Venture Capital

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.

The basic personal amount is a non-refundable credit that shelters a base level of income from federal tax, so income below it carries no federal tax. The amount is indexed every year, and the enhanced portion is phased out across the second-highest federal bracket, so taxpayers in the top bracket receive only the base amount. Each province and territory sets its own version. On Form TD1 you claim it so your employer withholds less; claim it with one employer only, or too little tax is withheld.

Tax exempt describes an amount or a transaction that tax does not apply to at all, which is different from a deduction or credit that merely reduces tax. Common examples are supplies that are exempt or zero-rated for GST/HST, investment income earned inside a TFSA, and specific receipts Parliament has excluded from income. Registered charities and non-profits can be exempt from income tax while still carrying filing duties. Exemption is never automatic; the rule must fit your facts.

Net income is the line on the T1 reached after total income is reduced by deductions such as RRSP contributions, union dues, child care costs and support payments. It is not take-home pay, and not the same as taxable income, which subtracts a further set of amounts. Net income matters because benefits and credits are tested against it, so a deduction that lowers it can increase the Canada child benefit, the GST/HST credit and other income-tested amounts.