Do Canadians Pay Tax on Sweepstakes Prizes?

For most Canadians who play casually, a sweepstakes or contest prize is generally not taxable income. The Canada Revenue Agency treats lottery winnings and windfalls as non-taxable unless the prize is really employment, business or property income, or a prize for achievement in a field you normally work in. Interest or other income the money earns after you receive it is taxable.

This page is general information, not tax advice. The CRA guidance we read does not mention sweepstakes casinos by name, so check your own situation with the CRA or a tax professional, especially before a large redemption.

What does the CRA say about winnings?

The CRA’s main guidance is Income Tax Folio S3-F9-C1, on lottery winnings and miscellaneous receipts, in effect since July 3, 2020. Three of its points matter here.

• Windfalls are not taxed. The folio lists the signs of a windfall, such as having no enforceable claim to the payment, making no organized effort to get it, and having no customary expectation of receiving it.
• Lottery prizes are not taxed as income or as a capital gain, unless the circumstances make the prize employment, business or property income, or a prize for achievement under the Income Tax Act.
• The exception for achievement prizes comes from paragraph 56(1)(n) of the Income Tax Act, which brings into income a prize for achievement in a field of endeavour you ordinarily carry on, other than a prescribed prize.

The CRA’s plainer page on amounts that are not reported or taxed lists lottery winnings of any amount, subject to the same exceptions. It adds the point people miss: any interest you earn when you invest lottery winnings must be reported on your return.

How does the CRA treat contest prizes?

The folio also covers prizes won outside a lottery, and the answer depends on how you got the prize.

• A prize received as a gift is not included in income when you receive it. You are treated as acquiring it at its fair market value, so if you later sell something you won for more than that value, the gain can be taxable.
• A prize that comes from your job or business, or that is an achievement prize in your own field, is income.
• A prize from a paid entry, such as a bought ticket, is not included in income when received, and the entry cost becomes its cost for any later sale.
• Prize draws promoted by an employer are generally employment income, with narrow exceptions.

The folio does not say which of these boxes a Sweeps Coin redemption falls into, and we will not guess for you. If the amount matters, put the question to the CRA or a tax professional with the brand’s rules in hand.

Could a regular player be taxed as a business?

Rarely. The folio, quoting a court decision, says gambling is not generally regarded as a commercial activity except in very exceptional circumstances, and that wanting to win is not enough on its own, since every gambler wants to win. The factors it weighs are:

• how organized the activity is;
• whether you have special knowledge or inside information that reduces the element of chance;
• whether you gamble for pleasure or to earn a living;
• how much you bet, and how often.

No single factor decides it, and the CRA looks at your whole course of conduct. Someone running sweepstakes play like a job, with systems and spreadsheets, is the case to ask a professional about.

What about tax on the US side?

The sweepstakes operators we checked are American or based offshore, and most of their rules are written for American players. LuckyLand’s rules say players are responsible for all taxes and fees associated with a prize. High 5 Casino’s US-only rules go further and say the operator may be required to withhold part of a prize and may ask for a US Social Security number.

We could not confirm how any brand that accepts Canadians handles a Canadian winner’s tax paperwork or whether anything is withheld. Ask the operator in writing before a large redemption, and ask a tax professional who handles cross-border income.

Keep your own records

Whatever the answer turns out to be, records make it easy:

• what you spent on Gold Coin packs, and when;
• each redemption: date, Sweeps Coins redeemed, the prize value and the currency;
• the amount that reached your bank account, after any conversion.

Those records also show you, in plain dollars, whether coin packs are costing more than the prizes return. If that sum is uncomfortable, read signs that free play has stopped being fun, and see our responsible gambling help for free helplines. To see how prizes are paid out in the first place, read how Sweeps Coin redemptions are paid, and for the step just before payout, our explainer on Canada’s skill-testing question.