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Ontario|Tax LawGeneral Rules 170 What types of income are taxable?
- Taxable sources of income
Individuals and corporations are taxed on their total income after subtracting allowable deductions. There are four general types of income that are taxed: employment earnings which usually only apply to individuals, profit made from a business activity, investment income from property or investments, and capital gains on the sale of capital property. There are different rules that apply to each type of income, which therefore affect the amount of tax you will have to pay. In order to file a tax return and claim deductions, you will need to know what type of income you earned.
- Employment income
Employment income is usually a person's wages or salary paid by an employer. It can also include any vacations, gifts, or added perks that you receive from your employer as part of your employment. Generally, there are few expenses that can be deducted from employment income, although there are exceptions for people in sales.
- Business income
The law makes a distinction between employment income and business income. Business income can be earned by an individual, a partnership or a corporation, and includes any money you earn from a profession, trade or any other business where you expect to make a profit. Some types of rental income may also be considered business income. For example, if the landlord offers uncommon services such as laundry or housecleaning, or if the landlord runs an office with employees who manage the rental properties. This type of income generally allows for deductions of business expenses.
- Income from property
The law also requires a taxpayer to pay tax on income from property, which includes interest from investments, loans, and may include rent from investment properties. Generally, expenses cannot be deducted from this type of income unless they are directly related to earning the income. A common deduction from property income is interest on a loan that was taken out to purchase the property. There are also rules specific to property income that prevent you from transferring property income to a spouse or child for the sole purpose of reducing the amount of tax you have to pay.
If you are unsure about what type of income you earn or what deductions you are entitled to, you should consult a tax lawyer, accountant or a tax filing service.
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