What Types of Income are not Taxable?

By in ,
321
What Types of Income are not Taxable?

Some types of income are not taxable, such as inheritances, gifts and most lottery winnings, and some must be included in the tax return even if they are not taxable, such as GIS and workers’ compensation benefits. The latter affect income-tested benefits even though they are not included in taxable income.

Non-Taxable Income

Amounts which are not required to be included in income for tax purposes, so are not reported on a personal tax return, include:

    – GST/HST credits

– Canada Child Benefit (CCB) payments and related provincial and territorial child benefits and credits

– disability insurance proceedsdepending on how the premiums were paid.

– most gifts and inheritances

– lottery winnings, and raffle prizes, unless the circumstances deem that the proceeds are considered income from employment, business or property, or a prize for achievement.  For instance, prizes from employer-promoted contests could be considered employment income.  See Folio S3-F9-C1 below.  The cost basis of property which has been won as a prize in connection with a lottery scheme is deemed by s. 52(4) of the Income Tax Act (ITA) to be the fair market value at the time it is won.  This means that there is no capital gain if the prize is subsequently sold, unless it is sold for more than the amount deemed to be the cost basis.  If a person decided to sell the right to the prize, (e.g., sell a winning $1 million lottery ticket for $900,000), s. 40(2)(f) of the ITA deems any gain or loss from this transaction to be nil.

    – subject to certain exceptions (see Folio S3-F9-C1 below), an amount received as a windfall.  Factors which indicate that an amount received is a windfall, which are based on The Queen v. Cranswick, [1982]CTC 69, 82 DTC 6073 (FCA):

  1. the taxpayer had no enforceable claim to the payment,
  2. the taxpayer made no organized effort to receive the payment,
  3. the taxpayer neither sought after nor solicited the payment,
  4. the taxpayer had no customary or specific expectation to receive the payment,
  5. the taxpayer had no reason to expect the payment would recur,
  6. the payment was from a source that is not a customary source of income for the taxpayer,
  7. the payment was not in consideration for or in recognition of property, services or anything else provided or to be provided by the taxpayer, and
  8. the payment was not earned by the taxpayer as a result of any activity or pursuit of gain carried on by the taxpayer and was not earned in any other manner.

Some types of income are not taxable, but must still be reported on the income tax return and included in income for tax purposes, then deducted later.  Because of this, these amounts may affect some tax credits and clawbacks.  The types of income include the following, which are reported on line 147 other payments:

    – workers’ compensation benefits from T5007 slip

– social assistance payments

– net federal supplements from T4A(OAS) slip – Guaranteed Income Supplements (GIS) for Canadian seniors, and the Allowance

The line 147 income is not deducted until line 250, which means it is included in line 234, net income before adjustments, which is used to calculate clawback of OAS or employment insurance.  Line 234 is also used in the calculation of the Working Income Tax Benefit (WITB) (renamed for 2019 to the Canada Workers’ Benefit), medical expense tax credit, and many other tax credits.

A complete list of income that is not taxed can be found in the Income Tax Act, in s. 81, amounts not included in income.

See also our article on taxable income, net income and total income for tax purposes.

CRA Resources:

Amounts that are not taxed.

Income Tax Folio S3-F9-C1: Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime

TaxTips.ca