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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 get Net Income for Tax Purposes, then other items are deducted to get Taxable Income.

Total Income for Tax Purposes

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 for Tax Purposes

To calculate Net Income For Tax Purposes (line 236 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

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

The above deductions result in net income for tax purposes, line 236 on the tax return.

Taxable Income

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.

The Net Income amount 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 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

Losses of other years reduce Taxable Income, but not Net Income, so are of no benefit when calculating eligibility for income-tested benefits.

Many non-refundable tax credits use the Net Income amount in their calculation.

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 added to taxable income.

Revised: March 06, 2012

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