You may be very aware of the impact of taxes on your income and investments, but what about those events that may only happen once in a lifetime - such as winning a lottery? This article is about some tax breaks that you may not have known about.

Gambling and Other Winnings

In Canada, any money that you win in a casino or through a lottery or game of chance is not subject to tax.

The courts supported this concept in a recent case involving the Leblanc brothers. Even though the Leblanc brothers allegedly bet $52 million between 1996 and 1999 and cleared over $5 million within that period on gambling, the court determined that the brothers did not have an organized system designed to win while minimizing risk, but rather had a pattern of placing large bets on long-shots and winning large when they did win. The court concluded that their activities could not be construed to be a business and thus, the winnings were not taxable.

However, while the good news is that your winnings are not taxable, the other news is that any income earned from investing or selling your prize is taxable. For example, if you win money and invest it, make sure you can establish that the earnings resulted from the investment of your windfall. If you win say, a car, and decide to sell it, the difference between its value at the time you received it and the proceeds of the sale would be a taxable capital gain.

As the CRA may conduct an audit where an individual's circumstances do not appear to be supported by earned income, it is important to maintain records of the market value of the prize and the source and distribution of the winning. For example, if you earn interest of $900 in one year and in the subsequent year earn interest of $12,000 on the investment of a windfall, this dramatic increase could spark the CRA's interest. Certainly, you should have documentation to support that the earnings resulted from investing your lottery winnings.

Business Losses from Theft or Fraud

If your business has assets stolen as a result of criminal activity, can those losses be written off against income? Generally, the answer is yes. The costs of repairing or replacing items damaged by illegal activities are tax deductible. Of course, the loss is reduced by any insurance proceeds or repayment of amounts for damages, stolen property or restitution of funds.

the CRA may deny deductions for a loss if no attempt has been made to secure restitution, be sure to report damage, theft or fraud to the police and notify your insurer. Not only does this documentation assist in establishing the amount of the loss, it also provides a basis for tax relief in the event that restitution is not received. Of course, you should first consult with your lawyer before taking legal action against anyone for fraudulent activity.

Note, however, there are circumstances for which the losses would not be deductible. For instance, if the person stealing the assets is a partner, proprietor or shareholder in the business, the losses from theft would not be considered deductible for tax purposes. As well, if the thief was in a position wherein he or she was given the same authority as the owner, there may be some question as to whether the loss would be tax deductible.

Company Death Benefits

Did you know that your business can pay a death benefit up to $10,000 to the spouse of an employee and that this benefit is not taxable in the hands of the recipient as long as it is paid in recognition of the employee's service? A business can structure payments of death benefits so they do not have to be paid to all employees. This allows a business to offer this benefit as a “perk” for specific employees rather than having to offer it to all employees.

thebenefits include:

• Payments of a retirement allowance where the employee had a contractual right to receive it on retirement;
• ayments as a result of severance where the employee has ceased work but not received the severance; and
• Payments made from accumulated sick days account wherein the deceased died prior to retirement but payments made are considered in recognition of the employee's service.

The entitlement to a death benefit normally expires if the employee is no longer working for the company.

There is only one $10,000 exemption in connection with the death of an employee. To the extent that there is a surviving spouse who receives a payment, the amount received by the spouse is exempt from tax up to the $10,000 limit. If there are other persons also receiving proceeds from the death benefit, only the pro-rata share of any remaining portion of the $10,000, after deducting the amount the spouse received, is exempt from tax.

Death benefits are reported on a T4A prepared for the recipient. If the death benefit paid exceeds the $10,000 limit, the amount in excess of the $10,000 will be taxable in the hands of the recipient(s).

Note that death benefits or these purposes do not include:

• Payments for accumulated vacation time, CPP or QPP pension benefits;
• Payments from a superannuation or pension fund plan; or
• yments for deferred employment income on which the employee would have been taxed if the individual had not died.

Strike Pay

Workers who belong to a union do not have to pay taxes on strike pay as long as they are not employees of the union. Thus, if a worker receives remuneration while picketing, the amount is not considered earned income for tax purposes.

The Silver Lining

With all of life's ups and downs, sometimes the tax treatment can be the silver lining in your moment of sunshine or rain. In all of these situations, it is important to talk to your chartered accountant before you act.