Skip to main content

Bells ring, coins ching-ching and Canadians sing when they win the jackpot at a Las Vegas slot machine -- and so does the U.S. taxman.

Many Canadians, particularly occasional betters, aren't aware that the U.S. Internal Revenue Service collects as much as 30 per cent of winnings from slot machines, bingo, race tracks and big lotteries in the United States when the cash windfall is over a certain amount.

It's called a withholding tax, which the IRS collects directly from winners when collecting on their bets. In Canada, however, governments boost their coffers from profits generated by Crown-owned lotteries and casinos, not directly from the gambler.

But while that 30-per-cent cut in the United States can take the shine off a day's work screaming at horses and greyhounds or raiding a casino's one-armed bandits, experts say too many Canadians don't realize they can recapture much of the loss.

By filing a U.S. income tax return, Canadians can reduce the taxable amount of a big win by offsetting it with gambling losses.

It may sound complicated and bureaucratic, but it's actually a simple way of recovering more of your winnings.

"Some people say, 'Oh, forget it,' and just run away. But it's not that big of a deal at all," said Debra Callicutt, a financial adviser in Scottsdale, Ariz., and an expert on cross-border taxation issues who advises many expatriate Canadians.

"It's just a matter of filling out a form and handing it into an agency."

Under a bilateral tax treaty between the United States and Canada, residents from north of the border are subject to American taxes on certain gross gaming victories. That includes winnings of $1,200 (U.S.) or more at bingo or slot machines, $1,500 or more from Keno, $600 or more from horse racing, dog racing or the ball game jai alai, and $600 or more from state lotteries where the winnings are at least equal to the amount of the wager.

The withholding tax does not apply to winnings from blackjack, baccarat, craps and roulette -- table games where the odds of winning a large amount aren't as great.

Canadians have the right to reclaim winnings by proving betting losses also incurred in the United States, under "probably the only treaty we have that allows such a provision" with another country, Ms. Callicutt said.

As an example, Ms. Callicutt said if a Canadian won $15,000, and incurred U.S. gambling losses of $10,000, the amount of U.S. source taxable income would only be $5,000.

Canadians are required to obtain a U.S. tax identification number and file what's called a Form 1040 NR, U.S. Nonresident Alien Income Tax Return to reclaim such taxes.

However, if you make such a claim, "it's up to you to provide the proof" with a paper trail, she says. That can include wager stubs or even a credit card bill that shows a gambling transaction and be proven not to include food, souvenirs or other items.

Frequent gamblers may realize they need to keep records of their wins and losses but, unfortunately, "the average Canadian is not going to think to keep receipts," Ms. Callicutt said.

"But it's to their benefit, if they've got some losses and a way to prove any of the losses."

Canadians must provide the IRS with a copy of the 1042-S form received from a casino. The form states the amount of withholding taxes a gambler paid.

Such records -- which are also required for the rebates -- can be recovered from the source, said Moe Arviv, president of U.S. Tax Recovery Inc., ustaxrecovery.com , which helps Canadians prepare income tax returns to recapture money lost in withholding taxes.

"Since [the casinos]are the withholding agents that withhold the money on behalf of the IRS, they have to retain these slips for a certain amount of years, which is anywhere from five to seven," Mr. Arviv said.

"By law, they actually do hold them and are required to provide them to us once we provide proof we are working on behalf of the client. So it's not that difficult to get them."

It takes about six weeks to obtain a U.S. tax ID number and another six weeks to get the refund, Mr. Arviv said. That's not a significant time for Canadians who didn't even know they could recollect on the taxes, he said.

But he cautioned Canadians shouldn't procrastinate on applying for the rebate.

Report an error

Editorial code of conduct