax on his wins and will not get the benefit of his gambling losses.

In other words, if you were paid $1,000 from a lottery ticket, but lost $400 at a casino in 2019, you can use the loss to reduce your taxable gambling winnings to $600. Deducting investment losses. “Recreational” gamblers report gambling winnings on line 21 of the 1040, and report gambling losses, up to the extent of gambling winnings, as itemized deductions on Schedule A of the 1040. I covered the primary tax implications of “professional” gamblers during my discussions of the self-employment tax and travel and entertainment. There is one golden rule to keep in mind when deducting gambling losses on your tax return. You can’t, unfortunately, deduct losses that total more than your winnings. So, if you made $10,000 on gambling last year but lost $12,000, you can only deduct $10,000 in losses (nothing more). This can be a bit of a bummer, but don’t worry.

Rules concerning income tax and gambling vary internationally.

United States[edit]

In the United States, gambling wins are taxable.

The Internal Revenue Code contains a specific provision regulating income-tax deductions of gambling losses. Under Section 165(d) of the Internal Revenue Code, losses from “wagering transactions” may be deducted to the extent of gains from gambling activities.^[1] Essentially, in order to qualify for a deduction of losses from wagering, the taxpayer can only deduct up to the amount of gains he or she accrued from wagering. In Commissioner v. Groetzinger, the Supreme Court Justice Blackmun alludes to Section 165(d) which was a legislative attempt to close the door on suspected abuse of gambling loss deductions.^[2]

Wagering Transaction[edit]

The Internal Revenue Service has ruled that a “wagering transaction” consists of three elements.^[3] First, the transaction must involve a prize. Second, the element of chance must be present. Finally, the taxpayer must give some consideration.

Gambling Losses Tax Deductible Canada 2019

Section 165(d) and Professional Gamblers[edit]

In Bathalter v. Commissioner, a full-time horse-race gambler had gains of $91,000 and losses of $87,000.^[4] The taxpayer deducted the expenses under Section 162.^[5] The service argued that Section 165(d) precluded the taxpayer from engaging in gambling as a 'trade or business.'^[4] The Tax Court held that the taxpayer's gambling was a business activity and allowed the deductions.^[6] In essence, the court held that Section 165(d) only applies when a taxpayer is at a loss instead of a net gain and “serves to prevent the [taxpayer] from using that loss to offset other income.” ^[7] However, if the taxpayer has a net gain, as the horse-race gambler did, then the taxpayer may deduct the expenses under Section 162, and Section 165(d) does not apply.^[8]

Section 165(d) and Recreational Gamblers[edit]

In addition, in Valenti v. Commissioner, the court reiterated that Section 165(d) applies to professional gamblers as well as recreational gamblers.^[9] The court stated, '... it has been held both by this Court and various courts of appeals that wagering losses cannot be deducted, except to the extent of the taxpayer's gains from wagering activities, and it has been so held even where such activities were conducted as a trade or business as opposed to a hobby.'^[10] Therefore, for example, if a recreational gambler visits a casino one Saturday and accumulates $600 of losses and $200 of gains, that recreational gambler may deduct $200 of the wagering losses (because she can only deduct an amount up to the amount of wagering gains she accrued).

United Kingdom[edit]

Gambling Losses Tax Deductible Canada Income

In the United Kingdom, wins (unless in the course of a trade) are not taxable and losses are not deductible.

Germany[edit]

Gambling Losses Tax Deductible Canada 2020

In Germany, wins are taxable since July 2012 by 5% of the winnings (profit).

Gambling Losses Tax Deductible Canada Tax

Canada[edit]

In Canada gambling income is not generally taxable. If the gambling activity can be considered as a hobby, the income is not taxable.^[11][12]

If the gambling is carried out in businesslike behaviour, then the income is taxable and losses deductible. Making approximately $50 million in sports lottery bets and earning a profit of $5 million was not considered businesslike behaviour in Leblanc v. The Queen. However, in the case of Luprypa v. The Queen the gambling income was ruled to be taxable. The case involved a skilled pool player that profited approximately $1000 per week playing staked pool games against bar patrons.^[12]

Poker differs from many other forms of gambling as skilled players may increase their chances of winning significantly. In the case Cohen v. The Queen judge ruled that the gambling activities were not conducted in sufficiently businesslike manner and thus the losses were not deductible.^[12]

See also[edit]

References[edit]

1. ^IRC Section 165(d).
2. ^480 U.S. 23, 32 (1987).
3. ^Technical Advice Memorandum 200417004.
4. ^ ^abT.C. Memo 1987-530.
5. ^IRC Section 162.
6. ^Id.
7. ^Id.
8. ^Id.
9. ^T.C. Memo 1994-483.
10. ^Id.
11. ^Bonusfinder Canada. 'Do I need to pay taxes on my casino winnings?'. www.bonus.ca. Retrieved 24 February 2020.
12. ^ ^abcRotfleisch, David. 'Taxation Of Gambling And Poker Winnings – A Toronto Tax Lawyer Guide'. mondaq.com. Retrieved 24 February 2020.