Cash prizes are always accompanied by insane levels of excitement. However, there are certain legal and financial implications to consider in the Canadian financial law system. From lotteries to online casinos, contests and sweepstakes, the rules may vary slightly. Not to worry, we’ll be highlighting exactly how the financial law treats cash prizes in Canada.
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Regulation For Contests and Games: An Overview
To foster a level playing field, the organizing and promotion of every contest, game, and prize are guided by the Marketing law. This framework ensures that promotional activities relating to cash prizes are not unfair and deceptive. Overall, there are two major bodies of law that determine how games and prizes are conducted. Let’s highlight relevant legal resources for each one to gain a deeper understanding.
Criminal Code
Jonathan Reid, Financial Planner, “One misconception we see often is that all prizes are treated equally under the law. In reality, whether a prize is taxable depends on its source, employment, contest, or chance.”
From the federal perspective, the Criminal Code strictly regulates all gambling-related activities that involve cash prizes. The Criminal Code (s. 201 – 209) specifically takes charge of all gambling-related activities that involve chance, a prize and consideration exchanged. This level of oversight also allows the government to generate revenue from these contests and promotions.
As an umbrella, the Criminal Code (section 206) criminalises all gambling. With that in place, the subsequent section (s. 207) categorically spells out the gambling activities which are exceptions to this rule. These exceptions primarily include activities which are provincially licensed and regulated.
Competition Act
The Competition Act mandates that any business using contests as a promotional tool disclose the specifics of such prizes. These details usually include the following:
Furthermore, these contests are only legally recognised when they’re conducted on a skill basis. The section 53 provision, as enacted in 2002, defines this distinction in simpler legal terms. The law states that:
“No person shall, for the purpose of promoting, directly or indirectly, any business interest or the supply or use of a product, send or cause to be sent by electronic or regular mail or by any other means a document or notice in any form, if the document or notice gives the general impression that the recipient has won, will win, or will on doing a particular act win, a prize or other benefit, and if the recipient is asked or given the option to pay money, incur a cost or do anything that will incur a cost.”
The defined punishment of breaches of section 53 includes a fine for corporations and for an officer, a fine and up to fourteen years in prison.
Tax Implications
Mark Collins, Canadian Tax Consultant, “A lottery or casino win is generally tax-free in Canada, but the moment your winnings start generating income like interest or investments, the CRA takes notice.”
Under Canadian law, most cash prizes are considered windfalls, which are unexpected gains that are not a result of business activity. This umbrella stretches to cover lotteries, sweepstakes and contests. These windfalls are generally not taxed provided it is entirely luck-based. The logic behind this is that cash prizes that aren’t connected to your job or business are not considered taxable income.
The code of the Income Tax Act, paragraph 40 (2)(f). However, it is important to consider the exceptions. Generally, cash prizes from performance-related endeavours are considered taxable. Also, if you gamble as a professional with the expectation of profit, then winnings may become taxable.
Fun Fact: The Canada Revenue Agency sometimes audits big winners not to tax the prize, but to ensure you’re not hiding business-related income behind “luck.”
Online Casino Gambling Regulatory Framework
Generally, online gambling in Canada is provincially regulated and less so at the federal level. As such, each province has its own authority that licenses and regulates online casinos. This is why you’d find casino resource platforms like https://casinocanada.com/ sometimes index casino sites depending on licence jurisdictions. Distinctions like these have often been captured by Gerda Grinova, online casino analyst and resource person.
Fun Fact: If you donate part of your winnings to charity, you could qualify for a charitable tax credit even though the prize itself wasn’t taxed.
Lastly
In the end, the Criminal Code of Canada, as well as the Competition Act, are quite clear on the laws (financial and otherwise) that govern cash prizes in Canada. We understand that most cash prizes from contests, lotteries and even casino gambling are not taxed as they’re viewed as windfalls. However, exceptions exist if you are gambling as a professional or making a business out of it.
Disclaimer: This content may include references to gambling or casinos. It is for informational purposes only and does not promote or endorse gambling activities.
