In Canadian income tax system, you are taxed on your taxable income. What is income? "Income" is not specifically defined in the Income Tax Act. Almost any benefit you receive from any activity is likely to be taxable as income.
Each year, you are required to declare your income from all sources. Different types of income are treated differently. So understanding the sources of income is the first step in tax planning.
There are three main categories of taxable income: employment income, business income, and property income and capital gains.
Employment income includes most benefits derived from employment, such as salaries, bonus, as well as any retiring allowance you receive when leaving a job. The income is normally reported on the T4s issued by your employer.
If you are a professional, independent contractor, or a freelance worker, you are probably earning business income. You are taxed on the "profit" of the business. The profit is calculated by subtracting your expenses incurred to generate revenue from your earned revenue.
Income from property includes interest, dividend, and rent. You also have to pay tax on capital gains made from sales of property. But capital gains are subjected to special rules for the taxable amounts.
Employment income, business income, and property income are the main sources of income. There are other type of income such as alimony and maintenance payments, child support payments, and annuities.
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