Tax Tips for Prize Winners

For those of you who read here regularly, I don’t normally have Guest Posts, but Intuit answered a question of mine about lottery winnings and payment (see in article) and, I am giving away 5 TurboTax On-Line Licenses! The contest will run until 6:00 PM on April 19th.

To enter, answer the following question (in the comments section of this article, and include a valid E-mail Address):

If I bought my Lotto Max ticket with Petropoints, are my winnings now taxable?

Tax Tips for Prize Winners

By Jennifer Gorman, TurboTax

Earlier this year, it was announced a Mississauga woman had won Canada’s largest lottery jackpot ever – $64 Million. We’ve all dreamed about winning the lottery, retiring early, living a life of luxury and taking vacations at any time. With that said, let’s take a look at what winning the lottery means in terms of taxation for any lucky winners.

Casinos and Lotteries

Canadians are in luck when it comes to lottery and most casino winnings as they are considered windfalls and are tax-free! Even winnings from most sports pools, sweepstakes, or lotteries sponsored by a charitable organization are generally tax-free.

However, while the Canada Revenue Agency (CRA) doesn’t require you to pay tax on the winnings themselves, you are subject to tax on any money your windfall generates. Interest earned from bank accounts, GICs, and savings bonds is considered taxable income and must be reported on your tax return.

Does method of payment for the winning ticket make it taxable? No, method of payment for your ticket, even if it’s given to you as a gift, doesn’t change that the winnings are considered non-taxable windfalls.

Thinking of going pro as a card shark? The CRA has recently begun examining how “winnings” by professional gamblers are treated. Because of the expectation of profit, the theory is that monies won by professional gamblers should be classified as business income and subject to tax like any other type of business income. This means professional gamblers could also deduct related “business” expenses such as travel expenses, tournament fees, and equipment used in gambling. This theory is interesting as it opens to door to claiming a business loss if you didn’t win enough to cover your gambling expenses.

Workplace contests

Prizes won through your workplace are generally counted as part of your income. Your employer will deduct income tax, Canada Pension Plan and in some cases, even Employment Insurance premiums on this type of award. Your T4 will have the amount of the taxable benefit listed in box 40.

The one potential exception to this if you win a prize in a draw by a social committee in your workplace. If the social committee, which is entirely funded by employee fundraising, paid for the prize, then any gifts or awards the social committee gives out are non-taxable. This isn’t the case if the committee is funded by the employer, as any gifts or awards the social committee gives out are taxable benefits.

Niagara Falls or Vegas?

While both can be lots of fun, if you hit the jackpot from an American source, your winnings will be taxed. The US Internal Revenue Service (IRS) considers all winnings, even from lotteries, to be taxable. If you hit the jackpot at a US casino, expect a good chunk of those winnings to be withheld by the casino to ensure your tax obligations are met before you even leave the country. Even if you win big from your own home on a US online poker site, for example, your big score will be considered to be American income and taxed accordingly. You may also be required to submit a US tax return the following April to ensure the proper amount of tax was remitted to the IRS.

About Jennifer Gorman:

Jennifer is a tax expert with more than 20 years experience helping Canadians. She enjoys holding seminars in her hometown in Newfoundland to teach seniors and students how to use TurboTax to prepare their own returns.

Site Note: Now just because this article talks about winning at the lottery, this does not mean I want you to go out and buy lottery tickets! That is not the message to take away from this, this is an informational piece about taxation.


Tax Reflections for 2016

So I spent most of the weekend and yesterday working on my taxes (on and off), and I have come to a few simple revelations about taxes:

  1. I remember why when I had to choose a major at University I did not choose Accountancy. I love accountants (some of my best friends are number crunchers), but I am just not a details guy, and that is a lethally bad trait to have if you are a lover of Arithmetic on steroids (aka Accountancy).
  2. I am really glad that I blog, and I keep PDFs of my previous years tax returns, because they remind me of all of the things I have to remember to include in my return. This is all without all the new tax rules, I barely remember the old ones.
  3. I thank the person who wrote the first tax preparation software, because I remember doing this by hand, and I hated it even more back then. Yes, there are psychotic number lovers who do their taxes by hand (for fun), but I am not that guy.
Tax Time

Tax Time

I was kind of bummed that no one sent me any Tax Prep Software giveaway swag, but I guess I am not mainstream.

