Casino Tax Recovery Canada
- How Canadian income tax laws apply. If you spend part of the year in the U.S., for example, for health reasons or on vacation, and you maintain residential ties in Canada, the CRA usually considers you to be a factual resident of Canada. As a factual resident, the CRA taxes your income as if you never left Canada. As such, you should continue to.
- To receive a gambling tax refund you need not look much further. Tax Recovery is a firm based out of Canada which can provide such assistance. Being in business since 2001, U.S. Tax Recovery is recognized by the IRS as an acceptance agent qualified to obtain an ITIN on your behalf.
- To qualify for casino tax recovery as covered by Article XXII of the Canada-US Tax Treaty, you need to be able to substantiate all US-source gambling losses. To this end, it’s a good idea to keep a diary of all wins and losses made in the US, including dates, times, locations, and amounts won and lost.
We have been providing US and Canada cross border income tax preparation services to co-op students, faculty and staff at the Universities of Waterloo, Wilfred Laurier, Guelph, South Western Ontario, Windsor and other Universities since 1995. We can also help you with U.S. Gambling tax recovery, Canadians owning US real estate.
Las Vegas is one of the favorite destinations of foreign nationals visiting the USA. If the luck strikes, these foreign nationals can win thousands of dollars at casinos. Nonresident aliens or foreign nationals visit the USA for a short time so most of the time foreign nationals are confident about leaving the USA with the entire amount of gambling winnings. However, the IRS has its own set of rules. Nonresident alien might be subject to 30% tax on gambling winnings so it is essential to understand the IRS regulations in regards to gambling winnings tax.
This is an email from one of our clients, a foreign national visiting the USA. “I visited the USA in 2012 for 1 month. Specifically, I was in Las Vegas and won $200,000 at the casino. I cannot even describe how happy I was. However, the casino refused to pay me the entire amount of gambling winning. Moreover, I was assessed 30% gambling winnings tax. I will appreciate if you can clarify whether I can claim this money back. I do not think that gambling winnings tax was legitimate in my case.”
The above situation is quite common. Casinos follow the IRS guidelines, however, there are several ways to avoid or to minimize gambling winnings tax on foreign nationals.
IRS Rules and Gambling Winnings Tax on Foreign Nationals
There are several scenarios that might happen.
Foreign Professional Gambler and Gambling Winnings Tax
Las Vegas is famous for hosting professional poker tournaments and other gambling events. Consequently, foreign professional gamblers can win millions of dollars by participating in these events. If foreign nationals or nonresident aliens are engaged in a US trade or business at any time during the year, then they are taxed at regular US rates. Moreover, the US net taxable income is calculated as a difference between US gross income and all applicable deductions. Pending particular circumstances, these foreign professional gamblers will fall into the category “engaged in a US business”. As a result of it, they will not be subject to 30% withholding gambling winnings tax. However, each situation is unique so it is important to analyze specific circumstances.
A taxpayer can be treated as engaged in a US trade or business if their activities in the US are continuous, regular and substantial rather than sporadic or isolated. If it is considered from the context of gambling, this would mean that the non-resident alien (NRA) is inside of the US often enough to be treated as engaged in gambling activity on a regular basis. The NRA would also have to be in the US long enough to be treated as a resident, and subject to the US tax on worldwide income. This fact is determined by using the substantial presence test, where your physical presence inside of the US is evaluated over a 3 year period.
It may also be possible to obtain the professional gambler status if you were in the US only a few times in the year, if the gambling activity involved a significant amount of money. In this circumstance the quality of the type of gambling could outweigh the quantity, allowing you to be considered a professional gambler for US tax purposes.
Your ability to be able to file a tax return as a professional gambler will make a significant difference in the outcome of your tax due. Winnings can be be offset by your losses, and the net gains are taxed at a graduated tax rate. At the graduated rate you may find that the tax rate imposed is substantially less than the 30% rate imposed by the withholding system. Whether or not you are able to receive this financial benefit on your tax return will depend on how the facts submitted to the IRS are interpreted. So a proper guidance from an expat tax CPA is suggested.
Foreign Nationals and 30% Withholding Gambling Winnings Tax
Foreign nationals with US gambling winnings by accident face a different story. These foreign nationals will be subject to 30% income tax rate or lower tax treaty rate because this income is not effectively connected with US trade or business. Some types of gambling winnings are exempt from this tax. Per the IRS regulations the list includes the following games: blackjack, craps, baccarat, roulette or big six wheel.
