Winnings from a Canadian lottery are considered windfalls, which is any sudden influx of unexpected money. Windfalls are not consistent or subject to tax. However, any revenue created with those winnings is taxable. For instance, interest earned on lottery winnings is taxable. This rule is because Canada’s Income Tax Act only taxes income. In 1982, the court ruled in the Queen v. Cranswick court case that windfalls are not income and therefore are not taxable.
Also, lottery winnings are considered the product of after-tax dollars since the government has generated revenue from the sale of each lottery ticket and is not subject to taxation. The logic behind this reasoning is that any revenue generated by a lottery run by the government, like through the Ontario Lottery and Gaming Corporation (OLG), is directed the same way tax dollars would be. Mainly to provincial community investments, social programs, charities, and non-profit organizations through the Ontario Trillium Foundation.
Regarding charitable games authorized by the government where tickets are sold for prizes, collecting taxes on money raised, or winnings is also not taxed. The reason is that since charitable donations are tax-exempt, this extends to games of chance organized for charity. Therefore, when you spend after-tax money on a ticket to a charity, the profit generated from the game and your prize is tax-free.
The CRA has been known to go after professional gamblers, who consistently win at games that consider their primary source of income in games of chance that have an element of skill, such as poker.