More and more people are discovering gambling in online casinos for themselves, the number of players is increasing from year to year. At the latest when a large amount of money is won, the question arises as to whether taxes are due on winnings in the casino. Are they always tax free or is it regular income on which taxes are payable?
Does it make a difference whether you only cash out once or regularly in the casino? The following article answers these and other questions about the tax treatment of gambling. We would also like to highlight payid online casinos from PayIDPokies team that do not charge commissions from their players.
The legal bases
Let’s first take a look at the legal basis: The income that legislators regard as taxable income is regulated in the Income Tax Act. In connection with gambling in general and online casinos in particular, the existence of a valid gambling license continues to play an important role.
- Income Tax Act. For private individuals, the Income Tax Act is relevant. Gaming, sports, betting and lottery winnings cannot be subsumed under one of the seven taxable types. Therefore, it can be stated in principle that winnings that players achieve in the online casino are not taxed as income. Similar to the lottery, the amount of the win is irrelevant.
- Value Added Tax Act / Racing Betting and Lottery Act regulates for providers of games of chance that their sales are tax-free if they fall under the Racing Betting and Lottery Act. This applies to online casinos. In this respect, there are basically no levies that could be passed on to the winners. Sports betting is an exception .
Irrespective of this, the organizers of games of chance must pay the lottery tax.
Licensed Vendors
If you want to gamble, you need a state license to do so.
In order for an online casino to be able to legally offer its services to players, it must have a valid license. Accordingly, only such profits are to be regarded as legitimate that were obtained from a licensed provider.
- Australia licenses. In Australia, gambling winnings, including lottery winnings, are not subject to taxes. Money, won from gambling activities not as an income but as a result of good luck.
- EU licenses. The EU freedom to provide services is one of the four cornerstones of the European internal market. It states that companies are not only allowed to offer their services in their home country, but throughout the EU.
Winnings from gambling outside the EU
Winnings made at a casino outside the EU must be declared as soon as they exceed EUR 10,000. In principle, there are no taxes here either. With providers who do not have an EU gaming license, however, there is a risk that the winnings will be confiscated. It is therefore strongly recommended to only try your luck with providers who can show a valid license.
Payout
Anyone who wins money in the online casino is entitled to the immediate and full payment of the winnings. Pay attention to the following points:
- No transfer and exchange fees If the prize was earned in euros, the provider may not charge any transfer or exchange fees.
- No obligation to state profits in the tax return Because of the tax exemption, private individuals are not obliged to state profits in the tax return to the tax office that they have achieved in the online casino.
- Tip: Keep evidence! There is no obligation to document winnings from games of chance or the lottery. However, it has proven useful in practice to keep all proof of the payment of gambling winnings.
Differentiation between games of chance and games of skill
For the tax treatment of winnings in online casinos, the question of whether the winnings result from a pure game of chance or from a game that also has a skill component also plays a role.
- Gambling Overview In pure gambling, all winnings are based solely on game luck. Your own skill and ability have no influence on the chances of winning.
- Gambling Examples This category includes most of the casino games such as roulette, blackjack, poker and slot machines. Anyone who wins here does not have to pay income tax.
- Skill Game Overview In skill games, the luck of the game is mostly or entirely in the hands of the player. He can directly influence what is happening in the game and make his own decisions, which at best have a favorable effect on the result.
- Examples of Skill Games A good example of a skill game is chess. Anyone who wins a cash prize in a chess tournament can hardly claim to have won it primarily through luck.
Exception: Professional players
The previous explanations have referred to private individuals who have made a one-off profit or have been lucky in the casino over longer periods of time. In addition, it was assumed that there was further regular income. In such cases, the tax exemption of gambling winnings can be affirmed without any problems.
The situation is different for players who derive all or most of their income from winnings in the casino. The question then arises as to whether they run a regular business and their profits should therefore be regarded as normal taxable income.
Demarcation of recreational players / professional players
In practice, the courts apply the following criteria to distinguish recreational gamblers from professional gamblers:
- Regularity of income If a player makes very regular and sustained profits over a longer period of time, the courts often take this fact as an indication of the existence of commercial income. In this context, the question of the intention to make a profit also plays a significant role.
- Other sources of income The courts also check whether the person has other sources of income. If this is the case, there is initially some evidence that the person is not to be regarded as a professional player. However, if the gambling winnings exceed the other income many times over, the classification as a professional gambler can hardly be refuted.
- Wins and losses? Another criterion is whether there are regular losses in addition to regular profits. If so, there is a case for classifying the person as a professional gambler. After all, he bears an economic risk that is comparable to other traditional commercial activities.
Income tax on winnings for professional players
Anyone who pursues a commercial activity with gambling according to the criteria listed above and is therefore classified as a professional gambler must of course pay income tax on the profits made. The following points should be kept in mind:
- Earlier wins This also applies to wins that are further back in time. For the tax office, the point in time at which the commercial character of the gaming activity prevailed for the first time is decisive.
- Allowance The tax becomes due as soon as the total income exceeds the basic allowance of 9,168 euros.
- Offset losses In return, a professional player, like any other trader, can claim any losses for tax purposes.
Interest on gambling winnings
For private individuals who do not gamble in online casinos on a commercial basis, the winnings are tax-free themselves. This applies without restriction to the tax year in which the profits accrue.
The situation is different with the proceeds and interest income that result from the profit in the casino in the following years. This can be, for example, interest on the invested profit or dividends that yield shares purchased with profit money. The regular interest income tax and withholding tax are due on these.