Canada Tax Guide
The Canada tax guide provides an overview of the various areas of tax within the territory. It also focuses on taxation affecting individual Canadian gamblers and businesses operating in the betting and casino sector.
The guide will help you better understand and interpret the information you receive from your employer or financial institution. Moreover, it will tell you what tax liabilities exist for gamblers — whether you are an occasional visitor to casinos or an accomplished professional.
Things to Know About Canadian Tax
How Canada’s tax system works
First, the fundamentals: Canada’s income tax system is fundamentally progressive, meaning that people who earn more pay a higher rate.
The Canada Revenue Agency (CRA) collects taxes for the federal government and the provinces or territories of Canada. In some cases, municipalities also collect taxes.
Thus, Canadians must file three types of returns — one for federal taxes, one for provincial/territorial taxes, and another for municipal taxes.
The Canadian federal government taxes personal income through its income tax Canada review. The provincial governments also levy their tax. As such, there are two types of rates — federal and provincial.
Each province has brackets that determine how much you’ll pay in taxes based on your total taxable income (the amount left after deductions).
Tax credits and deductions in Canada
Individuals and families can lower their taxable income through the use of reductions. The two main types of these are refundable and non-refundable.
Refundable claims can reduce an individual’s overall tax liability to zero (to the point where they get money back from the government). Non-refundable reductions reduce an individual’s total tax liability but do not result in a refund.
Those not required to pay taxes due to low-income levels may also claim some deductions.
What is tax-free income?
In Canada, there are many tax-free sources of income. These include:
- Gifts and inheritance tax Canada
- Tax-exempt interest earned on government bonds and other investments
- Pensions and annuities paid by employers or the government (for example, OAS payments)
However, there is another source of income which is almost entirely exempt from tax – income derived from gambling winnings.
Canada tax and casino winnings
For the vast majority of gamblers, the Canadian government will not levy a single cent on their winnings. This is in stark contrast to Canada’s southern neighbour the USA, where every type of gambling is fully taxable and must be declared on citizens’ tax returns.
In Canada, conversely, no form of gambling or betting is considered liable for tax – even the lottery.
The only real exception to this is when Canadian tax authorities consider a bettor to be a “professional gambler” who treats their trips to the casino as a full-time business, and organizes their affairs accordingly.
This situation is covered under Paragraph 40(2)(f) of the Income Tax Act. This states that income tax cannot be applied to money won at the casino or through any other forms of betting.
The rule applies no matter how large the winnings are, or whether they are acquired at online casinos or their bricks-and-mortar equivalent.
Exceptions to tax-free casino winnings
However, there are two main exceptions to Paragraph 40, which anyone enjoying gambling winnings needs to be aware of. The first exception occurs when gamblers earn interest on any of their winnings from casino games or betting.
Interest accrued in this way must be reported to the tax authorities, especially if it comes to more than $50, which obligates the gambler to complete a Statement of Investment Income, otherwise known as a T5 slip.
The gambler’s bank will send out a T5 slip automatically if the total interest is more than $50. If it is less than that, it still needs to go down on the tax return, but no T5 needs filling in.
The second exception is the previously mentioned status of “professional gambler”, which we will look at in more detail below.
How the CRA classifies “professional gamblers”
In order to gain this status, and thus pay tax on your casino winnings, the CRA needs to have decided that your gambling activities are treated like a business. This is a fairly high bar to clear.
The authorities must be satisfied that betting is your sole or main source of income and that the winnings come from games of skill and knowledge, rather than chance. This will lead them to the conclusion that you treat gambling as a business or profession.
The CRA will require proof that the gambler spends years working for their winnings and makes frequent trips to competitions. While doing this they keep meticulous records of their expenses and winnings, and so make consistent profits over a long period of time. Other evidence can include learning new gambling skills or strategies through masterclasses with seasoned experts.
If the CRA concludes that a player is a professional gambler, then their casino activities are liable for income tax of between 15% and 33%.
Every form of gambling falls under this mandate, except for lottery wins and scratchcards, which remain non-taxable whether they are won by “fun” gamblers or professionals.
However, there are some upsides to professional gambler status. Unlike hobby gamblers, professionals are entitled to write off sums such as travel expenses and competition fees on expenses, as well as write off gambling losses.
Nevertheless, even if a gambler has a long string of wins and earns a large sum at the casino, the CRA will not classify them as a professional gambler if the winnings come from games of pure chance.
These include casino games such as roulette, wheels of fortune, or slot machines. Such games do not require the skill necessary to guarantee long-term winnings. Professional gamblers tend to become highly adept at a single suitable game which requires skill and strategy, such as poker.
