Small Business Deduction (SBD)

Income tax is tax charged on the income you earn in a year, levied by both the federal government and your province or territory. Rates are graduated, so successive slices of taxable income are taxed at higher rates, and credits such as the basic personal amount reduce the tax calculated. Employment income is taxed through payroll withholding and settled on your T1 return. Quebec residents also file a separate provincial return with Revenu Quebec.

A non-refundable credit reduces the tax you owe to zero but no further, so any unused part is lost, carried forward, or transferred to a spouse or parent where the rule allows it. A refundable credit is paid to you even when no tax is owed, which is how benefit-style payments reach people with little or no income. Most personal credits on the federal return, including the basic personal amount, are non-refundable.

Rental income is what you receive for letting someone use property you own, most often residential or commercial real estate, and it includes rent, prepaid rent and amounts a tenant pays that would otherwise be your expense. It is normally property income rather than business income, reported gross with expenses deducted separately. Renting out a room in your own home counts as well. Where you also supply substantial services, the CRA may treat the activity as a business.

The TD1 tells your employer or pension payer how much tax to withhold from each payment. You claim the credits you expect for the year, such as the basic personal amount or tuition, and the total sets the claim code your payroll uses. Complete both a federal and a provincial or territorial TD1 when you start a job, and file a new one whenever your situation changes, such as taking a second job or gaining a dependant.