Income from office or employment

Legislative history

The words of subsection 5(1) are, with two editorial changes, the words Parliament enacted in 1948, and the structure of the subdivision in which it sits is the work of the 1971 reform. The history below is drawn from what was digitally available on 10 October 2026: the 1917 Act in a contemporary commercial reprint, the 1948, 1952 and 1970 statute volumes and the 1971 reform statute in scanned copies, and the Justice Laws consolidation with its point-in-time versions from 31 August 2004. The 1927 revision, the individual amending Acts of 1949 to 1967 and the printed 1985 Fifth Supplement could not be examined, and the account will be updated once those records can be read.

• The Income War Tax Act, 1917, S.C. 1917, c. 28, s. 3(1). The 1917 Act had no separate rule for employment income. Its single definition of “income” was “the annual net profit or gain or gratuity, whether ascertained and capable of computation as being wages, salary, or other fixed amount, or unascertained as being fees or emoluments, or as being profits from a trade or commercial or financial or other business or calling, directly or indirectly received by a person from any office or employment, or from any profession or calling, or from any trade, manufacture or business”. Four features of the present section are already there: “gratuity”, “wages” and “salary”, the receipt language (“directly or indirectly received”), and the pairing “office or employment”. The text was read in the 1918 Pontrich compilation, Canadian Income Tax: The Income War Tax Act, 1917, with Explanations by the Minister of Finance, a commercial reprint rather than the King’s Printer volume. The Act was consolidated as R.S.C. 1927, c. 97, which was not examined. Gordon Bale recorded in 1971 that the practice of taxing salaries and wages on a gross basis appears to have begun with In re Salary of Lieutenant-Governors, [1931] Ex. C.R. 232, and was later confirmed by statute; that decision was not examined.
• The Income Tax Act, S.C. 1948, c. 52, s. 5 (royal assent 30 June 1948; applicable to the 1949 and later taxation years under section 131). The first stand-alone employment provision. Section 3 listed “offices and employments” among the named sources, and section 5 provided, in one sentence, that “[i]ncome for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by the taxpayer in the year plus (a) the value of board, lodging and other benefits (except the benefit he derives from his employer’s contributions to or under an approved superannuation fund or plan, group insurance plan or medical services plan) received or enjoyed by him in the year in respect of, in the course of or by virtue of the office or the employment, and (b) all amounts received by him in the year as an allowance for personal or living expenses or as an allowance for any other purpose except” a list of statutory, service and diplomatic allowances, “minus the deductions permitted by paragraphs (g) and (j) of subsection (1) of section 11 and by subsections (7) and (8) of section 11 but without any other deductions whatsoever”. Both “including gratuities” and “received by the taxpayer in the year” therefore date from 1948. The benefits rule, the allowances rule and the closed list of deductions, now sections 6 and 8, sat in the same sentence.
• R.S.C. 1952, c. 148, s. 5. The revision kept the 1948 opening words and extended the allowance exceptions (allowances fixed by an Act of Parliament, agent-general allowances, salespersons’ travel allowances, clergy transportation allowances and time-based travel allowances). Its source note reads “1948, c. 52, s. 5; 1949 (2nd Sess.), c. 25, s. 1; 1951, c. 51, s. 1; 1951 (2nd Sess.), c. 7, s. 23.”
• R.S.C. 1970, c. I-5, s. 5. By 1970 the section had been divided into subsections. Subsection 5(1) still began “Income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by the taxpayer in the year plus”, with paragraph (a) now covering “benefits of any kind whatever” and excluding registered pension plans, group sickness or accident plans, supplementary unemployment benefit plans, deferred profit sharing plans and group term life insurance; subsection 5(2) excluded certain board, lodging and transport benefits of construction workers. The source note reads “R.S., c. 148, s. 5; 1956, c. 39, s. 1; 1957, c. 29, s. 1; 1957-58, c. 17, s. 1; 1959, c. 45, s. 1; 1960-61, c. 49, s. 1; 1963, c. 21, s. 1; 1965, c. 18, s. 1; 1966-67, c. 96, s. 64.” The amending Acts themselves were not examined, and the relationship between the 1970 revision and the 1971 reform, whose margin cites “R.S. 1952, c. 148”, is not explained in the sources read.
• S.C. 1970-71-72, c. 63, s. 1 “5” (Bill C-259; royal assent 23 December 1971; applicable to the 1972 and later taxation years under section 9 of the Income Tax Application Rules). Section 1 repealed Parts I to IIIA and V to VII of the Act and substituted the present scheme. Under the new heading “Subdivision a - Income or loss from an office or employment” it enacted: “5. (1) Subject to this Part, a taxpayer’s income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by him in the year. (2) A taxpayer’s loss for a taxation year from an office or employment is the amount of his loss, if any, for the taxation year from that source computed by applying the provisions of this Act respecting computation of income from that source mutatis mutandis.” The reform was structural: benefits and allowances moved to new section 6, the deductions were collected in section 8, whose subsection (2) preserved the 1948 bar on “any other deductions” in the words “[e]xcept as permitted by this section, no deductions shall be made”, and a general employment expense deduction of the lesser of $150 and 3 per cent of employment income was added as paragraph 8(1)(a). Subsection 5(2), recognising a loss from an office or employment, was new.
• R.S.C. 1985, c. 1 (5th Supp.), s. 5. The revision carried the 1971 text forward with two editorial changes: “received by him” became “received by the taxpayer”, and “mutatis mutandis” became “with such modifications as the circumstances require”. The Justice Laws source note lists only “1970-71-72, c. 63, s. 1 ‘5’”, so no amending Act touched the section between 1972 and the revision’s cut-off; that the wording changes came from the revision rather than an amending Act is an inference from the source note, because the printed Fifth Supplement could not be opened. The revised Part I applies to taxation years ending after November 1991 (Income Tax Application Rules, s. 73(a)).
• Since 1985. The Justice Laws point-in-time series begins on 31 August 2004, and the section in that earliest version is word for word the current text. The consolidation current to 21 September 2026 (Act last amended 18 June 2026) shows no amendment to section 5 and lists none not in force. Section 5 has therefore not been amended since the 1971 reform, apart from the 1985 revision’s wording.

