Canadians pay a lot of tax! In fact, tax is the single greatest lifetime expense: an average two-income earning family could pay in excess of $1 million over their lifetime. While meeting with clients to file their 2018 taxes, it’s a great strategy to discuss the tax exempt income sources. Planning to earn more of them will help with cash flow and paying less tax next season.
The most common types of exempt income include the following.
- TFSA (Tax-Free Savings Account) income earnings and withdrawals
- Lottery winnings
- Capital gains on the sale of a home used as a tax exempt principal residence (although you must file Form T2091 (IND) Designation of a Property as a Principal Residence by an Individual to report the disposition)
- Capital gains on publicly traded shares donated to a registered charity or private foundation
- Income exempt by virtue of a statute including the Indian Act
- Canadian Service Pensions, War Veterans Allowance Act Allowances
- Proceeds from accident, disability, sickness or income maintenance plans where the taxpayer has made all the (non-deductible) premiums
- Social Assistance Payments received for providing foster care
- Scholarships and Bursaries for certain qualifying full-time post- secondary students or that relate to elementary or secondary programs
- RCMP Pension or Compensation received in respect of an injury, disability or death arising directly out of, or directly connected with, the service of a member in the RCMP
- MLA and Municipal Officers Expense Allowances but only until the end of 2018, when unaccountable allowances become taxable
- Service Pensions from Other Countries on account of disability or death arising out of war service received from a foreign country that was an ally of Canada at the time of the war service
- Tax-free benefits of employment, including transportation to a special worksite, certain transportation passes, uniforms supplied to the employee, education taken in order to benefit the employer, etc.
It’s also essential to ensure that income isn’t over-reported, and that you find the above tax-exempt opportunities by conducting thorough interviews with your clients. Not just once – but annually – to ensure you capture new opportunities as they arise.
This list of tax exempt income sources was excerpted from the 2018 edition of Essential Tax Facts by Evelyn Jacks. The 2019 version will be available this May! It’s a great resource to share with your clients, to make them more tax-savvy. Pre-order your copies by calling 1.866.953.4769.