8.2.3 Main groups of income

The types of income listed fall into four main groups:

Refer to the section of the T1 tax return below titled Total Income. Where would your income fit in the tax return?

Make a note of any that apply to you on the following form.

Step 2- Total income of T1 General. See description below.

Employment income

Employment income (lines 10100 to 10400) includes all the money and other benefits you make while working for an employer. It includes commissions, tips and gratuities, 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 send them to the Canada Revenue Agency (CRA). Once a year, your employer issues a T4 slip, which shows you (and the CRA) what you earned and what taxes were withheld. Check to make sure your employer is withholding the correct amount. Ask your pay clerk for more information.

Employment insurance (line 11900) and disability benefits (line 11410) are also taxed as if they were employment income.

Income from self-employment

Income from self-employment (lines 13500 to 14300) 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 month or quarter.

Investment income

Income you make from investments falls into several different categories:

Pension and other income

Pension income (lines 11300 to 11600) must be reported like other income under Canada's income tax system. However, a special age or disability exemption may protect a portion of the pension income from tax, and you may be permitted to split pension income with a spouse. Your pension manager will send you a pension income slip, such as a T4A, 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 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, 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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