Interpretation and application →

Interpretation and application

Section 5 sets the base figure for the source and hands the rest of the computation to the sections that follow. An office-holder or employee is taxed on the pay actually received in the calendar year; section 6 adds benefits, allowances and amounts deemed to be remuneration; section 7 governs employee securities; section 8 allows the only deductions; and the net figure enters paragraph 3(a) as income from a source, or paragraph 3(d) as a loss. Each element of subsection 5(1) is taken in turn, followed by subsection 5(2).

Subsection 5(1): the taxpayer and the taxation year

“Taxpayer” includes any person whether or not liable to pay tax (subsection 248(1)), but the definitions of office and employment both speak of the position “of an individual”, so the source can be held only by a natural person. For an individual the taxation year is the calendar year under paragraph 249(1)(c), and that is why the cash basis of section 5 lines up with the employer’s calendar-year T4 reporting. Where an individual holds more than one office or employment in a year, each is a separate source under paragraph 4(1)(a), computed as if it were the only one, a point the Tax Court applied to the “principally” requirement for a home office in Bykov v. The King, 2024 TCC 36, para. 47.

Subsection 5(1): the source, an office or employment

The definitions in subsection 248(1) do the work. An office is “the position of an individual entitling the individual to a fixed or ascertainable stipend or remuneration”, expressly including judicial, ministerial and legislative offices, any elected or representative office, and “the position of a corporation director”. Employment is “the position of an individual in the service of some other person”, including the Crown and a foreign state. The two definitions produce three practical questions.

