Are Canadians bigger winners when it comes to the lottery?

By Laura Bohnert

The last two weeks were Powerball fever in the US when the Powerball jackpot reached over $1 billion, but did the many Canadians who also purchased Powerball tickets have even more reasons to get excited? A recent study has shown that Canadian players may actually be able to win bigger than their US counterparts when they play the Powerball jackpot.

How—apart from the exchange rate—can Canadians manage to win bigger than their US co-competitors? Strategy; and, according to Kentucky lottery expert and financial consultant Don McNay, the trick is all in the taxes.

Legally, Canadians and other non-US citizens are allowed to purchase tickets for the Powerball lottery and, exchange rates aside, are eligible to win the same amount. Canadians, however, are at an advantage when it comes to the tax laws surrounding those winnings.

Lottery winnings are treated differently in the States than they are in Canada. In the US, lottery winnings are treated as income, and thus are taxable by the federal government. The US federal government can withhold 25 per cent of winnings as income tax for citizens with taxpayer ID numbers, and up to 28 per cent for those without ID numbers. Canadian winnings, on the other hand, are not considered as income, and thus are not taxable for Canadian income tax.

Of course, Canadians aren’t totally off the hook when it comes to being taxed. US law allows the IRS to withhold 30 per cent when it comes to gambling winnings that are being paid to a foreign person which actually looks like a pretty significant disadvantage to trying to tap into the US lottery. So, where does the strategy come into play? In knowing tax laws for the state in which you buy.

Some states require lottery winners to pay an additional state income tax on lottery winnings—and this applies to both residents and non-residents. How can Canadians navigate this factor to their advantage? By paying attention to the lottery taxes each state charges. Choosing to purchase your lottery ticket in a state that has a lower state lottery tax, or in a state like Washington where there is no state tax, can mean bigger winnings—or, at least, less deductions on your winnings.

Paying attention to tax laws can help Canadians reap a bit of an advantage over their US co-competitors. However, the odds of winning, no matter which state you play in, are a very slim one-in-292.9 million, which means that, no matter which strategy you apply, the biggest winner is always going to be the US government.