9.2.3 Main groups of income

The types of income listed fall into four main groups:

The next sections describe how these kinds of income are treated for income tax purposes using Canada's federal T1 tax return and Quebec's TP-1.D-V tax return. Although the forms follow a similar approach, each is unique.

Refer to the section of the T1 tax return and the TP-1.D-V tax return titled Total Income (see illustrations). Where would your income fit in the tax returns? Make a note of any that apply to you on the following forms.

Step 2- Total income of T1 General. See description below.
Total income section of the TP-1.D-V tax return - Quebec

Employment income

Employment income (lines 10100 to 10400 of the T1, lines 101 to 107 of the TP-1.D-V) includes all the money and other benefits you make while working for an employer. It includes commissions, tips and gratuities (line 102 of the T1, line 100 of the TP-1-V), even if they are not reported on your employer’s tax records. It also includes benefits you might get from your job, such as the use of a car, free health benefits or travel.

Your employer is required to withhold from your paycheque the taxes you will owe, and sends the appropriate amounts to the Canada Revenue Agency (CRA) and Revenu Québec. Once a year, your employer issues slips reporting to you (and to the tax agencies) what you earned and what taxes were withheld (T4 for federal tax, RL-1 for Quebec tax). Check to make sure your employer is withholding the correct amount. Ask your pay clerk for more information.

Employment insurance (line 11900 of the T1, line 111 of the TP-1.D-V) and similar benefits are also taxed as if they were employment income.

Income from self-employment

Income from self-employment (lines 13500 to 14300 of the T1, line 164 of the TP-1.D-V) is income you make by working for yourself in a trade or business. The money you make is taxed like employment income, but only net income is included, that is, total income minus the expenses of running the business. So keep careful track of self-employment business expenses, such as the costs of maintaining a home office or vehicle if you use them. Most self-employed people have to send in their taxes in instalments every quarter.

Investment income

Income you make from investments falls into several different categories:

Pension and other income

Pension income (lines 11300 to 11600 of the T1, line 114 to 123 of the TP-1.D-V) must be reported like other income. However, a special age or disability exemption may protect a portion of the pension income from tax, and you may be permitted to split eligible pension income with a spouse. Your pension manager will send you a pension income slip such as a T4A or an RL-2 stating the amount you received.

Other social benefits that you receive, such as Old Age Security, disability pensions or the Universal Child Care Benefit, may also be taxed as part of your income. Certain social benefits, such as the Child Tax Benefit, the Child Assistance Payment, the Goods and Services Tax (GST) credits, Solidarity Tax Credit, and the Guaranteed Income Supplement are tax-free. However, these social benefits may be reduced or cut off as your income increases. For details, go to Service Canada, Revenu Québec, or the agency that provides your benefit.

Most other forms of income are treated as standard income with no special provisions, except for gifts and windfalls, insurance, lotteries and gaming wins—which are tax-free. (However, professional gamblers have to pay income tax on their winnings as self-employment income.)

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