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Updated 2mo ago.
Updated 2mo ago.
Net income is the amount remaining after subtracting eligible deductions from gross income. In Canada, it appears on line 23600 of your federal tax return. Net income is used to calculate many government credits and benefits, including the Canada Child Benefit, Guaranteed Income Supplement, and OAS clawback.
Marc has a gross income of $90,000. He deducts $15,000 in RRSP contributions, $1,200 in union dues, and $800 in eligible childcare expenses. His net income is $73,000. This amount determines whether he must repay part of his OAS (clawback threshold: $90,997 in 2024), his Canada Child Benefit amount, and the calculation of several tax credits. Reducing net income through RRSP or FHSA contributions is a key tax strategy.
Net income is often more important than gross income for financial planning because it determines your government benefits and tax credits. Maximizing your RRSP deductions lowers your net income, which can increase your benefits (CCB, GIS) and avoid the OAS clawback. This is why advisors often recommend contributing to your RRSP during high-income years and withdrawing during low-income years.