What Canadian Tax Laws You Should Know When Playing Foreign Lotteries

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As Canadians, you may be interested in lotteries worldwide. However, you may face many questions when getting started. You could be curious whether it’s legal or where to get tickets. You’ll also need to know how to claim prizes and the tax implications.

Taxes on overseas lottery wins are straightforward for Canadians. You don’t have to worry about them on lottery or other contest earnings. That said, you should still understand the laws to protect your rights and interests.

Here are the Canadian tax guidelines you should know before playing international lotteries.

The Basics of Playing International Lotteries

Most beginners wonder about the legal implications of playing foreign lotteries. Rest assured, it is legal. Canadian law doesn’t forbid you from participating in lotteries in another state, province, or country.

Unlike a prevalent myth, international lotteries don’t provide more favourable odds. Every ticket has the same winning chance. Regardless of its origins, you should treat it like a regular lottery.

Taxes on Foreign Lottery Wins

You won’t need to pay Canadian taxes after snagging a lottery prize from another country. However, certain nations like the United States have taxation policies on lottery wins. If you hit the jackpot on the US Powerball, you must pay American taxes before embracing your winning fortune.

You can take your lottery winnings at once or receive smaller payments over many years. Most winners choose the payment plan, which keeps them in lower brackets.

Tax Returns

You do not need to declare international lottery winnings as income on your tax return. The exception is a gambling or lottery business. In that case, reporting is required. Also, you cannot claim a credit for taxes withheld from non-business income winnings, including lottery prizes.

Tax Implications

Even though you don’t pay taxes on lottery wins in Canada, any money the prize earns (like interest) is taxable. If your winnings grow in a regular investment account or collect interest in your bank, you must report that income to the Canada Revenue Agency. It will be taxed accordingly.

Tax implications occur when money is invested in stocks or mutual funds that earn dividends. If you make any capital gains when disposing of or selling the investments, this is also subject to tax.

Check with the Region Where Your Lottery Is Hosted

Most lotteries allow anyone to play, but you should confirm the rules and learn how to claim prizes before purchasing a ticket. For example, you can legally buy Powerball tickets, play the game, and win prizes in Canada. Other national lotteries also accept foreign ticket-buying, but some exceptions apply. 

When you participate in US state lotteries, many states require tickets to be purchased from a licensed retailer in the state. They will need you to return to the state to collect any winnings you may have gained.

Smart Ways to Manage Lottery Winnings

For those with a significant lottery win outside of Canada, there are wise financial choices to make. Put money into a Tax-Free Savings Account and a Registered Retirement Savings Plan. By doing that, you can capitalize on your contribution limits. You shield your lottery winnings earnings from Canadian taxes.

Buy Lottery Tickets for Foreign Lotteries

You can select and pay for your tickets using a lottery service’s website or mobile app. They will buy the tickets in the relevant region for you. They scan your tickets, upload them to your online account, and you’re ready to play.

If you win a small amount, you can claim it digitally. The winnings are credited directly to your account. An in-person visit may be required to collect your earnings in larger wins or jackpot hits.

US Taxes Paid on Lottery Winnings

You may be a Canadian resident who withheld taxes from lottery or gambling winnings in the United States. If so, you can recover some or all of these taxes in Canada. The recovery is contingent on specific conditions, such as having US gambling losses that can offset a portion or the entirety of your winnings.

Likewise, you may have taxes withheld from blackjack, baccarat, craps, roulette, or the big-6 wheel. There are ways to recover taxes in Canada. However, please note that tax recovery on lottery winnings is rare or impossible in most cases.

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