There is a saying, “we have two certainties in life…Death and taxes.” In Canada taxes are applied on almost all income but believe it or not, there are a few things that are not taxed. The list of “untaxed things” is a good list to be familiar with as it will help you and your advisor design a tax efficient financial plan.
Based on the most current listing from the Canada Revenue Agency, one does not have to include in their yearly filings income received from:
- 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 income 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 the government of Canada or an ally (if the amount is not taxable in that country) for disability or death due to war service;
- Income received from a life insurance policy following someone’s death;
- Most payments of money commonly referred to as “strike pay” you received from your union, even if you perform picketing duties as a requirement of membership;
- Proceeds of the sale of your primary residence.
Keep in mind that if you sell additional property like a cottage or investment property, you would be taxed on 50% of the difference between the original purchase price and the selling price. This is commonly called the capital gains tax.
Also keep in mind that while the lottery earnings for example are not taxed, if you were to invest the winnings in part or whole, any future earnings from that investment would also be taxed.
A good financial plan should include income that is not taxed or taxed at preferred status/lower rates. Reach out to me and I will guide you in the process of creating a tax efficient financial plan.