Canadians stand to gain more from Powerball win than Americans

Powerball lottery ticket

Experts say a Canadian Powerball lottery winner would come out way ahead of an American, thanks to different tax laws between the two countries.

D&H Group Chartered Professional Accountants specializes in cross-border tax issues and broke down who stands to gain more from a Powerball win for CTV News.

"Canadians would win,” tax expert Ken Cho-C.P.A., said. "Hands down. The numbers prove it. "

The I.R.S withholds 30 per cent tax if a Canadian won the jackpot but an American would have to pay a 39.6 per cent tax - the highest tax bracket rate.

That means on a $1.5 billion payout, a Canadian would walk away with $632,100,000, while an American would take home $545,412,00. That’s $86,688,000 less.

And the annuity of 30 annual payments would net a Canadian $1.05 billion. An American would get $906 million. That’s $144 million less.

Winning in Washington State would be even better because there’s no state income tax withheld, which means you only pay the federal withholding tax.

And Canada doesn’t charge tax on any lottery winnings, foreign or domestic, so a Canadian winner wouldn’t be dinged again when they got home.

But don’t expect a tax credit in Canada for American tax paid. The U.S – Canadian Tax Treaty doesn’t apply.

And we come out on top, too, if you want to give some of your big win away.

"Now for Canadian purposes there is no gift tax, period,” said Cho. Americans do have to pay a gift tax on each gift they give, an effective tax rate of 40 per cent.

The tax situation gets murkier when it comes to dual citizens and couples in Canada where one spouse is an American citizen.

A Canadian can give money to a U.S. spouse or anyone else without being taxed. But if you’re an American, even with a Canadian passport living in Canada, you can’t escape any of the American taxes.

Taxes aside, if you win, you need to be prepared. Experts say you should talk to trusted advisors, a lawyer, accountant and financial planner before collecting your prize because you could end up spending it all or putting it into bad investments in the initial few years.

"Tragedies happen in that three to five years. We don't want that," Cho explained.

Just ask American Securities Attorney Andrew Stoltmann. He’s represented six lottery winners who lost it all within five years.

“One of my clients was a 67-year-old truck driver [named Andrew Cicero] who won over $6 million in the lottery,” said Stoltmann. “He was relentlessly targeted by over 30-something financial advisors in the first month alone."

If you win tonight’s Powerball, you do have to make your name public but you’ll likely have enough money to disappear. You can add 40 per cent to your win if you convert your money to Canadian dollars.