For Canadians gambling in United States casinos, “What happens in Vegas, doesn’t have to stay in Vegas”.
Unlike Canada, the United States considers winnings from gambling and lotteries to be taxable. Under the Tax Law jackpots of $600 or more will incur a non-resident withholding tax of 30%. So if you win $10,000 you only go back to Canada with $7000.
But as a Canadian, can you get that money back? The short answer is maybe. The US-Canada Tax Treaty allows Canadians to deduct their U.S. gambling losses (with a few exceptions) in a given year from winnings.
How do you substantiate the losses? You don’t have to submit your receipts to the IRS. But if you are ever audited you will be asked for proof of losses so its wise (but not required) to be able to substantiate your losses. To start, if you belong to a casino’s Players Club, check with the casino or casinos that you visited to see if they can provide you with a record of your gambling. Some keep those records. If not, then she suggests you keep a diary of your activity with…
• The date and type of wagering activity
• The name and location of the casino
• The amounts you won or lost
You can aggregate all your U.S. losses for the whole year, not just the trip you won on. Remember travel expenses, food and accommodations are not deductible.
What forms need to be filed? If you have never obtained an Individual Taxpayer Identification Number (ITIN) you will need to file for one using Form W-7 along with a certified copy of your passport (sending the original passport is not advisable). Contact Passport Canada for one. This only needs to be done the first time you file a return. Next you will fill out tax form 1040NR using the information from the 1042S issue to you by the casino. Next send in the completed 1040NR, 1042S and your W-7 if you don’t have an ITIN to the IRS who will process you refund.
If you need help use an experienced Cross-Border Tax Expert who is familiar with US tax filing or one of the online do-it-yourself tax solutions. But do file for your refund. It’s your money why let the IRS keep it?