Other Income and Deductions

• Author: Vern Krishna
• Profession: Professor of Common Law, University of Ottawa Barrister at Law
• Pages: 297-326

297

CH AP TER 10

OTHER INCOME AND

DEDUC TIONS

A. GENER AL COMMENT

Anglo-Canadi an tax law insi sts upon income having a source. The

source theory does not, however, conveniently embrace all receipts. To

this point, we have examined the rules governing the computation of

income from the following specif‌ically identif‌ied sources — off‌ice, em-

ployment, business, property and capital gains. There are certai n types

of income that one cannot conveniently identify as orig inating from,

or relating to, these named sources. These are loosely categorized as

“other sources” of income, a grouping that comprises various receipts

and allowances that do not have a common link.

The taxable base should be broad and inclusive if we use it as t he

measure of a taxpayer’s ability to pay. Section 56 of the Act brings into

income a variety of receipts that one may not necess arily include through

one of the named sources of income. It is, however, important to note

the opening words of section 56: “Without restricting the generality of sec-

tion 3, there shall be included in computing the income of a taxpayer for

a taxation year” [emphasis added]. Section 56 does not curtail t he scope

of section 3. Income from a source inside or outside Canada — th at is, in-

come from any source regardless of location — is included in section 3.

Section 56 contains a long list of items. In t his chapter we look only

at some of the more signif‌icant items, including:

• Pension benef‌its;

INCOME TAX L AW298

• Death benef‌its;

• Support pay ments;

• Indirect payments;

• Retiring allowances;

• Scholarsh ips, bursaries and fel lowships;

• Research grants;

• Pri zes; and

• Social assi stance payments.

B. PENSION BENEFITS

In theory, pension benef‌its accrue gradual ly as the employee’s pension

grows through employer contributions and investment earnings. For

most tax purpose s, however, pension income is taxable when the tax-

payer receives his pension.

Employer contributions to employee registered pension plans are

not taxable as employment-sou rce income.1 Within specif‌ied l imits,

employees can also deduct contributions to a regi stered pension fund

or plan.2

Pension benef‌its from a pension plan (not including benef‌its from

an employee benef‌it plan) are taxable upon their withdrawal from the

plan and are included in income in the year t hat the taxpayer receives

payment.3

An employee must include all pension benef‌its in income as she re-

ceives them. This is so whether the pay ments are under a registered or

unregistered plan, lump sum, or per iodic. Pensions and supplementary

pensions received under the Old Age Security Act and the Canada Pen-

sion Plan are also taxable as income.4

Registration of pension plan s is of importance only in determi ning

the deductibility of contributions to a plan; it has no bearing on the

taxability of receipts out of a plan. All pensions to taxpayers resident

in Canada are t axable.

1 Income Tax Act, RSC 1985, c 1 (5th Supp) [ITA], subpara 6(1)(a)(i); subs 248(1)

“superannuat ion or pension benef‌it.”

2 Ibid, para 8(1)(m).

3 Ibid, sub para 56(1)(a)(i); Muller v MNR (1960), 26 Tax ABC 295 (pension does

not have to be related to a n off‌ice or employment to be taxed).

4 Equivalent pay ments under Quebec plans ar e also included in the tax payer’s

income.