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By Allan Norman, MSc, CFP, CIM on February 4, 2025
Estimated reading time: 5 minutes

By Allan Norman, MSc, CFP, CIM on February 4, 2025
Estimated reading time: 5 minutes

To minimize taxes and maximize benefits, learn the difference between deductions, credits and other forms of tax relief by reading through your tax return.

Appreciate your article on OAS (Old Age Security). Can you tell me how net income is calculated? For example, if I have $100,000 in pension income and $30,000 was deducted for income tax, is my net income $70,000?

—Kevin

I like your definition of net income, Kevin. It sounds logical. But it is not the definition the Canada Revenue Agency (CRA) uses. The general, very abbreviated, format for calculating personal income tax is shown below. You will see how net income is calculated.

Total income – Deductions = Net income

(Start of OAS clawback threshold, $93,454 for 2025, is measured here.)

Net income – Tax credits = Federal tax

Federal tax x Provincial tax rate = Provincial tax

Total tax = Federal Provincial Federal and provincial surtaxes

I’m showing the skinny tax return so you can see how your personal tax is calculated and not just your “net income.” It’s important to see because for most people income tax will be the largest expense they will ever have. Let that sink in. The more you pay in tax, the less you have for yourself to do the things you want and to build wealth.

Although we must pay tax, we are permitted to arrange our financial affairs, within the law, to pay........

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