The first is whether a worker is in the service of another at all, or is in business on the worker’s own account. That question decides whether the pay is taxed under section 5, with the closed deductions of section 8, or under section 9 as profit from a business. The general law of employment supplies the answer: the CRA’s position is that the civil or common law will generally decide it (Folio S2-F3-C1, para. 1.3), and in the common law provinces the test is the one in Wiebe Door Services Ltd. v. M.N.R., [1986] 3 F.C. 553 (C.A.), as restated in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, para. 47: “whether the person who has been engaged to perform the services is performing them as a person in business on his own account”, having regard to control, the ownership of equipment, the hiring of helpers, the degree of financial risk, responsibility for investment and management, and the opportunity for profit, no one factor being conclusive (paras. 46 to 48). The Federal Court of Appeal added the parties’ intention as a relevant consideration in Wolf v. Canada, 2002 FCA 96, and Royal Winnipeg Ballet v. M.N.R., 2006 FCA 87, paras. 59 to 64, and then organised the inquiry into two steps in 1392644 Ontario Inc. (Connor Homes) v. Canada (National Revenue), 2013 FCA 85: first, ascertain each party’s subjective intent from the contract and from conduct such as invoicing, GST registration and tax filings (para. 39); second, ask whether the objective reality, seen through the Wiebe Door factors, sustains that intent (para. 40). Where the factors are inconclusive, the parties’ shared and continuing intention is respected (City Water International Inc. v. Canada, 2006 FCA 350, para. 31; Varga v. The King, 2026 TCC 138, paras. 43 to 45), and the Tax Court has observed that integration no longer forms part of the test (Varga, para. 42). For a contract governed by the law of Quebec, the analysis turns on articles 2085 to 2129 of the Civil Code of Québec. The same test governs the pensionable and insurable status of the worker under the Canada Pension Plan and the Employment Insurance Act, which is why so many of the decisions arise as CPP and EI appeals.

The second question is when a position is an office. The contested limb is “fixed or ascertainable stipend or remuneration”. In Guérin v. M.N.R., 52 DTC 118, a judge who sat on arbitration boards at a fee per sitting was held not to hold an office because the number of sittings could not be known in advance; Merchant v. The Queen, 84 DTC 6215 (F.C.T.D.), criticised that reading and treated “ascertainable” as capable of being made certain, while finding on the evidence that a party leadership candidacy was not an office. The Tax Court has since held that the expenses an incumbent must bear do not make the remuneration unascertainable, and that members of a review committee appointed for one-year part-time terms held an office (Payette v. M.N.R., T.C.C., 25 July 2002, paras. 16 to 26), but that a hearing-panel member paid honoraria, with no evidence that her remuneration was fixed or ascertainable, did not (Real Estate Council of Alberta v. M.N.R., 2011 TCC 5, paras. 44 to 46). Elected union officials who take on the duties of their positions in return for their usual remuneration hold an office (Canada (National Revenue) v. Conseil central des syndicats nationaux du Saguenay/Lac St-Jean, 2009 FCA 375, paras. 37 to 43), and the fees of a corporate director are income from an office because the definition says so (Jamieson v. The Queen, 2013 TCC 52, para. 9).

The third question is when an employment begins and ends, because the words “in the service of” exclude prospective employment. In Schwartz v. Canada, [1996] 1 S.C.R. 254, paras. 55 to 62, an individual whose employment contract was repudiated before he started work had never been employed; the damages were neither income from employment nor a retiring allowance, and the Court declined to tax them as income from an unenumerated source (paras. 44 to 54). Parliament has since narrowed the gap with subsection 6(3), discussed below, and with the definition of “retiring allowance”, which reaches amounts received “in respect of a loss of an office or employment … whether or not received as … damages”.

Subsection 5(1): “salary, wages and other remuneration, including gratuities”

The defined term “salary or wages” in subsection 248(1) does not apply in section 5, because the definition excepts “sections 5 and 63 and the definition death benefit”; the definition is the output of Subdivision A and could not be its input without circularity. In subsection 5(1) the words carry their ordinary meaning of pay for services, and “other remuneration” extends the inclusion to commissions, bonuses, honoraria, directors’ fees and any other payment for the services, whatever it is called. The Federal Court of Appeal has read “other remuneration” as reflecting “a broad concept of income” that goes back to the 1917 Act (Smith v. Canada, 2019 FCA 173, para. 33), and the Supreme Court had earlier treated “stipend” and “remuneration” in the office definition as very broad words, so that the question is whether the payment was received for activities in the performance of the office (Goldman v. M.N.R., [1953] C.T.C. 95 (S.C.C.), as applied in Duguay v. The Queen, T.C.C., 27 June 2000, para. 37).

