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Updated 2mo ago.
Updated 2mo ago.
Gross income is the total of all income earned before any deductions, tax withholdings, or contributions. It includes salary, employment income, investment income (interest, dividends, capital gains), rental income, and any other income. It is the starting point for calculating your tax on both your federal and provincial tax returns.
Sophie earns a salary of $75,000, receives $2,000 in dividends from ETFs like XDV.TO (iShares Select Dividend Index ETF), and $500 in interest from a GIC. Her gross income is $77,500. Before arriving at her net income, she can deduct her RRSP contributions (say $10,000), union dues, and other eligible deductions. Her gross income determines her eligibility for certain programs and her initial marginal tax rate.
Knowing your gross income is essential for financial planning. It is the basis for calculating your RRSP contribution room (18% of previous year's earned income, up to $31,560 in 2024). It is also what mortgage lenders use to calculate your debt service ratios. Don't confuse gross income with net income — your actual take-home pay is significantly lower after taxes and deductions.