How Much Tax Will I Pay on Bets? See Simulations
The taxation of both sports betting operators and bettors is a key aspect of sports betting regulation in Canada. The regulatory framework ensures that taxes are imposed on both the bookmakers looking to operate in the country and the individuals placing bets.
The draft bill 3,626 text, awaiting voting in the Senate, anticipates a 30% tax rate on the earnings of bettors, with exemption for prizes below $ 2,112.
The taxation model resembles the one currently implemented on lottery prizes, such as the Mega Sena. It follows a similar structure, where taxes are applied to the winnings. This system ensures that a portion of the prize money goes towards government revenue. Just like the Mega Sena, where a percentage is deducted from the jackpot, this taxation model operates in a comparable manner. It ensures that winners contribute back to society through taxes, balancing the distribution of wealth and supporting public services.
To avoid the fee, the bettor can utilize tactics such as increasing the variety of bets and making smaller contributions, ensuring that the prize falls within the exemption range.
How will the tax be collected?
The proposed legislation states that gamblers will be required to pay income tax on their winnings from fixed-odds bets "in the manner prescribed in Article 14 of Law No. 4,506, dated November 30, 1964, subject to the provisions of Article 56 of Law No. 11,941" for each gain.
In practice, this implies that a 30% tax rate will be applied solely to the cash prize amount that surpasses the value of the first bracket on the Personal Income Tax monthly incidence table – in this instance, the $ 2,112. This means that only the portion of the prize money exceeding this initial threshold will be subject to taxation at a rate of 30%.
The CEO of Lund Finanças, Myrian Lund, who works as a financial planner, explains that this tax should be withheld at source by the BETTING SITES at the time of prize payment.
Taxation does not accumulate, it operates on a per prize basis. Each prize you receive will be withheld, never remaining in the hands of the taxpayer.
Simulations
Data scientist Justin Fisher explains that accurately simulating the amount of tax to be paid based on the monthly gambling expenses is challenging, given the uncertainty surrounding the probability of winning and losing. It is difficult to predict with precision the exact tax liability that will arise, as it depends on various factors such as the frequency and magnitude of bets placed. The intricate nature of these calculations makes it hard to establish a definitive value. However, by employing sophisticated algorithms and analyzing historical data, Hanssen and his team are continuously working towards developing more accurate models that can provide better estimations of the tax burden associated with gambling expenditures.
Sports betting offers the opportunity to make a profit by predicting the outcome of events, enabling individuals to strategically plan their investments to avoid surpassing the tax exemption threshold.
It might be more worthwhile to place multiple bets with smaller amounts in order to avoid withholding tax. Opting for this strategy could be advantageous as it helps circumvent taxation at the source.
Check out simulations considering winning bets of various amounts with odds of 1.5:
| Bet value | Gross premium | Tax amount | Net premium | Net profit |
| $ 1.000 | $ 1.500 | $ 0 | $ 1.500 | $ 500 |
| $ 1.250 | $ 1.875 | $ 0 | $ 1.875 | $ 625 |
| $ 1.500 | $ 2.250 | $ 675 | $ 1.575 | $ 75 |
| $ 2.000 | $ 3.000 | $ 900 | $ 2.100 | $ 100 |
How Should I Declare?
According to Myrian Lund, the declaration of gambling winnings on income tax should only be a concern for 2025. It is important to plan ahead and understand the implications of reporting these earnings to the tax authorities. By ensuring proper documentation and keeping track of all gambling activities, individuals can navigate the tax requirements smoothly. Lund advises consulting with a professional tax advisor to ensure compliance and to optimize tax strategies. It is essential to stay informed about any changes in tax laws that may affect reporting obligations. Taking proactive steps now will help individuals avoid any potential issues and ensure a hassle-free tax filing process in the future.
Even if the approval of regulations takes place within this year, the focus of next year's statement will be on the earnings of 2023, a year in which there was still no regulation for gambling.
She explains that the amount of bets made should be declared in the income statement with exclusive withholding tax.
There is no tax recalibration during the declaration process, preventing the government from charging additional fees or generating refunds. The calculation of taxes remains unaltered, ensuring that taxpayers are not subject to unexpected changes in their financial obligations. This transparent approach provides individuals with a sense of stability and predictability when it comes to their tax liabilities. By maintaining a consistent framework, the government avoids any potential discrepancies that could arise and ensures fairness in the tax system.
The financial planner suggests that the gambler declares their winnings, even if the amount falls below the exemption threshold.
He must declare why that is money he is earning. If in the future he purchases any assets, he has to declare the income. There is no burden in declaring, only benefits. What mostly gets caught in the tax audit is not having income to buy what you want, he emphasizes.
She clarifies that those who do not fall under the legal requirements for declaration do not need to fill out the document solely based on the fact that they have placed a bet, provided that the total amount of bets in the year does not exceed $40,000.
For those who opt for the pre-filled tax return, the amounts withheld by bookmakers should already be automatically included in the document. It is important to note that this feature simplifies the reporting process and ensures accurate reporting of gambling winnings. By streamlining the information, individuals can save time and effort when filing their taxes. Rest assured that the system takes into account the withheld amounts, ensuring compliance with tax regulations. Therefore, individuals who engage in gambling activities can rest easy knowing that their tax obligations are being properly accounted for.
