Today’s high-net-worth individuals can’t trust just anyone with their money or business. That goes for family, friends, and even wealth managers. That’s why Wealth Management Canada conducts a careful vetting process that examines manager reputation, philosophy, process, and performance before inviting wealth management firms to join our platform.
But let’s say you become a high-net-worth individual overnight. Perhaps an inheritance from grandma. Or even more unlikely? You won the lottery. It’s rare, but it happens! And if you’re one of the lucky ones, you might feel a rush of excitement with a touch of nervousness.
Now, that nervousness is normal because you have reasons to feel cautious after winning the lottery. Do you owe tax? Should you feel indebted to friends and family? We’ll help you figure out what to do with lottery winnings in Canada and how to protect your wealth with this article. Keep reading to learn more!
Table of contents
- What to expect if you win the lottery
- How long after winning the lottery do you get the money in Canada?
- How much tax do you pay on lottery winnings in Canada?
- Can you give away lottery winnings tax free in Canada?
- Can you claim lottery winnings anonymously in Canada?
- What to do with lottery winnings in Canada
- Managing changes after winning the lottery in Canada
What to expect if you win the lottery
The answer to this question depends on whether your lottery win was public or not. For example, some states in the US allow you to claim your winnings anonymously. But if you’re in Canada? You can’t claim your winnings without revealing your identity, and it’s often publicized. There are some exceptions, like this $30M BC lottery winner — but that’s not the norm (more on that later).
Ultimately, your friends, family and peers will find out about your big win, so what can you expect when everyone finds out? For starters, impeding questions from those around you. Maybe you weren’t all too popular before, but all of a sudden, you’re going to get a few phone calls. Friends, family, and strangers alike might ask you for money for this reason or that. Or maybe some are keeping you closer than they used to.
One lottery winner told Reader’s Digest that a friend came to her with a sob story about the possibility of losing her house. When the lottery winner found out the story was a crock and confronted her friend, their friendship ended. Unfortunately, you’ll need to look closely at your social circle and make some changes to avoid being taken advantage of.
Another thing to expect after winning the lottery? Temptation all around. When you first win, that Toronto penthouse condo, Lake Como vacation, and Lamborghini are all too accessible. It’s natural to want to treat yourself, but you’ll notice situations where you wonder if it’s wise to spend so frivolously.
Related Reading: When it comes to saving for retirement, how much is enough?
How long after winning the lottery do you get the money in Canada?
You’ll usually get the money within a week or so. Winners can claim their prize at any lottery card distributor (your local convenience store, for instance) if the amount is under $1,000. If they can’t cash it, you’ll just have to find another location.
If you have winnings over $1,000, you can claim it online and receive your winnings in as little as five business days. You can also claim by mail. Although that means you’ll need to wait a few weeks before you receive your cash given the longer paper processing time.
Keep in mind that Ontario Lottery and Gaming (OLG) says you have up to one year tops to claim your winnings. After that? It’s not considered valid, though you’re welcome to argue your case with them. The laws in other provinces and territories may vary slightly, but expect certain limitations. In any case, why would you want to wait to claim your prize!
How much tax do you pay on lottery winnings in Canada?
Canadian lottery winnings aren’t taxable. Whether you win $20 or $2 million — or even $20 million — you get to keep every last cent. The logic applied in Canada is that lottery winnings are “windfalls”, as opposed to actively or passively earned income, so they shouldn’t be subject to taxation. It also cuts down on the paperwork and other administrative processing for recreational gamblers and casinos.
But here’s the thing: if you generate income through your winnings, that’s taxable. For example, let’s say you put your lottery winnings into a few stock market investments. Any appreciation or dividends that you earn on those investments are taxable. The same goes for starting a business financed by your lottery winnings. Everything you earn through that business is taxable. But the lottery winnings alone? Those are free from tax.
Related Reading: Living Inheritance Canada
Can you give away lottery winnings tax free in Canada?
Technically, yes. Gifts and inheritances aren’t taxable in Canada, meaning you can treat your loved ones to a nice chunk of change tax free. But the same rule applies as above. If your family uses the gift to start a business, invest in property, generate dividends from an investment, or conduct any other income-generating activity with help from the gift, those proceeds are taxable.
How to give money to family after winning the lottery in Canada?