Here is a list (yes I hate lists, but in this case I will be a hypocrite) of the things I always forget, until I look at previous year tax returns:

  1. What the heck am I claiming as a business expense? Yeh, I claim this thing as a business (hard to believe). Expenses? How much it costs to have this thing hosted (this isn’t running on some free site).
  2. I need to remember to get my remaining child who transfers tuition to me, to sign a form, in case my friends at the CRA want to see my receipts.
  3. The UCCB is changing again, but for now, you still have to claim the income from last year.
  4. I had to go back through my Quicken logs for 2015 to find my:
    • Charitable donations that I forgot. My Church gives me a great receipt, but smaller donations tend to slip through the cracks
    • All my medical expenses. Remember I am claiming my son’s school fees as a medical expense as well, so finding all of the Occupational Therapy sessions he had (that are not paid for by my insurance), helps out as well.

To those waiting until the last-minute to do their taxes, I wish you bonne chance, you will be waiting a while for any refund. I have submitted my children’s returns (they are straight forward), and I have completed my “first draft”, but will wait 2 days to reflect further on things I may have missed, or forgotten.


Time to Re-apply for the Disability Tax Credit Certificate

Let me preface this post with a thank you to Milburn Drysdale at (or Autism Funding in BC for Dummies) his documentation is what we based most of this work on, and if anyone asks you, they should check out his site before you read anything over here about Registered Disability Savings Plans for Disability Tax Credits. I’d also like to thank my wife who has fact checked my statements.  Is it time to re-apply for the disability tax credit ? 

As I have mentioned my son’s disability was “verified” (for lack of a better term) by the CRA in 2009, and at the time it was a “conditional” verification, and the CRA said that he would need to re-apply for the disability tax credit in 10 years (i.e. back dated to 2005).

I thought no more about it until a few months ago, when we received a child disability benefit notice from the CRA saying, the DTCC (Disability Tax Credit Certificate) would “expire” in December 2015 , which took me unawares, but that is only because I hadn’t thought about the fact that my son’s disability was viewed as a disability from birth, so the CRA credited me back taxes from when he was born. This means that his disability tax credit period started from birth, and given my son has turned ten this year, it is logical that the CRA is now asking for a reassessment.

So the first steps towards re-applying for the DTCC for my son’s disability (or re-apply for the disability tax credit ) is to go see our Pediatrician and have him fill out the T2201 Disability Tax Credit Certificate. That is actually me being presumptuous, because our Pediatrician could haved turned around and said, “No I won’t fill in the forms for you because in my opinion your son is no longer disabled”, or something like that, however, that was not the case.

We then added to this documentation, a report from my son’s Occupational Therapist and a Speech Pathologist (Effect of Impairment Document), to help reaffirm my son’s disability diagnosis for the reapplication as well.

Is the reapplication a “slam dunk”? No, not by any means, we need to make sure that we have all supporting documentation done, and it still relies on the CRA to decide whether that documentation is sufficient or not. What if the CRA denies the reapplication for my son? A few things happen:

  • No more tax deduction associated with my sons disability line 318 on my tax return.
  • I would be unable to claim my son’s school and Occupational Therapy as a Medical Expense (any longer).
  • Collapsing my son’s RDSP, which would entail paying back the CDSG and the CDSB that might have accumulated in that account.
  • The Disabled Child Tax Credit would stop being paid
  • The child disability portion of the Child Care Benefit will stop as well.

The advice we got from our Pediatrician (who I think I view as a subject matter expert, as he has done many of these) is you can never have too much documentation, and you must make sure the information is easy to follow for the CRA folks that will be making the decision. As with all reports, if it is well read, it will be well understood and your point will be made (as opposed to this article, which is a little confusing).

Some other notes from my wife, that I am not sure I completely grock, but here they are:

  • There is a list of qualified practitioners on the forms (T2201). I get asked that question a lot, but this information is on the forms, supporting documentation can be from other folks, but you need a specific professional to sign the forms or the CRA will return it to you.
  • Make sure you get your pediatrician or Doctor to fill in the right sections of the forms, nothing worse than doing all this work and have the CRA return the forms with a note saying, “You forgot to fill in the following sections:….”

