Income
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This section reviews the definitions of the main income concepts and their components. In order to highlight the relationships between them, this section is organized according to the "Classification of income", described above.
The concept of income
Market income
Earnings
Wages, salaries and commissions
Self-employment income
Investment income
Retirement pensions
Other income
Government transfers
Child benefits
Old Age Security
Canada Pension Plan and Quebec Pension Plan
Employment Insurance
Social assistance
Workers' compensation
Goods and Services Tax/Harmonized Sales Tax credit
Provincial/territorial tax credits
Other government transfers
Total income
Income tax
After-tax income
Disposable Income
The concept of income
There are several important inclusions and exclusions in the concept of income:
- The concept of income covers income received by residents of Canada or deemed relevant for income tax purposes in Canada. This excludes some, but not all, foreign income.
- Retirement income received as a regular pension or annuity during retirement is included, while cash withdrawals from private pension plans, including Registered Retirement Savings Plans (RRSPs), prior to retirement, are excluded.
- Realized capital gains from financial investments are excluded.
- In the Canadian System of National Accounts (CSNA) and the present income classification, taxes on capital gains are included in income taxes, as are taxes on RRSP withdrawals. Both capital gains (the taxable portion thereof) and RRSP withdrawals figure in the calculation of taxes, but are not part of total income in the CSNA or in SLID's Classification of income.
- SLID's classification of income includes all refundable tax credits and benefits, including those that are not considered for income tax purposes, such as child tax benefits, the Goods and Services Tax Credit/Harmonized Sales Tax Credit, and other provincial or territorial tax credits. There are other smaller differences between SLID's total income and total income defined for tax purposes (see Other income and Other government transfers).
- Contributions to Employment Insurance and the Canada and Quebec Pension Plans, both federal programs, are not included in income taxes, nor are they deducted from income to arrive at after-tax income. However, the CSNA recently revised its definition of taxes on production to include these payroll taxes, in accordance with international recommendations on national accounting.
Market income
Market income is the sum of earnings (from employment and net self-employment), net investment income, (private) retirement income, and the items under "Other income". It is equivalent to total income minus government transfers. It is also called income before taxes and transfers.
Earnings
This includes earnings from both paid employment (wages and salaries) and self-employment.
Wages, salaries and commissions
These are gross earnings from all jobs held as an employee, before payroll deductions such as income taxes, employment insurance contributions or pension plan contributions, etc. Wages and salaries include the earnings of owners of incorporated businesses, although some amounts may instead be reported as investment income. Commission income received by salespersons as well as occasional earnings for baby-sitting, for delivering papers, for cleaning, etc. are included. Overtime pay is included.
Self-employment income
This is net self-employment income after deduction of expenses. Negative amounts (losses) are accepted. It includes income received from self-employment, in partnership in an unincorporated business, or in independent professional practice. Income from roomers and boarders (excluding that received from relatives) is included. Note that because of the various inclusions, receipt of self-employment income does not necessarily mean the person held a job.
Self-employment income is subdivided into farm self-employment income and non-farm self-employment income. Farm self-employment income is reported by individuals who operate their own or a rented farm, either on own account or in partnership. Included are money receipts from the sale of farm products as well as related supplementary and assistance payments from governments. Income in kind is excluded.
Investment income
This includes interest received on bonds, deposits and savings certificates from Canadian or foreign sources, dividends received from Canadian and foreign corporate stocks, cash dividends received from insurance policies, net rental income from real estate and farms, interest received on loans and mortgages, regular income from an estate or trust fund and other investment income. Realized capital gains from the sale of assets are excluded. Negative amounts are accepted.
Retirement pensions
This is retirement pensions from all private sources, primarily employer pension plans. Amounts may be received in various forms such as annuities, superannuation or RRIFs (Registered Retirement Income Funds). Withdrawals from RRSPs (Registered Retirement Savings Plans) are not included in retirement pensions. However, they are taken into account as necessary for the estimation of certain government transfers and taxes. For data obtained from administrative records, income withdrawn from RRSPs before the age of 65 is treated as RRSP withdrawals, and income withdrawn from RRSPs at ages 65 or older is treated as retirement pensions. Retirement pensions may also be called pension income.
