So You Won a Lottery:
In Canada, prizes received in lotteries are usually tax free. However, any income or capital gain which you may earn from the investment of your winnings is taxable. There are two major concerns that you should keep in mind concerning windfalls:
- You may owe tax in some cases (such as a gift to minor children or a spouse) if you share your winnings or give gifts to others.
- There may be unexpected problems if you put a child’s name on the winning ticket.
If you want to share your winnings and it is not clear to Revenue Canada that another person has an interest in your ticket, you may have to pay tax on any income or capital gain that the other person gets from investing the share of winnings given to her. For example, you and your husband each purchase a lottery ticket. Your ticket wins; you claim the prize and the cheque is issued in your name. Since you and your husband share everything else, you always intended to share any winnings you might receive. You discuss what to do with the money and then you invest it to earn interest. Revenue Canada may tax you and not your husband on all of the interest earned because it looks like the money invested belonged to you alone. (This could also be a benefit if you are, and would continue to be, in a lower tax bracket than your husband.)
Occasionally prizes are taxable. For example, if you win a payment of money for life and the charitable organization that supplied the prize has arranged for your monthly payments to be made from the purchase of an annuity, you may have to pay tax on the difference between the cost of the annuity and the amount that you receive as your winnings.
Can I Buy a Ticket for my Child?
A problem may arise when lottery or raffle tickets are purchased in the name of a minor. In Alberta, property belonging to minors must be held or invested until the child turns eighteen. If the property will require maintenance or upkeep and there are no funds available, the property will have to be sold by the Public Trustee and the money invested until the child turns eighteen. For example, suppose you purchase a ticket on a “dream house” in your son’s name and he wins the home, the Public Trustee will become involved. Normally, the house would have to be sold and the money invested. If your son is over fourteen years, he will have to consent to the sale of the property unless the Public Trustee obtains a court order to dispense with his consent. The same problems will arise where a child receives property as a gift or under the terms of a will, and there is no provision in the will to allow the executor to lease or sell the property, or to hold onto the land and pay for its upkeep until the child is eighteen.