REVENUE CANADA TAXATION 
 
INTERPRETATION BULLETIN NUMBER: IT-404R 
 
DATE: March 31, 1981 
 
SUBJECT: INCOME TAX ACT 
Payments to Lottery Ticket Vendors 
 
REFERENCE: Section 9 (also paragraph 40(2)(f)) 
 
This bulletin cancels and replaces Interpretation Bulletin 
IT-404 dated January 16, 1978. Current revisions are 
designated by vertical lines. 
 
1. This bulletin states the Department's views on the 
taxability of amounts received by a taxpayer in connection 
with his sales of lottery tickets, either as a distributor 
(one who provides a primary distribution to retailers) or 
as a retailer (one who sells to the final ticket-holder). 
The comments in this bulletin apply equally to taxpayers 
selling pool system betting chances. 
 
2. Amounts earned by a distributor or retailer from the 
sale of tickets is income from a business within section 9. 
The income may be a portion of the gross selling price of 
tickets held by him for sale on a consignment basis, the 
gross selling price of tickets purchased by him for sale 
less the cost to him of the tickets, or it may be computed 
in some other manner. In any case the amount of income for 
the purposes of section 9 is his gross income from selling 
tickets less the expenses incurred by him in earning that 
income. 
 
3. In addition to receiving income from the sale of tickets 
a distributor or a retailer may win a prize in respect of 
tickets he has sold. Subject to 6 below, where the prize is 
awarded solely on the basis of chance (for example, he was 
the seller of a winning ticket) the Department views the 
amount or value of the prize as not taxable in the 
recipient's hand. That is, the tax results to him are as 
though he had held a winning lottery ticket. Further 
commentary is contained in IT-213 "Prizes from Lottery 
Schemes and Giveaway Contests." 
 
4. A prize may be won by a distributor or retailer where 
the number of his chances to win is determined by reference 
to the number of tickets he has sold. The Department's view 
is that although the probability of winning is influenced 
by the volume of his sales, as long as the selection of the 
winner is solely by chance, the amount received by the 
winner is not subject to tax. On the other hand, where the 
prize is awarded on the basis of volume of tickets sold (in 
the manner of a sales incentive award) its amount or value 
is income to the recipient. 
 
5. In certain cases a vendor may be required to respond 
correctly to one or more questions in order to be eligible 
to participate or, having qualified to win a prize, before 
the prize can be awarded to him. Where his entry has been 
selected wholly on the basis of chance and the element of 
skill required to answer successfully the questions is 
relatively minor, he will be considered to have won a 
lottery prize. On the other hand if real skill or merit is 
involved in the win (meaning the prize is not won primarily 
on the basis of chance) it will be a question of fact 
whether it is a lottery prize or whether its value is 
business income to the vendor. 
 
6. Some distributors repurchase unsold lottery tickets from 
their retailers. The costs of such repurchased tickets are 
deductible in computing the distributor's income while any 
amounts won on the tickets are included in the 
distributor's income.