Why Pay Taxes?
Taxes are a mandatory payment by citizens to the government. They are collected to fund programs and services that benefit everyone, such as national defence, police forces, schools, and roads.
The government collects taxes from individuals or corporations. It may impose taxes on either income or property.
Tax vs Fee
A tax differs from a fee because it is compulsory, whereas a fee is voluntary. You pay for it if you want something else. Taxes can also vary depending on how much money you make — low-income earners pay less than high-income earners.
Who Has to Pay Taxes in Canada?
If you live in Ontario and make less than $40,000, you don’t have to pay provincial or federal taxes. However, you are required to file a tax return if your annual net income is over $40,000.
The threshold for filing taxes differs from province to province and territory to territory, so check the CRA website if you’re unsure whether you need to file a tax return.
The amount you pay in taxes depends on your province of residence and whether you’re employed. It also depends on what kind of business you have and how much revenue your business generates.
Canada’s capital gains tax rates
You pay capital gains tax Canada when you sell a capital asset. These include property, shares and other investments.
Not all capital assets are liable to tax,, but your rate depends on how long you hold the assets. The longer you hold any asset, the less tax you pay on its sale.
There are two types of capital gains tax in Canada: essentially the government taxes short-term capital gains at a higher rate than long-term ones. If you hold an asset for more than one year, it becomes a long-term asset for tax purposes.
Capital gains tax exemptions in Canada
Events that do not trigger a tax liability include:
- When one spouse dies, the surviving partner can apply for an exemption from capital gains tax on any property
- Exchange of property between spouses or common-law partners: If you exchange assets with someone who qualifies as your spouse, the law does not recognize gain or loss on either side
Corporate tax rates in Canada
The corporate income tax rate is 15%. There are some exceptions to this rule — the government taxes certain small businesses and corporations that earn less than $500,000 at a lower rate.
Corporate tax rates in Canada are a combination of federal and provincial taxes levied on the corporate income of businesses operating in Canada. The federal government collects the bulk of corporate taxes in Canada, with provincial governments collecting a smaller portion.
Corporate income tax rates vary from province to province. Companies that operate primarily within one province pay lower corporate income tax rates than those operating across multiple provinces.
Businesses that operate internationally pay higher corporate income tax rates than those that do not because they are subject to double taxation.
Voluntary Disclosure Program
The voluntary Disclosure Program in Canada is a program that allows taxpayers to come forward and report previously unreported income without being audited.
In exchange for coming forward, the Canadian Tax Agency (CRA) will generally accept voluntary disclosure and not charge penalties or interest on unreported income.
Social Insurance Number
The Social Insurance Number (SIN) is a unique, 9-digit number that the government uses to identify you and your tax filing status. The CRA uses it to track your income tax and benefits.
Having a SIN allows you to work in Canada or claim benefits. You can apply for one at your local Service Canada office. To get it, you provide proof of identity and residency, such as an original birth certificate or passport.
Who Has to Pay Taxes in Canada?
In Canada, you have to pay taxes if you’re a resident of Canada. This can be either a Canadian citizen, a permanent resident of Canada, or someone who has lived in the country for at least six months with a work permit.
Residents also include corporations that do business in Canada and partnerships that carry on business.
The same goes for trusts and estates that have assets in Canada. They are required to file tax returns as well.
Non-residents may be subject to Canadian income tax if they earn money from sources within the country — even if their principal residence is outside Canada. These individuals will need an Employer Identification Number (EIN) from CRA before they submit their returns.
Provincial corporate income tax rates. The federal government has a single rate. It’s up to each province and territory to decide their corporate income tax rate.
These vary quite a bit across Canada, with some being higher than others. Some provinces also offer incentives for corporations that invest in certain industries or create jobs within their borders.
Provincial retail sales taxes. These are similar to GST/HST. Retailers apply this tax at the point of sale, unlike HST/GST, which both federal and provincial governments collect, your home province (or territory) collects the tax.
Are Taxes for Canadian residents?
The government will tax you on your worldwide income when you file your tax return. If you’re a resident of Canada, this means that any income earned from outside the country will be taxable in addition to any Canadian-sourced income.
Non-residents pay tax on their Canadian-sourced income and not on foreign sources. Non-resident trusts may also have to pay taxes on certain investment properties depending on their nature and use.
Gifts and inheritances can also be subject to taxation if they come from non-resident individuals or corporations not registered with CRA as an estate planner or trust companies.
Income Tax Filing in Canada
To file your income tax, determine which province or territory you’re eligible to file in. For example, if you live in Ontario but work in British Columbia, only the latter province has jurisdiction over your tax return.
