As a Canadian, playing the US Powerball is easier than ever. But one thing we often get asked is whether or not winnings are taxable – you know, just in case you finally hit the big jackpot.
The good news is that if you’re a Canadian resident, your lottery winnings are all yours. But there may be one or two tax intricacies to account for, depending on how you choose to use your winnings.
A Million Or More Reasons to Get Excited
The Powerball jackpot often skyrockets into the millions, so it’s no surprise United States players quickly get caught up in Powerball fever. For Canadian players, though, there are often a million extra reasons to look forward to the next draw.
That’s because non-US citizens are, firstly, allowed to purchase Powerball tickets (even online without leaving your couch) and secondly, Canadian players can pocket more money than their US neighbours.
It all comes down to tax.
The US Federal government recognises lottery jackpots as income. That means they can withhold as much as 25 percent of your winnings in the States and label it income tax.
But for non-American citizens, that amount can skyrocket to a staggering 28 percent.
Wait, There Is Good News
The thing is, as a Canadian citizen, you’re more than welcome to play and claim Powerball prizes. There are just a few t’s and c’s you need to be aware of in order to keep your winnings safe from taxation.
Taking Tickets Outside the US
Firstly, if you enter the US and purchase your Powerball lottery tickets in the country, and then return home, you cannot claim your prize if your numbers come up. In other words, it’s illegal to enter the United States with your lottery ticket, which can actually be seized.
According to American law, you’re not allowed to enter the States from another country with a lottery ticket or printed piece of paper that you can use as a lottery ticket. You can’t even bring in an ad of a lottery!
There is an exception, though. If you bring over a US lottery ticket from Canada, that’s okay. There’s just one thing – Powerball tickets are all printed in the US. So, when you purchase tickets online, the vendor purchases the physical tickets for you in the States and keeps them safe.
There’s just nothing for you to worry about!
Great, What If You Win?
It sounds a little complicated, but we promise it’s not. Let’s say you did indeed purchase a ticket in America, came back home, and then brought your winning ticket back into the States.
According to officials, the lottery will work with you to ensure you get your jackpot.
Now, on to tax. The most important thing to know is that as a Canadian, you do not have to pay tax on your United States lottery winnings if you bought your ticket in Canada. That’s because, under the Income Tax Act of Canada, lottery winnings are exempt from taxation.
If you use your winnings on deposit interest or interest on bonds, though, you may be liable to pay income tax. Should you generously decide to give some of your winnings as gifts to friends and family, you won’t incur a Gift Tax. Canada also doesn’t recognise inheritance tax so you can leave a windfall to the kids if you like, and they won’t need to pay out!
Taxation on Lottery Winnings for Canadians
Overall, Canada is mighty generous when it comes to your lottery wins. The government will never take a chunk of your prize away from you in the form of tax. In other countries, things are certainly different, but it’s okay, you’re Canadian and that means you can give your winnings as gifts without worrying about gift or inheritance taxes. Pretty much, what you win is what you keep.
Just remember, the only tax implication you’ll feel is income tax charged on any interest you earn from investments you might make using your windfall. For example, if you decide to stick a portion of your winnings in a savings account, you’ll be liable to pay income tax of any interest you earn.
But you know what, you’ll still have a lottery win sitting in your savings account, so it’s a small price to pay, don’t you think?