This post is going to take a much deeper dive into the taxation of gambling in Canada.  As we all should know, lottery winnings are not subject to tax in Canada, but that is just the tip of the iceberg.  Let’s look much deeper into gambling, legal and illegal, and see where it switches from being tax-free to taxable.

Gambling profits

The Canada Revenue Agency (CRA) has long held that profits derived from bookmaking or from the operation of any gambling establishment (carried on legally or otherwise) constitute income from a business, and the courts have upheld many decisions which confirm that earnings from illegal operations or illicit businesses, such as illegal gambling and fraudulent business schemes, are not exempt from tax.

Income earned from operating gambling establishments – legal or illegal – is taxable.


If a Taxpayer gambles as a way to earn a living, and not just for fun, the CRA may determine that the income gained is not tax-free, but rather is taxable as business income or a business loss.

This would be the case if the gambling activities constituted a source of income (that is, carrying on the business of gambling), and that has been a challenge for the CRA.  Games of pure chance, like lotteries, lack the badges of trade to which the traditional tests of business activity can be applied.

The CRA and the courts have relied on these traditional tests to determine the existence of a business which include an evaluation of a taxpayer’s profit-making purpose (that is, pursuit of profit) and the commerciality of a taxpayer’s activity.

It might be fair to state that gambling is always undertaken in pursuit of profit.  Nobody gambles to lose money, do they?


This very topic was addressed in Balanko v. Minister of National Revenue [1981], where the court stated that gambling with a view to profit is an intention, “shared by all who gamble, and the presence of the intention to win or make money in gambling, which is there in all who gamble, does not lead to a conclusion that all who gamble, or even all those who gamble frequently, are carrying on a business.”

What that really says, is that people gamble to make money and that making money (or trying to make money) doesn’t mean it’s their business, and that legal determination is what prevents the CRA from forcing successful gamblers to pay tax on their winnings.

Usually the frequency and systematic nature of an activity would be indicative of a business.


In addition to the definition of business in subsection 248(1) of the Income Tax Act, the traditional common law definition of business is “anything which occupies the time and attention and labour of a man for the purpose of profit”, see Smith v. Anderson, (1880) 15 Ch. D. 247.

In a much more recent decision, the Tax Court of Canada went on to state in Leblanc v. The Queen ,2006 TCC 680, 2007 DTC 307, that:

Such a definition would usually be unexceptionable when one is talking about a commercial activity. If applied literally and mechanically it would include the activities of a person who consistently and regularly placed bets on horses, or played the lotteries or the gaming tables. It would mean that the gambling activities in every case that I have cited would be a business, yet we know that this is not so. Gambling – even regular, frequent and systematic gambling – is something that by its nature is not generally regarded as a commercial activity except under very exceptional circumstances.

There are some exceptional cases, which are noted in the Leblanc case, where gambling activities have been held to be taxable.  These cases relate to taxpayers who applied inside information, knowledge and skill to their activities.  An example of inside information, knowledge and skill was confirmed in a court case from 1997, Luprypa v. The Queen, where a pool player who in cold sobriety would challenge inebriated pool players to a game of pool.  He would win, and the courts informed the CRA that these winnings are taxable.

The issue the CRA has to determine is whether a taxpayer’s activities are such that he or she can be considered to be carrying on a gambling business, and that can only be determined through an examination of all of the circumstances and the taxpayer’s entire course of conduct.

Although no single factor may be conclusive to make that determination, the CRA considers the following criteria in making their determination:

  • the degree of organization that is present in the pursuit of this activity by the taxpayer,
  • the existence of special knowledge or inside information that enables the taxpayer to reduce the element of chance,
  • the taxpayer’s intention to gamble for pleasure as compared with any intention to gamble for profit as a means of gaining a livelihood, and
  • the extent of the taxpayer’s gambling activities, including the number and frequency of bets.

What this tells us is that when effort, frequency, and intention to earn a profit increases, so does the chance that the CRA will determine that the winnings are no longer tax-free.