What Happens if an Australian Wins the U.S. Lottery?

by | Aug 27, 2025 | Tax Law

What happens if an Australian wins the U.S. lottery? It sounds like a dream — but the reality involves complex tax rules across two countries. Whether you bought a genuine U.S. lottery ticket or placed a bet through an Australian operator, the amount you actually take home can look very different.

U.S. Tax Comes First

If you purchase an official U.S. lottery ticket, the Internal Revenue Service (IRS) steps in immediately.

  • Federal tax: 30% is withheld at the source on U.S. gambling income. On an US$800 million jackpot, that means US$240 million gone before you see a cent.

  • State tax: Depends on the state where the ticket was purchased. Florida and Texas charge nothing, but New York can add over 10%.

  • No treaty relief: The Australia–U.S. tax treaty allows the United States to keep taxing lottery winnings that arise there.

So before you even receive the cheque, the U.S. government has taken a large share.

Australia’s Tax Treatment if an Australian Wins the U.S. Lottery

Here is where Australia’s rules come into play:

  • The jackpot itself is tax-free: In Australia, lottery wins are considered windfalls, not income. You do not declare the US$800 million on your tax return.

  • Earnings are taxable: Once you invest the money — in shares, real estate, or term deposits — the income from those investments (dividends, rent, interest, capital gains) is fully taxable by the Australian Taxation Office (ATO). See the ATO guide on gambling and lottery wins.

  • No foreign tax credit: Because the prize itself is not assessable in Australia, you cannot offset U.S. withholding tax against Australian tax.

The ATO leaves the prize untouched, but it does tax everything you earn from it later.

Betting Operators vs Real Tickets

Many Australians don’t realise that most websites offering entry into “foreign lotteries” like Powerball USA or EuroMillions do not actually buy you a ticket. Instead, they are licensed betting operators.

  • How it works: You place a bet with the operator on the outcome of the overseas draw. If your numbers win, the operator pays you an equivalent jackpot amount.

  • How they manage risk: Operators cover themselves by taking out insurance with global underwriters, often Lloyd’s of London.

  • Regulation: In Australia, these companies are regulated by bodies such as the Northern Territory Racing Commission.

  • Risk factor: Unlike a U.S. ticket backed by the state lottery, you rely on the solvency of the operator and its insurer. The risk of non-payment is low but not zero.

Two Different Worlds

  • Real U.S. ticket: IRS and state governments tax the winnings first; Australia leaves the prize untaxed.

  • Australian operator ticket: No U.S. tax applies, but you depend on the operator’s financial arrangements.

The major difference is one is guaranteed by a U.S. lottery authority, while the other depends on a private company and insurance contracts.

The Bottom Line

  • With a genuine U.S. ticket, the IRS takes 30% or more before you see the money.

  • With an Australian operator, no U.S. tax applies — but there is reliance on the company’s ability to pay.

  • In both cases, the ATO will not tax the jackpot itself but will tax any income you generate afterwards.

  • Link to your other tax blogs (e.g. “See our article on withholding tax rates in Australia.”)