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Total Income, Net Income, Taxable Income

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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:

bullet income from employment and commissions
bullet other employment income, including income from wage loss replacement plans
bullet Old Age Security pension from T4A(OAS) slips
bullet Canada Pension Plan or Quebec Pension Plan benefits from T4A(P) slips
bullet other pensions or superannuation
bullet eligible pension income transferred from spouse (see pension splitting)
bullet 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)
bullet employment insurance and other benefits from T4E slips
bullet grossed-up Canadian dividends (see dividend tax credit in Glossary)
bullet interest and other investment income
bullet net income from partnerships (limited or non-active partners only)
bullet net rental income
bullet 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
bullet taxable support payments received - see CRA pamphlet P102 for information on when support payments are taxable (and deductible to the payer)
bullet RRSP income from T4RSP slips
bullet other income, including taxable scholarships, apprenticeship incentive grants, lump sum payments from pensions and deferred profit sharing plans, severance pay and retiring allowances, etc.
bullet net income from self-employment (business, professional, commission, farming, and fishing)
bullet Line 147 other payments (included here, but deducted later, at Line 250:
bullet workers' compensation benefits from T5007 slip
bullet social assistance payments
bullet 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:

bullet registered pension plan deduction from T4 and T4A slips
bullet RRSP deduction
bullet Saskatchewan pension plan deduction
bullet eligible pension income transferred to spouse (see pension splitting)
bullet annual union, professional, or like dues
bullet child care expenses
bullet disability supports deduction
bullet allowable business investment losses
bullet moving expenses
bullet deductible support payments - see CRA pamphlet P102 for information on when support payments are taxable (and deductible to the payer)
bullet carrying charges and interest expense
bullet deduction for CPP or QPP contributions on self-employment and other earnings
bullet exploration and development expenses
bullet other employment expenses
bullet clergy residence deduction
bullet other deductions
bullet 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
bullet repayment of EI benefits (from box 30 of T4E slip)
bullet deductible legal fees
bullet depletion allowances - see CRA topic Line 224 -  exploration and development expenses and depletion allowance
bullet unused RRSP contributions refunded to you or your spouse in the current year (and included in Total Income) - see CRA forms 
bullet T476 - calculating your deduction for refund of unused RRSP contributions, and 
bullet T3012A - tax deduction waver on the refund of your unused RRSP contributions
bullet 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:

bullet Canadian Forces personnel and police deduction
bullet employee home relocation loan deduction
bullet security options deductions
bullet Line 250 allowable other payments deduction re workers' compensation benefits, social assistance payments, and net federal supplements which were reported on Line 147
bullet limited partnership losses of other years
bullet non-capital losses of other years
bullet net capital losses of other years
bullet capital gains deduction
bullet northern residents deductions
bullet additional deductions:
bullet foreign income exempt under a tax treaty (if included in Total Income)
bullet 15% of U.S. social security benefits included in Total Income as other pensions or superannuation
bullet vow of perpetual poverty - deduct earned income and pension benefits given to a religious order
bullet qualifying adult basic education tuition assistance, if included in Total Income, from box 21 of T4E slip
bullet 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:
bulletworkers' compensation benefits
bulletsocial assistance payments, and
bulletnet 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: August 08, 2013

 

 

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