Finances After Winning Money in Canada: Lottery Wins and Other Windfalls

A windfall (a lottery win, a large settlement, an inheritance, the sale of a business) creates decisions most people have never had to make. This page covers how the money and its earnings are taxed in Canada, the rules that apply when you share it with family, and what’s worth deciding before spending or investing it. It’s part of the life stages hub; for money received from an estate specifically, see what to do when you receive an inheritance.

What’s taxed and what isn’t

So a lottery win, a gift or an inheritance generally arrives tax-free (a settlement for a lost job or the sale of a business can be taxable); tax starts once the money earns a return. For example, $100,000 earning 4% interest produces $4,000 a year of taxable income, and at a 43% marginal rate about $1,720 of that goes in tax. (Illustrative figures: $100,000 × 4% = $4,000; $4,000 × 43% = $1,720.)

Sheltering the income in registered accounts

Registered accounts let investment income grow without annual tax, up to each person’s room:

The FHSA is only for first-time buyers. You can open an FHSA if, when you open it, you are a resident of Canada, at least 18 (19 where that is the age to enter a contract) and no older than 71 on December 31 of that year, and a first-time home buyer: you didn't live, this year or in the previous 4 calendar years, in a home that you or your current spouse or common-law partner owned as your principal residence.

Check your available room on your CRA My Account or notice of assessment before contributing; how much TFSA room you have explains the TFSA calculation. Amounts beyond your room go in taxable accounts.

Sharing it with family: the attribution rules

The table is a summary. If you give or lend money or other property to your spouse or common-law partner, the income it earns is taxed to you, and so are capital gains when they sell it, while you are resident in Canada and still together; if you give or lend it to a child, grandchild, niece or nephew under 18, the income (but not capital gains) is taxed to you until the year they turn 18. The main exceptions are a loan at the CRA's prescribed rate with each year's interest paid within 30 days after the year ends, a transfer for fair market value, and living apart after the relationship breaks down. The rules in full, with their exceptions, are in the attribution rules guide.

A documented loan at the CRA’s prescribed interest rate is the usual way to let a spouse earn investment income taxed at their own rate. A family trust can also split income or hold assets for the next generation, but it costs money to set up and run each year and needs legal and tax advice to structure.

Before spending or investing

People who’ve managed windfalls well tend to describe the same approach: slow down, keep the news to a small circle, park the money somewhere safe while deciding, and get advice from people who aren’t paid by what you buy.

• Somewhere safe to wait: a high-interest savings account or short GICs, bearing in mind that deposit insurance covers a limited amount per institution; see CDIC deposit insurance for what’s covered.
• Independent advice: a fee-only planner and a tax professional can map the tax and estate questions before anything is locked in.
• Debts: paying off high-interest debt is a guaranteed saving equal to the interest rate.
• Your estate: a large windfall is a reason to write or update a will and check beneficiary designations; see the estate planning hub.

Related reading

• What to do when you receive an inheritance
• Do you need a financial advisor?
• Financial planning for couples
• Net worth calculator