The same applies if you live in Alberta and work in Manitoba — only Manitoba has jurisdiction over your income tax filing.
Once you have established this, you can file two types of returns: one for individuals (T1) and another for corporations (T2). Both forms require basic information about gross income earned during the year.
However, you may require additional forms depending on whether an individual owns a corporation or partnership business entity, such as a partnership or trust company..
How does a non-resident file taxes in Canada?
If you’re a non-resident of Canada and have income from sources in Canada, such as:
- Employment income (self-employed or regular employee).
- Business income (self-employed or incorporated).
- Investment income (dividends, interest, rent).
File your tax return with the CRA every year.
Keep track of your expenses so that if your total expenses are greater than 50% of your gross income for the year, you can claim those as deductions against other taxable income.
What is the general process of paying taxes in Canada?
The first step is to pay your employee’s payroll taxes (CPP/EI) through your payroll provider.
You’ll need to know how much money you need to take out from each employee’s pay-cheque for their CPP/EI contributions. Remit those amounts with your remittance voucher(s) by February 28 every year.
You can do this through either direct deposit or cheque payments made payable directly to Service Canada at one of their offices across Canada.
If you have employees who earn more than $40000 per year, the government requires them to file their T4s before April 30 for each calendar year’s end.
What is the difference between tax credits and deductions?
You can only claim a deduction if it’s for an expense you paid during the year.
Tax credits depend on your income level and family size. There are certain thresholds where these credits become available to offset some of your expenses.
What is a T4 slip?
The employers issue the T4 slip to report income and deductions. The employer uses the T4 to calculate your income tax deductions and remittance, including a report for your earnings to the Canada Revenue Agency (CRA).
When do you have to pay taxes in Canada?
Taxes are generally due on the last day of February unless that date falls on a weekend or holiday. If so, then they’re due on the next business day.
Different types of income tax apply depending on your province of residence and other factors (e.g., marital status). For example:
Do you have to file taxes in Canada if you are self-employed?
Yes, you are responsible for paying your taxes. File a tax return and pay income tax on any money you earned during the previous year if you are self-employed.
It’s important to keep all relevant documentation throughout the year for tax purposes and always keep receipts!
Taxation in Canada operates in much the same way as in the rest of the developed world and naturally shares many similarities with the United States. However, the difference in the two nations’ treatment of gambling and gambling winnings is stark.
Whereas gamblers of any stripe in the USA are expected to pay full tax on all of their winnings, Canadian tax authorities only require those who have dedicated themselves to the pursuit of casino winnings full time to pay tax, whereupon they are treated like any other small business.
All other gamblers — the vast majority — are not required to pay a single cent in tax, except on large sums of interest derived from casino winnings.
How do you file taxes in Canada?
Use the CRA online filing service or print and mail in paper form to file your taxes. You can also file electronically.
How do you report income earned outside of Canada?
If you earn any income outside of Canada, it is taxable in Canada. Report it as such. This includes any foreign investment income generated from foreign investments or passive activities conducted outside of Canada.
What documents do you need when reporting foreign earnings?
If you’re reporting foreign income earned in another country, provide proof that you earned the income in that other country (by way of receipts).
What are some common deductions?
Common deductions include medical expenses, charitable donations, moving expenses, business expenses, mortgage interest, capital losses, RRSP contributions, TFSAs, and child care expenses if you’re self-employed or work inflexible hours.
What kinds of taxes are there?
There are many kinds of Canada tax reviews, but the two most common are income and sales tax. The government collects income taxes on the money you earn from working or other sources, such as investments or interest income. It collects sales taxes on goods purchased from businesses in Canada, whether they’re online or offline.
How can you find out which taxes apply to you?
Your employer will withhold income tax from your pay-check so that it automatically pays each year on your behalf. You can also find out which taxes apply to you. Talk to a tax professional or researching what kind of income you have (earned vs unearned) and how much money you earn annually.
How do I file my taxes?
You can file your taxes online or through a paper form. Create an account with the CRA if you choose to file online.
What happens if I don’t file my taxes by the deadline?
If you don’t file your taxes by the deadline, you’ll have to pay a penalty fee and interest on any late payments.
What is an RRSP?
An RRSP is a registered retirement savings plan (registered retirement savings pension plan). It’s a type of account that provides funds for your retirement. You can use it at age 71and-a-half, so long as you meet certain conditions set by the CRA.
What are the sources of income tax in Canada?
Income includes salaries, wages, commissions, tips, bonuses, honorariums, and payments. It also includes interest income, dividends, rent, profit from the sale of real estate or capital property, unemployment insurance benefits, and pensions and annuities.