Tax Free!? Lottery Winnings & Gifts

by Tax Guy - Burlington Accountant on February 21, 2011 Print This Post Print This Post

Residents of Canada who receive a gift, inheritance, or receive lottery or other gambling winnings are not taxed on their receipt and do not have to include these amounts in income for tax purposes.  However, giving a gift can sometimes result in unintended tax consequences.

Gifts of Capital Property

If you decide to give capital property such as real estate or investments in stocks as a gift, you will have been deemed to have disposed of the property and may have to pay capital gains tax on the disposition. 

In addition, if you give income producing property such as an income paying bond or dividend paying stock to a minor child or other family member who is under age 18 you may still have to have to pay tax on that income.

Employer Gifts

If you own a business and provide gifts to your employees, the gift may be considered a taxable employment benefit to the employee. Cash gifts and cash like gifts such as gift cards will normally be treated as a taxable benefit while other gifts may not.

Gambling Winnings

While gambling winnings are not normally considered income for tax purposes, these winnings can be deemed to be income if it can be shown that your sole source of income is repeated and regular positive gambling.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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{ 22 comments }

Windsor February 22, 2011 at 12:09 am

How about lawsuits where there is a settlement?

Tax Guy February 22, 2011 at 4:48 pm

It’s taxability would be based on the facts. If the settlement was to enforce a claim that would have been taxable if received, then yes.

Windsor February 23, 2011 at 12:04 am

Interesting how do you know if its taxable then? Are there any ITs on this issue.

But isn’t the ideal of a settlement to make you whole, so you had losses or damages and the settlement is an agreed upon amount which is usually less than what the losses might be. So how would that be taxable if there really isn’t a financial gain per say? Ie. for example say with loss of land due to rights you thought you had ownership.

Tax Guy February 23, 2011 at 9:00 am

Windsor,

It really depends on the circumstances. In the case of the Nortel class action lawsuit, the CRA released the following. As you can see, it really depended on whether the shares were held non-registered and if they were still owned.

WestCoast March 11, 2011 at 2:40 pm

What about if the monetary gift is large in amount and comes from outside of Canada? Would that be taxable income?

Tax Guy March 11, 2011 at 3:17 pm

Canada does not tax gifts or inheritances.

WestCoast March 11, 2011 at 3:25 pm

Wonderful. Thank you very much for your prompt reply!

Vicki March 30, 2011 at 11:50 am

On the subject of settlements, my father fell and badly injured himself in the States. He is a Canadian citizen and resident. His lawyer in the US will be pursuing a personal injury settlement from the business location where he tripped. He has been told that any settlement would not be taxable in the US (he has other US source income and therefore files with the IRS annually). My question, naturally, is what the tax implications are in Canada. Does the form the settlement take (annuity, trust, cash) make any difference? Are there any other angles we should be looking into? Thank you so much for any assistance.

ali April 7, 2011 at 1:43 pm

can you deduct a gift to a family member. I gave money to my mom and brother due to some financial hardship though they are not my dependants.

Tax Guy April 8, 2011 at 9:04 am

No. Gifts cannot be deducted.

Clark February 21, 2012 at 4:25 pm

Q. In Ontario casinos, is there an amount of winnings from a casino, in which you would receive a receipt? How do you prove to the government that you won the money at a casino and did not make the money some how else?

Tax Guy February 21, 2012 at 5:27 pm

There’s no cash bedding in casinos. Have to casher your chips or your card if you’re playing slot machines. The casino will give you receipt with your cash.

Clark February 21, 2012 at 4:26 pm

How do you prove to the government that you won money at the casino and did not make it some how else?

Jim October 9, 2012 at 7:32 am

My dad passed away and left my sister 100 000$ to split 3 ways…she’s has to cash the cheque and do so…she doesn’t know how to do it without gettin taxed big or gettin in trouble? Thanks

Tax Guy - Burlington Accountant October 9, 2012 at 10:02 am

Jim,

No need to over think this! She cashes / deposits the cheque then writes you and your other sibling a cheque each for 1/3.

Jim October 11, 2012 at 9:46 am

Thanks for the reply, although she has some more concerns… When my dad passed away he did not have a will and she was name executive… The cheque is made out to my dads estate and my sisters name(co). She doesn’t know if she should deposit the cheque in his estate or in her account(dad was a teacher)? It was originally $140 000 but the government taxed it $40 000. She assumes if she cashes it in her account she will be taxed again because she will be in higher tax bracket? If she does deposit it she thinks she cant split it 3 ways because she will be tax because theres a limit on amount of money for a gift(do you know that amount). And if she deposit the money takes it out and gives us cash she says it’s tax avasion and they will come after her if she gets audited.. I guess what is the most simple way? Any help is greatly appreciated, thanks

Tax Guy - Burlington Accountant October 11, 2012 at 11:58 am

Hi Jim,

The funds are not income and there is no tax … period.

There is no such thing as a gift limit.

She must make sure the deceased’s final tax return is filed and taxes are paid from the deceased’s funds. There may be another return to file as well.

If she does not believe me, she should seek the assistance of an estate lawyer.

Catol October 9, 2013 at 5:36 am

If you bought someone a vehicle worth 25,000.00 does that person need to claim it as a gift on taxes?

Tax Guy - Burlington Accountant October 22, 2013 at 5:31 pm

Hello Catol,
There are no gift taxes in Canada.

mgangnon December 8, 2013 at 11:55 am

winning a 5 million dollar lotto
am i allowed to gift my family members a share without causing them Financial harm say 100 K per person ?

Tax Guy - Burlington Accountant December 8, 2013 at 2:37 pm

The gift has no tax implications for Canadian purposes assuming the recipients are adults.

Tax Guy - Burlington Accountant July 13, 2013 at 7:46 am

Hi Mike,
A holding company can make sense in some cases. However there are other variables to consider such as personal income, cash flow needs, taxes and your overall estate plan.

Depending on the circumstances you may be able to reduce the gain on the sale as well.

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