The forms are signed, and have been mailed (certified mail) to the CRA and now we wait to see whether the Disability Tax Credit will continue for us.

re-apply for the disability tax credit

An Excellent Graphic from our friends at Moneysense about the RDSP benefits



The CRA Does Not Like Change

Here is a Tuesday Quickie for you, I have pointed this one out a few times, but my Theory has been proven:

Whenever you have a major change in your life that causes a change in  your tax status, the CRA will ask for you to send receipts to verify it (i.e. a Review not an audit).

A simple theory, but it has been proven countless times for me:

  • Each time one of my kids started at University, either I or my child was asked to supply T2202A forms from the school.
  • When they moved from residence to a rental off campus, receipts for the rental
  • When I claimed my son’s school fees as a medical expense.
  • My middle daughter has just started a Chiropractic College, and the tuition fees are MUCH higher, thus the CRA wants receipts.

It’s not a big thing, and fairly easy to remedy, just keep this in mind, and keep those receipts.


What is My Tax Bracket ?

Do You Know Your Tax Bracket?

Saw that question (What is my tax bracket?) in Money Magazine as a frequently asked question, so let me help you out (for those in Canada), with a few helpful links and a few more helpful tables and such helping you figure out What is Your Tax Bracket. As a precursor to these hints, you should always check with the CRA or a licensed Tax Accountant if you have questions about your Tax Brackets and such.

Where do you find out about the current Federal Income Tax Brackets (for you as an Individual, not you as a corporation) ? Go to this page for individuals. That page will tell you the following (for 2015):

Federal tax rates for 2015

  • 15% on the first $44,701 of taxable income, +
  • 22% on the next $44,700 of taxable income (on the portion of taxable income over $44,701 up to $89,401),+
  • 26% on the next $49,185 of taxable income (on the portion of taxable income over $89,401 up to $138,586), +
  • 29% of taxable income over $138,586.
Tax Bracket

The Infamous Bad Pun

Remember that is Taxable Income, so this is what is left after you have taken your deductions, and credits and such. Remember also that if you earn less than the Basic Personal Amount (line 300) you don’t have to pay taxes (for kids with summer jobs and such).

However, that is not all, remember that you have Provincial Income Tax as well, and here are the 2015 numbers to keep in mind too:

Provincial/territorial tax rates (combined chart)
Provinces/territories Rate(s)
Newfoundland and Labrador 7.7% on the first $35,008 of taxable income, +
12.5% on the next $35,007, +
13.3% on the amount over $70,015
Prince Edward Island 9.8% on the first $31,984 of taxable income, +
13.8% on the next $31,985, +
16.7% on the amount over $63,969
Nova Scotia 8.79% on the first $29,590 of taxable income, +
14.95% on the next $29,590, +
16.67% on the next $33,820, +
17.5% on the next $57,000, +
21% on the amount over $150,000
New Brunswick 9.68% on the first $39,973 of taxable income, +
14.82% on the next $39,973, +
16.52% on the next $50,029, +
17.84% on the amount over $129,975
Quebec Go to Income tax rates (Revenu Québec Web site).
Ontario 5.05% on the first $40,922 of taxable income, +
9.15% on the next $40,925, +
11.16% on the next $68,153, +
12.16% on the next $70,000, +
13.16 % on the amount over $220,000
Manitoba 10.8% on the first $31,000 of taxable income, +
12.75% on the next $36,000, +
17.4% on the amount over $67,000
Saskatchewan 11% on the first $44,028 of taxable income, +
13% on the next $81,767, +
15% on the amount over $125,795
Alberta 10% of taxable income
British Columbia 5.06% on the first $37,869 of taxable income, +
7.7% on the next $37,871, +
10.5% on the next $11,218, +
12.29% on the next $18,634, +
14.7% on the next $45,458, +
16.8% on the amount over $151,050
Yukon 7.04% on the first $44,701 of taxable income, +
9.68% on the next $44,700, +
11.44% on the next $49,185, +
12.76% on the amount over $138,586
Northwest Territories 5.9% on the first $40,484 of taxable income, +
8.6% on the next $40,487, +
12.2% on the next $50,670, +
14.05% on the amount over $131,641
Nunavut 4% on the first $42,622 of taxable income, +
7% on the next $42,621, +
9% on the next $53,343, +
11.5% on the amount over $138,586


A commenter has pointed out another excellent resource in this area , check them out too!


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