In technical terms, you can either transfer them the funds via online banking or hand them a cash sum. Alternatively, you can purchase an asset, such as a car or home, and give it to your loved ones if you’d prefer not to gift money.
But if we’re talking strategy, we’d recommend pausing and reflecting for a few weeks before gifting your lottery winnings to friends or family. At the very least, consult an accountant and wealth manager before you do so.
If you’re considering gifting money to a child, whether your kids, nieces, nephews, or any other close family member under the age of 18, a trust fund might be a safer bet.
Can you claim lottery winnings anonymously in Canada?
No. Most Ontario lottery providers are required by law to publish the names of winners that receive over $1,000 in winnings. That’s also why you most commonly see lottery winners pose with photos with their giant cheques.
The same is true for most other provinces and territories in Canada, however, it can vary slightly. Although, in most cases, there is little you can do to remain anonymous. This is because publicity about lottery winnings is what keeps the industry propelling forward. If we didn’t hear about others winning millions of dollars, we’d never buy a lottery ticket!
But, like the anonymous BC winner mentioned above, exceptions apply. You can apply for anonymity if you have a good reason (we’re talking life and death to you or another person, or something political perhaps) but it’s more common for lottery providers to refuse.
Related Reading: Small Business Tax Deduction in Canada
What to do with lottery winnings in Canada
Cue the violins: the answer isn’t to buy a yacht or indulge in daily extravagant dinners. Remember, it’s not uncommon for lottery winners to go back to square one after gambling or frivolously spending away their winnings. Sure, you can spend money on something exciting that you never had the chance to experience before due to financial limitations, but don’t get carried away! Money isn’t infinite, not even for lottery winners.
If you want to retain your lottery winnings and use them wisely, here are some things you can do with them:
- Pay off your debts: Credit card debt weighing you down with interest? Pay it off with your lottery winnings. The same goes for personal loans, overdue taxes, parking tickets, and car loans — heck, you might even put a little more toward your mortgage. However, you should always check with your lender to ensure you’re aware of any overpayment fees.
- Buy property: We’re not talking about a multi-million-dollar mansion — but if you’re currently renting or craving an upsize? A real estate investment is one of the most stable. Most of the time, property retains and appreciates value. Plus, everyone needs somewhere to live.
- Put it in a trust fund: If you want to protect your new wealth and ensure it goes to your children or other beneficiary at a later date, a trust fund is a useful savings vehicle to explore.
- Invest with a wealth manager: Nobody can help you preserve wealth more strategically than a wealth manager. They’ll help you create a diverse investment portfolio that accounts for your financial goals and lifestyle. If you don’t have a knack for money, it’s wise to employ someone you trust to help you.
- Treat yourself — with reason: You only live once, and a lottery win can help you enjoy life to its fullest. Whether it’s a quarterly spa weekend getaway or a splurge on a novel fashion piece, go for it. Let the lottery winnings enhance your life, but don’t let it take over. Most wealthy people have a passion investment, but they limit it so their finances don’t get out of control.
- Max out TFSA, RRSP and other registered accounts: These accounts are powerful financial tools in Canada. If you haven’t already, contribute to the maximum threshold to take full advantage of these resources.
- Start a business: Creating and building businesses is one of the best ways to establish and maintain generational wealth. Instead of working for someone else, you can start your own business with your lottery winnings. Entrepreneurship isn’t for everyone, but it could be a great way to stay engaged and utilize your new found money.
- Go to school: When you were young and picked what you wanted to study, it may not have been your passion. Or maybe you never got the opportunity to go to school. Now you can study whatever you’d like! Pursuing education at any age is a great way to keep your mind sharp and engage in a thriving community.
Managing changes after winning the lottery in Canada
Even though we offered a few ideas like investments and trust funds, you won’t always know what to do with lottery winnings in Canada. It’s easy to feel overwhelmed or uncertain about the best path forward. Believe it or not, this sentiment is common for any financial windfall (including gifts and inheritances). Plus, high-net-worth individuals always have to consider the best course of action to preserve and grow their wealth.
That’s why wealth managers are in business. Wealth Management Canada connects high-net-worth Canadians like yourself with wealth management companies and firms that can best fit your needs and values. Our careful vetting process ensures only the best, most reputable wealth managers are accessible through our website. It’s time to figure out what to do with your lottery winnings in Canada — the responsible way. Book a call with a wealth manager today!
Read More: How to Manage Sudden Wealth