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Glossary -> Total Income, Net Income and Taxable Income

Taxable Income

Personal income taxes are calculated on Taxable Income.

To calculate Taxable Income, first Total Income for Tax Purposes is calculated, then items are deducted to arrive at Net Income for Tax Purposes, then other items are deducted to arrive at Taxable Income.

Total Income for Tax Purposes - Line 150

To calculate Total Income for Tax Purposes (line 150 on the tax return), add:

income from employment and commissions

other employment income, including income from wage loss replacement plans

Old Age Security pension from T4A(OAS) slips

Canada Pension Plan or Quebec Pension Plan benefits from T4A(P) slips

other pensions or superannuation

eligible pension income transferred from spouse (see pension splitting)

Universal Child Care Benefit (UCCB) payments of $100 per month for each dependent child under 6 (claimed on the tax return of the lower income spouse)

employment insurance and other benefits from T4E slips

grossed-up Canadian dividends (see dividend tax credit in Glossary)

interest and other investment income

net income from partnerships (limited or non-active partners only)

net rental income

current year taxable capital gains in excess of current year allowable capital losses, including gains from the sale of personal use property or listed personal property with a cost exceeding $1,000

taxable support payments received - see CRA pamphlet P102 for information on when support payments are taxable (and deductible to the payer)

RRSP income from T4RSP slips

other income, including taxable scholarships, apprenticeship incentive grants, lump sum payments from pensions and deferred profit sharing plans, severance pay and retiring allowances, etc.

net income from self-employment (business, professional, commission, farming, and fishing)

Line 147 other payments (included here, but deducted later, at Line 250:

	workers' compensation benefits from T5007 slip
	social assistance payments
	net federal supplements from T4A(OAS) slip

The total of the above is total income for tax purposes, line 150 on the tax return.

Net Income Before Adjustments - Line 234

To calculate Net Income Before Adjustments (line 234 on the tax return), deduct the following items from Total Income for Tax Purposes:

registered pension plan deduction from T4 and T4A slips

RRSP deduction

Saskatchewan pension plan deduction

eligible pension income transferred to spouse (see pension splitting)

annual union, professional, or like dues

child care expenses

disability supports deduction

allowable business investment losses

moving expenses

deductible support payments - see CRA pamphlet P102 for information on when support payments are taxable (and deductible to the payer)

carrying charges and interest expense

deduction for CPP or QPP contributions on self-employment and other earnings

exploration and development expenses

other employment expenses

clergy residence deduction

other deductions

repayment of certain amounts (other than salary and wages) that you included in income in the current year or a previous year, such as OAS benefits

repayment of EI benefits (from box 30 of T4E slip)

deductible legal fees

depletion allowances - see CRA topic Line 224 - exploration and development expenses and depletion allowance

unused RRSP contributions refunded to you or your spouse in the current year (and included in Total Income) - see CRA forms

	T476 - calculating your deduction for refund of unused RRSP contributions, and
	T3012A - tax deduction waver on the refund of your unused RRSP contributions

capital cost allowance on a Canadian certified feature film or production as per T1-CP slip

The above deductions result in net income before adjustments, line 234 on the tax return. This amount is used to calculate clawback of OAS or employment insurance.

Net Income For Tax Purposes - Line 236

Deduct line 235, social benefits repayment re OAS pension (clawback), employment insurance, or net federal supplements.

The above deduction results in net income for tax purposes, line 236 on the tax return.

Taxable Income - Line 260

To calculate Taxable Income (line 260 on the tax return), deduct the following items from Net Income:

Canadian Forces personnel and police deduction

employee home relocation loan deduction

security options deductions

Line 250 allowable other payments deduction re workers' compensation benefits, social assistance payments, and net federal supplements which were reported on Line 147

limited partnership losses of other years

non-capital losses of other years

net capital losses of other years

capital gains deduction

northern residents deductions

additional deductions:

	foreign income exempt under a tax treaty (if included in Total Income)
	15% of U.S. social security benefits included in Total Income as other pensions or superannuation
	vow of perpetual poverty - deduct earned income and pension benefits given to a religious order
	qualifying adult basic education tuition assistance, if included in Total Income, from box 21 of T4E slip
	net employment income from prescribed international organizations

The taxable income is then used to calculate income tax, before deducting non-refundable tax credits and refundable tax credits.

Alert - items not affecting taxable income may still affect tax credits, benefits, and clawbacks.

Line 236, Net Income For Tax Purposes, is used in calculating eligibility for income-tested benefits such as the GST/HST credit and Child Tax Benefit. It is used in the calculation of the medical expense tax credit, age amount, and other personal tax credits, and affects the ability of a spouse to claim a spousal tax credit for the taxpayer. Certain non-taxable items affect these benefits and tax credits, as they are included in Net Income, and deducted later on line 250 so that they are not included in Taxable Income. Some of these non-taxable items are:

workers' compensation benefits

social assistance payments, and

net federal supplements from T4(OAS) slip

Capital and non-capital losses carried forward reduce Taxable Income, but not Net Income (line 236), so are of no benefit when calculating eligibility for income-tested benefits. Although capital gains may be eliminated by capital losses carried forward, they may trigger a clawback of Old Age Security (OAS) benefits or a clawback of EI benefits, because the clawbacks are based on line 234 of the tax return.

Several tax credits use the Net Income (line 236) amount in their calculation, including low income tax credits, and the refundable medical expense supplement.

The tax rates which are used to calculate income taxes can be found in the tables of marginal tax rates.

See also non-taxable amounts for details of many items which are not required to be included in income.

Revised: February 22, 2013

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