What Is Income For Tax Purposes?

by Tax Guy - Burlington Accountant on February 1, 2010 Print This Post Print This Post

If you are resident of Canada, you are required to pay income tax on your worldwide income. But what is considered income? For tax purposes, there are four sources of income:

Net Income from employment or and office.

  1. Net Income from a business.
  2. Net Income from property.
  3. Other sources of income.

Each source of income is calculated differently and as a general rule the income or loss is reported by each source. That is to say for each business, each employment, and each property is calculated individually as are losses.

Income from Employment or an Office

Income from employment includes all salaries, wages, and other remuneration received from employment or an office during the year.

Income from a Business

The Canadian Income Tax Act (s. 248) defines a business as a profession, calling, trade, manufacture or undertaking of any kind and an adventure or concern in the nature of trade. Businesses are active in their pursuit of profit and have a wider range of deductions available than employees.

Income from Property

Generally speaking, income from property is the income received from holding an asset. Interest, dividends, royalties, and income from rent are normally classified as property income. The rules relating to property income are different from the rules relating to businesses and you should consult a financial professional if you are uncertain as to the appropriate classification.

Other Sources of Income

Other sources of income include a variety of other items that do not easily fit in the above definitions. These sources include items such as RRSP and pension receipts, alimony receipts, employment insurance and social assistance payments.

Capital Gains

A capital gain is not technically a “source” of income but rather a separate and distance category of income. Be aware that depending on the nature and frequency of transactions certain transactions that would normally be considered capital gains may be reclassified as business income. For example, frequent and excessive daily stock trading may be business income rather than capital gains.

It is important to note that self-employment income is not considered employment income but rather business income.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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{ 7 comments }

Sarah November 17, 2010 at 3:41 pm

This is my first year receiving child support. Do I have to claim this support when I file my 2010 return? Is this considered income?

Tax Guy November 17, 2010 at 4:35 pm

Hi Sarah,
As long as you receive it periodically rather than lump sum and it has no conditions, then it is not income for tax purposes.

Sarah November 17, 2010 at 8:18 pm

Thank you so much for your response. It is paid monthly so I should be good.

Gina March 8, 2011 at 8:18 pm

if i receive spousal support can and is this considered employment income as far as filing my income tax is considered

Tax Guy March 9, 2011 at 4:42 am

Gina,
Spousal support is taxable but is not considered employment income. You report it as a support payment on Line 128 of your tax return.

phil March 29, 2014 at 2:59 am

is rental income considered self employment income for maternity leave benefits? mat leave benefits are clawed back dollar for dollar for any employment, but my understanding is that rental income is considered a type of investment income and may be exempt from the clawback rules on EI mat leave. can you email me?

Tax Guy - Burlington Accountant March 30, 2014 at 7:41 am

Maternity benefits are paid from Employment Insurance whose premiums are paid from your employment income. Rental income is property income and does not factor into your receipt of maternity benefits other than it may reduce any benefit you may be entitled to. Check with Service Canada.

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