Foreign Nationals, Tax on Gambling Winnings and US Tax Treaties
The USA signed an income tax treaty with various countries. Several of these income tax treaties have a provision for the gambling income.
There are select countries which have a tax treaty with the United States (US) that will reduce the 30% withholding tax on gambling proceeds. If you are a resident of one these treaty countries, you only need to present a form to the casino that will prevent any withholding tax from being applied.
The nationals of the following countries are exempt from US income tax on gambling winnings.
- Austria
- Belgium, Bulgaria
- Czech Republic
- Denmark
- Finland, France
- Germany
- Hungary
- Iceland, Ireland, Italy
- Japan
- Latvia, Lithuania, Luxembourg
- Netherlands
- Russia
- Slovak Republic, Slovenia, South Africa, Spain, Sweden
- Tunisia, Turkey
- Ukraine, and the United Kingdom
The form that you need to present is W8-BEN. This form will assist you in claiming the treaty benefits along with your Individual Taxpayer Identification Number (ITIN).
If a a tax was withheld on your gambling earnings, you do have the option of filing a US tax return and request the IRS for a refund. In order to do so, you will need to file Form 1040-NR, once the tax year has been completed.
How to claim a tax treaty rate on gambling winnings of foreign nationals?
Foreign nationals must file the IRS Form 1040NR to claim a tax treaty rate and to minimize the amount of gambling winnings tax. Some other countries have a lower tax treaty on gambling winnings too.
Conclusion
Foreign nationals with gambling winnings are suggested to contact an expat tax CPA that specializes in working with nonresidents with US interests. There are several ways to minimize US gambling winnings tax so it is important to review each individual situation with an expert. International tax experts at Artio Partners are pleased to assist foreign nationals with US interests.
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Winning is exciting but no one wants to pay unnecessary taxes. Changes to the Canadian-US Income Tax Treaty have provided a means for Canadians to recover some of the taxes imposed on US gambling winnings.
Did you know that Canadians can recover taxes on U.S. gambling winnings?
The IRS can tax all gambling winnings such as Keno, slot machines, bingo, lotteries, etc. As a Canadian who is not residing in the U.S., the tax rate is 30%. However, some games such as blackjack, baccarat, craps, roulette and big-6 wheel escape the withholding tax as the IRS does not feel it is feasible to collect the tax.
Casino Tax Recovery Canada
As Canadians, we have a special concession from the IRS which allows us to deduct our gambling losses against gambling winnings. Because the tax is then calculated on the net winnings, any difference between the calculated tax and the tax withheld will be refundable to you.
Ensure that you are not leaving money on the table and in the hands of the IRS. Baker Tilly can assist you in reclaiming any tax refunds due to you.
Expertise to Bet On
The professionals at Baker Tilly have developed solutions to assist you in reclaiming some of the taxes imposed on US gambling winnings.
Casino Tax Recovery Canada Complaints
Get Your Refund
There is a two step process to claiming your refund. First, you must have a U.S. ITIN (more information below), which is a Taxpayer Identification Number. Secondly, you must file a U.S. non-resident tax return after the end of the year.
Get an ITIN
To request an ITIN from the IRS, you must complete form W-7. Check with the gambling establishment about submitting your application at the time of withholding. Baker Tilly has the professionals and resources to assist in this process and who will submit the applications as part of your U.S. tax return.
File a U.S. Non-Resident Return
Our professional staff is experienced in preparing U.S. Non-Resident Returns. You need to provide us with your U.S. withholding tax slip (usually Form 1042-S) showing the amount you won, the amount of tax withheld and, more importantly, a complete record of the amount you spent on gambling.
Track Your Losses
The IRS recommends you keep a diary of your winnings and losses. Often, casinos will track your winnings and losses for you and present you with a statement. It is wise to set this up prior to commencing gambling.
Other ways to track your losses include cash withdrawal slips, ticket stubs, cancelled cheques, credit card receipts, etc. These should supplement your diary, which is your best proof. The more detailed your diary, the more likely it will be accepted by the IRS. For example, if you play the slot machines, the IRS recommends you record the machine number, the date and time the machine was played and the amount you spent.
The IRS can assess penalties for not maintaining accurate records to substantiate losses.