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In general, any income you earn is taxable in Canada. There are, however, a few types of income that are exempt from tax. This article will explore the few income sources that the Canada Revenue Agency (CRA) and Income Tax Act (“ITA”) have defined as non-taxable income in Canada.

Amounts paid by the government

Certain types of government benefits are considered non-taxable income in Canada and do not need to be reported on a personal tax return. These include:

  • GST/HST credits
  • Canada Child Benefits (CCB) payments and related provincial and territorial child benefits and credits
  • Child assistance payments and the supplement for handicapped children paid by the province of Quebec
  • Compensation received from a province or territory if you were a victim of a criminal act or a motor vehicle accident

However, even though certain types of income are not taxed, they must be recorded on the tax return and included in the taxable income for tax purposes before being deducted later. Because of this, these amounts may affect some tax credits, income-tested benefits, and clawbacks. The types of income include the following:

  • Social assistance payments such as Guaranteed Income Supplement (GIS) and the Allowance
  • Workers compensation benefits from T5007 slip

Gifts and inheritance

In general, gifts and inheritances are not considered non-taxable income in Canada. There are, however, some exceptions to this rule. One of the exceptions is when the gift is received from your employer in your capacity of being an employee. In those cases, the gifts will likely be considered a taxable benefit to the employee.

Another exception is when you receive gifts that are a capital property (e.g. real estate, investments). In such cases. the person who has given the gift will be deemed to have sold the capital property at fair market value (FMV). As a result, they will have to pay tax on any resulting capital gain, despite having transferred the beneficial interest in the asset to another party.

In addition to the above, gift received in the form of cash or other property from someone that is in debt to CRA will not be tax exempt. In this situation, the recipient of the cash or other property can be held responsible to pay any outstanding tax liabilities of the transferor up to the FMV of the property transferred, less the FMV of anything that was given in return. This could apply, for example, if one spouse transfers his or her stake in the family home to the other. It might also be relevant if a private company pays dividends while there is still an outstanding tax obligation. In the case of death, all tax debt owed to the government at the time of the testators death must be paid before any property can be distributed to the beneficiaries.

Also, most amounts received by the beneficiary of a life insurance policy are also not taxable.

Tax-Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs)

The tax-free savings program began in 2009. The purpose of the program is to encourage Canadians to save money by providing them with a tax-sheltered account to invest. The TFSA is available to any Canadian resident aged 18 and over. All investment income (including capital gains and dividends) earned in a TFSA is tax-free. Withdrawals from a TFSA are also not subject to taxation while contributions are not tax deductible.

The registered retirement savings plan is a long-term saving program that offers tax benefits to encourage Canadians to save for their retirement. Investment income earned in an RRSP is not taxed until it is withdrawn. However, any contributions that you have made to these accounts may be deducted from your taxable income.

There are annual limits on the amount that you can contribute to your TFSA and RRSP. For 2019 to 2022, the annual contribution limit for a TFSA is $6,000. The contribution limit for an RRSP is 18% of your previous year’s earned income, to a maximum limit of $29,210 for 2022.

Other non-taxable payments

There are also other types of payments that are considered non-taxable income in Canada. These include:

  • Lottery winnings unless they are regarded annuity payments
  • Amounts paid by Canada or an allied Country for disability or death of war veteran due to war service
  • Strike pay received from your union, even if you perform picketing duties as a requirement of membership.

A list of income that is not taxed can be found in the ITA in s. 81, amounts not included in computing income. For more information, also refer to CRA’s summary on Amounts that are not taxed.

If you’re concerned about unreported income or want to know whether a source is taxable or non-taxable, contact us, so we can help answer all your questions.


Disclaimer

The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting/tax professionals. NBG Chartered Professional Accountant Professional Corporation will not be held liable for any problems that arise from the usage of the information provided on this page.

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