A List of things not taxed in Canada

In Canada, we pay a lot of tax.  In fact, it’s been said there are two certainties in life – death and taxes.

Most income is taxed at your personal marginal tax rate.  Although we do pay a lot of tax, one of the biggest misconceptions about tax is that half our income goes to taxes.

We hear lots about how much tax we pay especially this time of year but I ran across this list of things from Canada Revenue Agency (CRA) that are not taxed.  It’s not a big list but still a good list to know.  When you are doing your tax planning for the future, it’s important to recognize things that are not taxed just as much as it’s important to know what is taxed and how its taxed.

According to CRA, you do not have to include certain amounts in your income, including the following:

  • any GST/HST credit or Canada Child Tax Benefit payments, as well as those from related provincial and territorial programs;
  • child assistance payments and the supplement for handicapped children paid by the province of Quebec;
  • most amounts received from a Tax Free Savings Account (TFSA)
  • compensation received from a province or territory if you were a victim of a criminal act or a motor vehicle accident;
  • lottery winnings;
  • most gifts and inheritances;
  • amounts paid by Canada or an ally (if the amount is not taxable in that country) for disability or death due to war service;
  • most amounts received from a life insurance policy following someone’s death;
  • most payments of the type commonly referred to as “strike pay” you received from your union, even if you perform picketing duties as a requirement of membership;

As I mentioned, this list was taken right from the CRA website.  I have one more to add to the list and that is proceeds from the sale of your principal residence.  When you sell property that is not your principal residence, you have to pay capital gains taxes if you sell the property for more than you originally paid for it.  This would include rental property, investment property, and recreational property.  Your principal residence qualifies for a principal residence exemption.  Can you think of other income that is not taxed?

It is important to note that if you invest income sources from any of the above amounts, you will be taxed on earnings.  For example, if you won $1 million dollars in a lottery and you invested all or part of the winnings, the investment earnings are taxable.

Not all income is taxed the same

The best income to have is income that is not taxed.  the next best income to have is income that is taxed at a lower rate.  I call this tax efficiency.  Most income (like salary, bonus, rental, and interest as examples) is taxed at your marginal tax rate.  Some investment income is tax preferred like dividends and capital gains because they are taxed at lower rates which creates greater tax efficiency.

To see the tax benefits of dividend and capital gains income, download the Marginal Tax Rate Card – Marginal Tax Rate Card (1654)

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites Group Benefits Online and Advisor Think Box.

8 Responses to A List of things not taxed in Canada

  1. If you want to get into things that are “sometimes” tax-free, I’d say

    1) Personal exemption amount – you can earn a certain amount (min $10k) of income and not pay any taxes.

    2) Capital gains are tax-free, when offset with a capital loss.

    • Thanks Mike.
      On that line of thinking, you might also include the first $2000 of pension income because of the pension income tax credit.

  2. question
    our primary residence is in Windsor Ont and we have a country cottage in Quebec appraised by the city of Lantier quebec at
    $ 125,000.( land and building ) If we sell at that price, what are the capital gains penalty/ impliacations .

    Thank You

    • Generally speaking the capital gains is based on your market value or sales price less your adjusted cost base (ACB). Although this is overly simplistic, the ACB is what you paid for the property.

      If you are unsure, it is always good to seek some professional advice from an accountant.

      Thanks for the question

    • I should also mention that the taxable gains is half of the total gains. If you owned the property with a spouse, you can split the taxable capital gains between you and your spouse.

  3. HI,
    My sister wants to know what would she have to pay in tax’s for renting her trailor. Shes 65 and moving into an apt. in town. She thought she would try renting instead of selling to help with her old age pension. She also gets some can. pension. She would rent for about $400/mo. She was afraid the tax would be to high for her to bother. Thanks for your time..

  4. Am I liable for tax on the sale of my UK property to both the UK and Canadian tax offices? The house in the UK was occupied by me since Jan 2005, emigrated to Canada in 2012, sold the property in 2014.

  5. Hello!

    you mentioned “most gifts and inheritances” are not taxed.
    Can I gift to cash to my parents and open a TFSA in their name?
    Most resources out there are about gifting to your adult children rather than the reverse.

    Is there an annual limit to this gift? Is it as easy as writing a check to their name and not reporting it come tax time?

    Thanks

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