If you live in the U.S. and happen to win the lottery, you can be assured that you’re going to give a big chunk of that money to the government, both federal and state. If, however, you happen to live in Canada and you win the lottery, that won’t be happening. That’s because Canada considers lottery winnings a windfall and is, therefore, tax-free. Even winnings from a sweepstakes or contest sponsored by a charitable organization are generally tax-free. However, the Canada Revenue Agency (CRA) — comparable to the IRS — does require that you pay taxes on any income that the winnings generates for you. For example, if you put your lottery winnings in the bank, any interest earned on that account then becomes taxable. If you invest your winnings in stocks or mutual funds, any dividends earned will also be taxable, as will any Capital Gains you may make when you sell the investments. It’s not just the lottery that’s tax-free in Canada. If you score big at a casino, or if you win a workplace contest, that money is all considered tax-free. So, what happens if you live in Canada, but win big on a trip to Las Vegas, or you happen to purchase an American lottery ticket while here on vacation and hit the jackpot? Unfortunately, the IRS considers those winnings taxable and you’ll have to pay the U.S. government……and you’ll have to do it before you leave the country.
