As per Income Tax Act (“Act”), the tax base is a Canadian resident’s “taxable income” for each taxation year, plus additions and minus permitted deductions. The Act, specifically, states that any income from office, employment, business and property is taxable. However, this list is, in no way, exhaustive, which makes the discourse around taxable and non-taxable income a complicated one.
The existence of unenumerated sources of income can be inferred from the language of the Act and has been endorsed in the Supreme Court of Canada decision in Schwartz v. Canada and the Federal Court of Appeal decision in Bellingham v Canada. In Bellingham v Canada judge Robertson, in an attempt to maintain the balance between public interest and coherency of the law, stated: “In summary, Parliament has chosen to define income by reference to a restrictive doctrine while recasting it in such a manner as to achieve broader ends.” Some examples of unenumerated sources of income, that are taxable under the Act are: Pension benefits, unemployment insurance benefits, benefits under CPP/QPP, life insurance policy proceeds and scholarships and bursaries.
While there are no definitive guidelines as to what constitutes taxable income, the jurisprudence suggest that the following factors indicate the existence of a taxable income:
- Is the income a recurring and regular one?
- Does the source of the income produce a stream of income?
- Was there an organized effort to produce the income?
Amongst all these gray areas and regulations, it is comforting to know that there are many types of income that are not taxable and are never caught under the Act. Some examples of such incomes are inheritances and gambling winnings. While this is good news for anxious taxpayers, it also shows that distinguishing between a taxable income and a non-taxable income is a very daunting and complicated task. Taxpayers might want to consult with an accountant or a tax lawyer, before deciding not to include an income in their tax documents.