"If I win at horse racing, do I owe tax?" "What about the lottery?" Surprisingly, almost no one can answer this correctly. The conclusion: winnings from horse racing, keirin, and pachinko are taxable as "occasional income" (from over ¥500,000 a year), while the lottery and toto are tax-exempt by law. And for horse racing there is the principle that "losing tickets cannot be counted as expenses," along with a famous Supreme Court ruling that overturned it. This is an area the major media do not cover, and we organize it accurately using the case law and the National Tax Agency's treatment.
① Winnings from horse racing, keirin, kyotei (boat racing), auto racing, and pachinco are "occasional income." The portion of the year's winnings exceeding the ¥500,000 special deduction is taxed at 1/2[NTA No.1490].
② The only deductible expense is "the cost of buying the winning tickets." Losing tickets are, in principle, not allowed (when it is within the scope of a hobby).
③ Exception: in cases where someone made comprehensive, continuous, large-scale purchases using automated betting software and the like, the Supreme Court ruled it was miscellaneous income — meaning losing tickets were also deductible (2015 and 2017 rulings). But the cases recognized are extremely limited.
④ The lottery and toto/BIG are tax-exempt (under the Act on Lottery Tickets and related law). No filing is required. However, if you split winnings with family or friends, gift tax may apply.
⑤ Online casinos are illegal (the crime of gambling), but the profits are still taxable. "It's illegal, so I don't have to file" does not hold.
Quick reference: taxable vs. tax-exempt
| Type | Tax | Basis / notes |
|---|---|---|
| Horse racing, keirin, kyotei (boat racing), auto racing | Occasional income (taxable) | Only the cost of buying the winning betting tickets is deductible |
| Pachinko, pachislot | Occasional income (taxable) | In theory the same. It is not tax-exempt — it's just that no cash-out record remains |
| Lottery (Jumbo, Loto, Numbers) | Tax-exempt | Act on Lottery Tickets. About 40% of the sale price goes to public projects, etc., at the time of purchase. A structure of "tax already paid when you buy" |
| toto / BIG | Tax-exempt | Act on Sports Promotion Voting |
| Winnings at overseas casinos | Occasional income (taxable) | Subject to filing after returning to Japan. Bringing in large amounts of cash may also require a customs declaration |
| Online casinos | Occasional income, etc. (taxable) | Use itself is illegal as the crime of gambling. Illegal profits are also taxed |
Calculating occasional income (what if you win ¥300,000 at the races?)
- Example 1: annual payouts total ¥600,000, of which the winning tickets cost ¥50,000 → (¥600,000 − ¥50,000 − ¥500,000) × 1/2 = ¥25,000 is taxable (taxed by combining it with your other income)
- Example 2: winnings of ¥500,000 or less in payouts → zero tax, no filing required
- An employee does not need to file an income tax return if their income other than salary — including the taxable portion of occasional income — is ¥200,000 or less for the year (the ¥200,000 rule)
The biggest catch is that "you cannot deduct losing tickets." Even if you are down for the year overall, one big win can make you taxable — this is why the taxation of horse racing is called "unreasonable." Because large payouts such as WIN5 can be identified by the tax office through the JRA, don't forget to file in a year with a big hit (penalties for non-filing).
The "losing tickets case": the two Supreme Court rulings the government lost
- Supreme Court, March 10, 2015 (the Osaka case): a case in which someone kept buying betting tickets comprehensively, over a long period and a large number of times, using commercial automated betting software, obtaining about ¥7.8 billion in payouts over six years. The Supreme Court ruled it was miscellaneous income as "a continuous act for profit-making purposes," and recognized the cost of the losing tickets as necessary expenses too[Supreme Court precedent].
- Supreme Court, December 15, 2017 (the Sapporo case): even without using software, in a case where someone bought comprehensively throughout the year using their own analysis and made profits on an ongoing basis, it was similarly ruled miscellaneous income. In response, the National Tax Agency revised its directive.
- But do not misunderstand: miscellaneous income was recognized only in the extreme cases where "mechanical, comprehensive, large-scale buying meant that buying tickets could be called an economic activity." Ordinary racing fans who predict and buy on weekends remain in occasional income, and their losing tickets are not deductible. There are also several "prediction-type" cases that were fought in court and lost.
The lottery's trap: "splitting" and "gifts"
- The winnings themselves are tax-exempt, and no filing whatsoever is required for the year you receive them.
- However, if you split the winnings with a spouse, child, or friend, that share becomes a "gift," and if it exceeds ¥1.1 million a year, gift tax applies. If ¥1 billion is split among three family members, the gift tax can exceed ¥100 million per person.
- The correct method: for a joint purchase, receive the winnings at the bank in everyone's names (at Mizuho Bank, the representative of the joint purchase plus all members go to receive it, and have each person's share recorded on a certificate). This way, each person is treated as having received the winnings directly, so it is not a gift.
- Buying a house or car in a family member's name after winning is also a gift. It has the same structure as a nominal deposit and becomes a problem at the time of inheritance.
FAQ
From how much do winnings at the races become taxable?
Because occasional income has a ¥500,000 special deduction per year, a taxable amount arises when the year's winnings (payouts − cost of the winning tickets) exceed ¥500,000. Half of the excess is combined with your other income. An employee does not need to file an income tax return if their income other than salary is ¥200,000 or less (a residence tax declaration is required separately).
Are losing tickets deductible as expenses?
In principle, not for ordinary racing fans. The only deductible expense is the cost of the winning tickets. The Supreme Court recognized losing tickets as expenses only exceptionally, limited to extreme cases where comprehensive, continuous, large-scale buying using automated betting software and the like meant that buying tickets itself could be called an economic activity.
Why is the lottery tax-exempt?
Because it is defined as tax-exempt by a law called the Act on Lottery Tickets. The lottery has a structure in which about 40% of the sale price becomes a funding source for local governments' public projects and the like, so from this "effectively already borne at the time of purchase" structure the winnings are treated as tax-exempt. toto and BIG are likewise tax-exempt.
Won't pachinko cash-outs go unnoticed if I don't file?
It is true that records are hard to leave behind, but legally it is taxable as occasional income, and whether a filing obligation exists is not decided by "whether you'll be found out." If you deposit a big win at a bank and can no longer explain your assets, it can become a problem in a tax audit.
Sources
- Occasional income (¥500,000 special deduction, 1/2 taxation): NTA No.1490 Occasional income (in Japanese)
- The losing tickets case, Supreme Court ruling (March 10, 2015): Courts of Japan — case search (in Japanese) / examination of income category: National Tax College — Zeidai Journal (in Japanese)
- Tax exemption of the lottery: Article 13 of the Act on Lottery Tickets / Act on the Implementation of Sports Promotion Voting
* This article does not encourage gambling. Because the distinction between occasional income and miscellaneous income differs depending on the facts, if you have large or continuous profits, please confirm with a tax office or a tax accountant.