In Canada, the Income Tax Act is a wide-ranging document, dealing at great length with issues like employment income, while at the same time providing specific rules regarding the taxation of income from things like:

• employment insurance (EI) benefits;

• annuity payments;

• receipts from deferred income plans, and

• scholarships, fellowships and bursaries over $3,000

Some sources of income, such as workers’ compensation (WC), federal supplements, and social assistance payments are not taxed directly, but are included in the calculation of threshold income when determining entitlement to the:

• child tax benefit ;

• age credit ;

• goods and services tax credit (GST) ;

• old age security (OAS), and some provincial tax credits.

Other amounts are specifically excluded from income for tax purposes, such as:

• income earned by a member of a First Nations group on a specified reserve;

• civilian and veterans’ war pensions or allowances, from Canada or any ally of His Majesty;

• payments received by qualified individuals, their spouses or common-law partners and dependants under the multi-provincial assistance package for individuals infected with HIV through the blood supply program;

• payments received by a special trust for distribution to Canadians infected with the hepatitis C virus through the blood distribution system over a specified period;

• government-related compensation for disaster relief;

• RCMP pension or compensation received in respect of an injury, disability or death;

• lottery winnings, and travel allowances and vehicles received by employees under certain defined conditions.

Legitimate personal tax planning generally includes a concerted effort to minimize or defer taxes payable, a practice accepted by the government. However, tax avoidance, or some other use of the income tax rules in a way that wasn’t intended, is inadmissible and has led to specific anti-avoidance rules in tax legislation. The Income Tax Act includes a general anti-avoidance rule (GAAR), which allows the CCRA to reassess any transaction. Under GAAR, unless a transaction is considered to have taken place primarily for bona-fide purposes other than obtaining a tax benefit, it may be subject to adjustment.

As income tax rules are often complex and ever developing, tax planning should be an on-going process. Taxpayers should, for instance, revise their plans as changes occur in government legislation and as personal circumstances dictate. Readers are advised to review specific tax plans with their certified general accountant.

Source : The Certified General Accountants of Ontario