Other income
This sub-total includes all items of market income not included elsewhere. Among them are support payments received (also called alimony and child support) and income from a Registered Disability Savings Plan (RDSP). The coverage of other items depends at least to some extent on the method of income data collection, whether from administrative income tax records or by interview. Those items which are included on line 130 of the T1 tax return are well covered. These include, but are not restricted to, retirement allowances (severance pay/termination benefits), scholarships, lump-sum payments from pensions and deferred profit-sharing plans received when leaving a plan, the taxable amount of death benefits other than those from CPP or QPP, and supplementary unemployment benefits not included in wages and salaries.
Government transfers
Government transfers include all direct payments from federal, provincial and municipal governments to individuals or families. See the table Classification of income for a list of the government transfers identified separately in the latest reference year. It should be noted that many features of the tax system also carry out social policy functions but are not government transfers per se. The tax system uses deductions and non-refundable tax credits, for example, to reduce the amount of tax payable, without providing a direct income.
Child benefits
Federal child tax benefits began in 1993 and replaced both the federal Family Allowances and the Child Tax Credit. Several provincial and territorial programs have since been introduced, in addition to Quebec family allowances which already existed before 1993. To be eligible, a person must have the primary responsibility for the care and upbringing of one or more children under the age of 18. Most benefits are calculated by setting a maximum amount per family or per child and reducing that total by a certain percentage of the family's net income.
The programs which were explicitly accounted for in the data were the federal basic benefit and National Child Benefit Supplement (together called the Canada Child Tax Benefit, began in 1998), the Newfoundland and Labrador Child Benefit (began in 1999), the Nova Scotia Child Benefit (began in 1998), the New Brunswick Child Tax Benefit (began in 1997), the New Brunswick Working Income Supplement (began in 1997), the Child Assistance Payment (effective January, 2005; replacing Quebec Family Allowance, which began in 1981), the Quebec Allocation à la naissance (began in 1998), the Ontario Child Care Supplement for Working Families (began in 1998), and the Ontario Child Benefit (commencing with a one-time payment in July of 2007, and regular payments began in July 2008), the Saskatchewan Child Benefit (began in 1998), the Alberta Family Employment Tax Credit (began in 1997), the BC Family Bonus (began in 1996), and the BC Earned Income Benefit (began in 1998). Benefits from these programs are non-taxable.
Effective July 2007, the Canada Child Tax Benefit under 7 supplement within the Canada Child Tax Benefit program ceased to exist. This supplement was only paid for children who were six years of age between July 2006 and June 2007. In addition, as of July 2006, the Saskatchewan Child Benefit was fully phased out and replaced by the full federal increases to the National Child Benefit Supplement.
In July 2006, a new Child Benefit program was introduced at the federal level. The Universal Child Care Benefit for children under 6 was introduced in the second half of 2006. Unlike the other child tax benefits, this benefit is taxable and is available to all families with children under 6 years of age regardless of their income. Families can receive $100 per month for each eligible child. This new benefit has been added to the Child Tax Benefits data.
Old Age Security (OAS)
The Old Age Security (OAS) pension is targeted to Canadian residents aged 65 and over. OAS recipients who have little or no other income may also receive the federal Guaranteed Income Supplement (GIS); and their spouses, if aged 60 to 64 (and not yet eligible for OAS and GIS themselves), receive the Spouse's Allowance.
Canada Pension Plan (CPP) and Quebec Pension Plan (QPP)
The CPP and QPP are compulsory contributory social insurance programs that provide a source of retirement income and protect workers and their families against loss of income due to disability or death.
Employment Insurance
Employment Insurance is a federal program which includes the following types of benefits: regular unemployment benefits, sickness benefits, maternity and parental benefits, and benefits for persons taking approved training courses or participating in job creation or job-sharing projects. To qualify, the claimant must have ceased receiving employment income and have worked a minimum number of weeks or hours of insurable employment over the preceding period.
