Gambling Winnings & Taxes

Geoff Currier & Evelyn Jacks

Is gambling income taxable? You bet! In fact, this has been proven in several court decisions recently, outlined well in an article by law firm BLG. This requires an important new conversation between taxpayers and their tax and financial advisors: income derived from professional gambling activities such as poker, may indeed be fully taxable, as opposed to a tax exempt windfall.

The Backdrop: Three high stakes poker players argued before the courts that the money they made from poker should not be counted as earned income, and instead should be treated the same way as lottery winnings and as such, should not be taxed.

The court disagreed and after unsuccessful appeals, the Supreme Court of Canada declined to hear the case. With the high court’s decision to not review the case the law in Canada is now clear:  money earned from gambling should be considered income but, as usual, there are caveats.

Recreational gamblers can treat their winnings as tax free windfalls. That includes cash won on online sports betting sites. They cannot write off their losses.

But, if you have clients who derive a significant portion of their income from gambling, they must be aware that the money they make is subject to tax and you will need to be certain that the information they provide to you at tax time is accurate. The income is reported on form T2125 Statement of Business or Professional Activities.

The Criteria: The Canada Revenue Agency is not much concerned with a friendly game of poker at one of your buddy’s houses or if you happen to get lucky and hit the trifecta at the local racetrack but there are those who earn much, or even all of their income from gambling.

There is no specific dollar amount that the CRA uses to judge if a person is a professional gambler. Instead, it will look into how much of your client’s time is spent on the activity, if a business-like approach is taken and if your client has specialized knowledge in the field. 

In short, intent, knowledge and frequency are big factors.

Legitimate Expenses: Gamblers who have a reasonable expectation of profit, can deduct certain expenses against winnings. 

 Eligible expenses include:

• Entry fees for tournaments
• A portion of home office expenses or internet used exclusively for gambling activities
• Coaching or mentoring fees
• Travel and hotel costs
• Staking fees
• Gambling tools such as computers, screens, software and statistical systems

Note that beginning in 2026, gamblers in the United States may only claim up to 90% of their losses against their winnings.  However this is not true in Canada – 100% of losses may offset income from winnings.

The Bottom Line:   While lottery winnings and occasional recreational gambling winnings are not taxable in Canada, professional gamblers fall into a different tax filing profile.   For this reasons it is important to ask your clients if they gamble as part of your interview process and if so, the extent of their activity.  Not doing so risks gross negligence and potentially tax evasion penalties on audit in the future.

As always, it cannot be over-stressed how important accurate record keeping is for anyone whose income-earning activities include a reasonable expectation of profit.