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.
- Net Income from a business.
- Net Income from property.
- 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.
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.