Social assistance
Social assistance covers many provincial and municipal income supplements to individuals and families. It is usually provided only after all other possible sources of support have been exhausted.
Workers' compensation
Workers' compensation is provided to protect all full-time and part-time employees from loss of salary due to work accidents or occupational diseases and help them to pay their medical expenses and other costs.
Goods and Services Tax/Harmonized Sales Tax credit
Introduced in conjunction with the Goods and Services Tax in 1990, it is intended to offset the GST/HST for lower income families and individuals. In Nova Scotia , New Brunswick, and Newfoundland and Labrador, it is called the Harmonized Sales Tax Credit because the administration of the tax is combined with the provincial sales tax. Included are the federal Relief for Heating Expenses paid in 2001 and the Federal Energy Cost Benefit paid in 2006.
Provincial/territorial tax credits
Included here are refundable tax credits other than those for children (included with child tax benefits) and provincial income supplements for seniors. Some are designed to help low income individuals and families to pay property taxes, education taxes, rent and living expenses, and so on. Provincial credits include the Newfoundland HST Credit (NHSTC), Nova Scotia Affordable Living Tax Credit (NSALTC), Nova Scotia Poverty Reduction Tax Credit (NSPRTC), Quebec Sales Tax Credit (QSTC), Ontario Sales Tax Credit (OSTC), Saskatchewan Low-Income Tax Credit (SLITC), British Columbia Harmonized Sales Tax Credit (BCHSTC), and British Columbia Climate Action Tax Credit (BCCATC) - also included are the Ontario Sales Tax Transition Benefit (OSTTB) for 2010- 2011 only, and the Alberta Energy Tax Refund of 2000-2001. Provincial income supplements for seniors include the Newfoundland Seniors Benefit, New Brunswick Low-Income Senior's Benefit, Ontario Guaranteed Annual Income System, Manitoba 55 Plus, Saskatchewan Seniors Income Plan, Alberta Seniors Benefit Plan, and British Columbia Senior's Supplement. The Quebec abatement, although refundable, is not included here but rather with income taxes.
Other government transfers
This includes government transfers not included elsewhere, mainly any other non-taxable transfers. In SLID, these amounts are included with "Other income". This is partly because the coverage of any transfers not taxed through the income tax system is low. There may be under-reporting of these transfers, which are mainly collected using an open question in SLID interviews. Nonetheless, the types of transfers which have come under this heading include: training program payments not reported elsewhere, the Veteran's pension, pensions to the blind and the disabled, regular payments from provincial automobile insurance plans (excluding lump-sum payments), and benefits for fishing industry employees. The Working Income Tax Benefit (WITB) was included in the other government transfers from 2007. It is a refundable tax credit intended to provide tax relief for eligible working low-income individuals and families who are already in the workforce and to encourage other Canadians to enter the workforce.
Total income
Total income refers to income from all sources including government transfers before deduction of federal and provincial income taxes. It may also be called income before tax (but after transfers). All sources of income are identified as belonging to either market income or government transfers.
Income tax
Income tax is the sum of federal and provincial income taxes payable (accrued) for the taxation year. Income taxes include taxes on income, capital gains and RRSP withdrawals, after taking into account exemptions, deductions, non-refundable tax credits, and the refundable Quebec abatement. The data are either taken directly from administrative records or estimated based on aggregate data from administrative records, as this yields better results than the amounts reported by interview.
After-tax income
After-tax income is total income, which includes government transfers, less income tax. It may also be called income after tax.
Disposable income
Disposable income is income after deducting not only direct income taxes but also several expenditures. These expenses are Employment Insurance, Canada Pension Plan, Quebec Pension Plan and Registered Pension Plan contributions, union dues (including professional membership dues and malpractice liability insurance premiums), child care expenses incurred in order to hold a paid job, support payments paid, public health insurance premiums and direct medical expenses including private insurance premiums. Disposable income is used with the MBM thresholds to determine low-income based on the MBM.
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