The tax season is upon us, and it’s not something Canadians like. Because they have to take note of every penny they earn and spend, navigate the complex tax laws, report income, deduct expenses and tax credits, file returns, and pay taxes to the Canada Revenue Agency (CRA) before April 30, 2026.

Taxes, while cumbersome, are a necessity because they help fund hospitals, high schools, roads, the military, the police force, prisons, and other services. The CRA even uses this tax to give low-income families who file returns cash benefits like the Guaranteed Income Supplement (GIS), the Canada Child Benefit (CCB), and the Canada Workers Benefit (CWB). Hence, you must report your income to the CRA even if you have no tax liability.

How Income Tax Works in Canada

The CRA knows about all your income sources because the people who pay you report it to the CRA. For instance, your employer reports your salary as a deduction to the CRA, the financial institution that gives you interest on deposit, or the tenant that pays the rent, or the company that pays you a dividend, reports these transactions to the CRA. These parties also give you your respective T slips for the income they have reported to the CRA.

When filing income tax returns, the CRA allows citizens to self-report their total income and reduce their tax liability by claiming tax deductions and credits.

In this article, we will understand the types of income you need to report to the CRA.

The Most Common Types of Income that Must Be Reported to the CRA

The most common sources of income are employment, business, investment, and capital gain from the sale of property. Even someone who is not working can earn income by selling inherited property. Within these four income types, there are several subtypes.

Employment income is often straightforward, the wages or salary your employer pays. However, you should also include gifts, vacations, and employer-provided perks as employment income. There are a few other tax deductions besides employment insurance premiums and the Canada Pension Plan (CPP). Hence, it is among the most highly taxed sources of income. Employees must file the T1 Income Tax and Benefit Return by April 30.

Business income is the profit earned by an individual, partnership, or corporation. It includes sole proprietorships, professions, and any commercial activity whose objective is to make a profit. A graphic designer working for an ad agency and earning a regular income is an employee. But an independent graphics designer who bears the expense of tools and software and the risk of losing a client or non-payment, is business income.

A business owner can deduct the expenses incurred to earn the revenue and pay tax on the profit. Self-employed and professionals must file T1 and T2125 Statement of Business or Professional Activities by June 15 and pay tax by April 30. Partnerships must file a T5013 return within five months of their fiscal year-end. Corporations must file T2 returns within six months of their fiscal year-end.

Investment Income can be in the form of interest and dividends from investment securities and rent from investment properties. You can deduct interest on the loan taken to purchase the investment and any wear and tear of the rented apartment. Each investment income is taxed differently. For instance, dividends are subject to a dividend tax credit. If investments are made in registered accounts, the income earned is tax-free.

Capital gains or losses occur when you sell any asset, like stocks, property, a company, or jewelry. You must not be a trader, real estate agent, private equity firm, or jeweller whose business is to sell such assets. Otherwise, the capital gain would be treated as business income. Only 50% of the capital gain is taxed at your marginal tax rate for 2025. Starting January 1, 2026, the inclusion rate for capital gains has increased to 66.67% for gains above $250,000 and 50% for gains below $250,000 for individuals.

Other Incomes that Must Be Reported to the CRA

Many individuals and businesses may fail to report certain income sources because they may not appear as direct income but are still taxable.

• Incentive income: Any in-kind remuneration or incentive, such as vacation trips, gift cards, furniture, or pre-loaded credit cards, awarded to you for your business activities must be reported as income.
• Bad Debt: Any written-off bad debt that was repaid must be reported as income in the year you receive it.
• Grant or Subsidy: Individuals and businesses must report government grants or subsidies as income or as an expense deduction.
• Pension income: CPP and Old Age Security (OAS) pensions, employment pensions, and Registered Retirement Savings Plan (RRSP) withdrawals are taxable income and should be reported.
• Barter Transactions: Businesses exchanging certain goods and services must report the value of that transaction as income.
• Lottery Prize Commissions: Lottery ticket retailers who receive commissions on lottery prizes must report the commissions as income.

Income That Need Not Be Reported to the CRA

Most income sources are tax-free and need not be reported to the CRA, such as lottery winnings, inheritance and gifts, death benefit from a life insurance policy, Tax-free savings account (TFSA) withdrawals, types of strike pay received from a union, GST/HST credits, Canada Child Benefits (CCB), and more.

This is just a glimpse of the various types of income you have to report to the CRA. Collecting information for all these income sources and giving it to the accountant is the first step. A professional accountant will calculate and report income in the relevant categories and apply the necessary deductions.

Reporting is just one part of tax filing. You can use the Canadian tax system to earn more tax-efficient income.

How to Earn Tax-Efficient Income

Canada uses a progressive tax system, where you pay more tax on more income. However, not all income sources are taxed in the same manner. For instance, salary and interest are taxed at the personal income tax rate, while dividends and capital gains are taxed at a lower rate. Small Canadian corporations are taxed at lower rates as a reward to boost jobs and development. Meanwhile, some income sources are tax-free and do not need to be reported to the CRA.

A skilled tax advisor understands this tax structure and can help you diversify your income sources and reduce tax liability. They can help you maximize tax deductions and credits, defer tax through RRSPs, trusts, and timing income. They can help you determine how much business owners should pay themselves as salary and dividends, and when to incorporate the business to enjoy a lower corporate tax rate.

Contact Ford Keast LLP in London to Help You File Your Income Tax Returns

Talk to a professional accountant to help you collect all the necessary information needed to file taxes, claim deductions, and credits. At Ford Keast LLP, our accountants and tax advisors offer tax filing and planning services. To learn more about how Ford Keast LLP can provide you with the best accounting and taxation services, contact us online or call us at 519-679-9330.