What if I Win the Lottery? Are My Winnings Taxed?
A few weeks ago, one lucky couple in a sleepy city in the Greater Toronto Area realized the ultimate “I thought it could never happen to us” moment when they won a $50 million lottery. We’ve all dreamed about early retirement via the big lottery win, living a life of luxury and taking vacations at any time, to anywhere. With that said, let’s take a look at what winning the lottery means in terms of taxation for any lucky winners. It turns out, Canadians are fairly lucky when they hit the jackpot!
After the news sank in, the winners were photographed holding a novelty cheque for $50 million. In the U.S. this stunt is nothing more than a promotional photo opp. If the $50 million was won by a resident of one of the 50 states, about 38 per cent (or $19 million!!) would go to the tax man. Luckily, lottery winnings are not taxable in Canada. This couple really did get $50 million to deposit into their bank account!
But that’s exactly when the tax
breaks ended. Everyone with savings accounts or investments can expect to earn interest – a perfect case of money making more money – and when you have $50 million, this can add up really fast. This still sounds great, right? Well here’s the catch: lottery winnings are tax-free but the interest earned on them is not. This counts as taxable income on your return and must be reported on a T5 form. In the grand scheme of things, this is a problem I wouldn’t mind having.
While we all want to hit it big with the lottery, even if we don’t, we still come out a winner; a large portion of lottery proceeds go back to the province, helping fund public services and, ultimately, lower the amount of taxes residents pay. In Ontario, for example, the Ontario Trillium Foundation is entirely funded by OLG proceeds .
So cross your fingers, rub that magic rabbit foot, pray to the lottery gods and be hopeful that it could be you. Good luck!
Intuit (303 Posts)Source: blog.turbotax.ca