With an April 30 tax-filing deadline fast approaching, you might now be starting to wonder: How much am I going to owe from all that? The answer, tax specialists say, is probably nothing.
Inheritance and windfall are two examples of money streams that people in Canada typically don’t pay tax on. Experts say it’s important to raise awareness of those and other common tax-free income sources, especially given how difficult it can be to navigate the ins and outs of the system during the thick of tax-filing season.
What counts as taxable income—and what doesn’t
H&R Block Canada tax expert Yannick Lemay said those exemptions can add up to significant savings. “With taxes, there’s a lot of nuances,” he said. “We have to be careful to know exactly the nature of the amounts we have received and how it has to be reported on your tax return because there are severe penalties for not declaring all your income.”
Lemay said it’s important to consider how certain money was earned to determine whether it’s taxable. For instance, while lottery and gambling winnings for the average person in Canada aren’t usually taxed—something often misunderstood due to differing rules in the United States—that’s not the case for a professional poker player.
“If, for example, you just casually go to the casino once in a while and you earn some money during the year, that is true that this money is tax-free,” he said. “But for someone else, maybe the casino winnings are the main source of income.”
For the latter, someone who likely puts additional time and training into the craft, any winnings would be classified as business income, therefore making it taxable. “So, same source of money, same payer, but different treatment depending on who’s receiving it,” said Lemay.
Income Tax Guide for Canadians
Deadlines, tax tips and more
The key is whether you’re attempting to bring in “recurring” income, said Gerry Vittoratos, tax specialist at UFile. That comes into play for those working in the gig economy or managing a side hustle—like running an Etsy store or delivering Uber Eats orders. “All of that is usually considered business income and the key is that it’s recurring,” he said. “You are regularly trying to earn income off of it.”
How to deal with gifts, inheritances, and scholarships
Lemay pointed to other money sources that aren’t taxable, such as gifts. No matter the size, gifted cash you receive isn’t taxable—however, any income generated from that sum of money would be.
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Similarly, cash or property that’s inherited isn’t considered taxable income, however any income earned after you receive it, like interest or rental income, is taxable.
Other tax-free income sources could include child support payments, most life insurance payouts, and certain government payouts, such as the GST credit or Canada Child Benefit.
Lemay cautioned that some non-taxable amounts still need to be reported even if no tax is actually paid on it, as it can affect eligibility for such credits and benefits.
For young adults enrolled in academic programs, scholarships, and bursaries are a common source of money that may not be taxed. That’s the case for full-time students enrolled in the current, prior, or next year, said Vittoratos. However, part-time students need to report amounts above certain thresholds.
“If you’re a full-time student … you don’t even declare it on the return. It’s income that you just pocket directly,” he said. “If, though, you’re a part-time studentand you weren’t a full-time student in one of those three years, you only get a $500 exemption. Anything above that will become taxable and you have to declare it on the return.”
Reporting unusual income: when in doubt, declare it
Other income sources that don’t usually get taxed include union strike pay meant to help cover living expenses, personal injury or wrongful death compensation, and workers’ compensation benefits.
When in doubt, Vittoratos said it’s better to report income than to omit information and potentially suffer the consequences. However, he noted it’s possible to amend your tax return later on. “The biggest mistakes people make on their returns is omissions,” he said. “It’s always, ‘Oh look I found this receipt three months later’ and then I have to amend the return.”
Vittoratos added it’s important to remember that although January to April is generally considered tax season, it should never be “just a four-month process” for filing. The more time you give yourself to plan before the filing deadline, the less likely you are to make such errors. “January to April is when you’re actually filing your return, but your tax return is the year that just passed,” he said.