What remuneration does not reach is marked out by section 6. Remuneration “covers only payments from employer to employee for services rendered or work performed”, and every other employment-related advantage is caught, if at all, by paragraph 6(1)(a) (Blanchard v. M.N.R., 95 D.T.C. 5479 (F.C.A.), as characterised in Martin v. The King, 2024 TCC 153, para. 62). The Supreme Court settled the relationship in The Queen v. Savage, [1983] 2 S.C.R. 428, at 440 to 441: an amount need not be remuneration for services to be employment income, because paragraph 6(1)(a) reaches any “material acquisition which confers an economic benefit” received “in respect of, in the course of, or by virtue of” the employment; in that case the $300 award for passing courses was nevertheless a prize within paragraph 56(1)(n). Three consequences follow from the division of labour. Remuneration is included at its face amount, a benefit at its value. Remuneration is included when received, a benefit when “received or enjoyed”. And a non-cash benefit is pensionable but generally not insurable (Guide T4130), whereas remuneration is both.

Four categories mark the boundary of the source. A payment by a third party to induce an employee to leave one employer for another was not employment income, because the employer did not pay it, and was taxed in Curran v. M.N.R., [1959] S.C.R. 850, under the general words of section 3; subsection 6(3) now deems an amount received from the employer, or under an agreement made immediately before, during or immediately after the employment, to be remuneration for the purposes of section 5 unless the taxpayer shows that it cannot reasonably be regarded as received for accepting the office or entering the contract, as remuneration for services, or for a covenant about what the employee is or is not to do (paragraphs 6(3)(c) to (e)). A signing bonus therefore falls within section 5 even where it is repayable (Folio S2-F3-C1, para. 1.5 and Example 1). Strike pay from a union is not remuneration from an office or employment, because the union is not the employer, and the Supreme Court was not satisfied that it was income from any source (Canada v. Fries, [1990] 2 S.C.R. 1322). Damages and settlements take their character from what they replace, under the surrogatum principle stated in Tsiaprailis v. Canada, 2005 SCC 8, paras. 7 and 15: pay in lieu of notice under the express or implied terms of the contract is employment income, damages for the loss of the employment are generally a retiring allowance taxed under subparagraph 56(1)(a)(ii), and general damages for a wrong unrelated to the loss of employment may be neither (Folio S2-F1-C2, paras. 2.14 to 2.21); a payment that discharged an employer’s liability for breaching a stock option agreement fell outside subsection 6(3) altogether (Buccini v. Canada, F.C.A., 20 November 2000). And an amount received for a restrictive covenant is governed by section 56.4 unless section 5 or 6 applied, or would have applied had the amount been received in the year, in which case the employment provisions take priority (paragraph 56.4(3)(a)).

“Including gratuities” settles that tips are employment income whoever pays them. The 1917 Act already spoke of “gratuity”; the 1948 Act placed the words where they now stand; and the courts have applied them to casino dealers’ tips and pooled tips distributed by an employees’ committee (Bach v. The Queen, 2003 TCC 328, paras. 5 to 6; Xia v. The Queen, 2019 TCC 30, paras. 12 to 14). The distinction between controlled tips, which pass through the employer, and direct tips, which do not, matters only for withholding, the Canada Pension Plan and the Employment Insurance Act (Canadian Pacific Ltd. v. Canada (Attorney General), [1986] 1 S.C.R. 678, paras. 21 to 25; Canada v. Lake City Casinos Limited, 2007 FCA 100, paras. 2 to 4; Andrew Peller Limited v. M.N.R., 2015 TCC 329, paras. 45 to 52), not for the inclusion under section 5. The employee’s duty to report direct tips does not depend on the employer’s reporting; see Compliance.

Employee securities are the one category of compensation that section 5 does not touch. Where an employer has agreed to sell or issue securities to an employee, “except as provided by this section, the employee is deemed to have neither received nor enjoyed any benefit under or because of the agreement” (paragraph 7(3)(a)); the benefit is included only as and when section 7 deems it received. The limit of that exclusion is the subject matter of section 7: cash compensation is included under subsection 5(1) in the year received, and section 7 applies only to rights to acquire securities of the employer or a non-arm’s-length corporation, so warrants in a third company that an employer allocated to an employee were a paragraph 6(1)(a) benefit taxable on allocation (Canada (Attorney General) v. Henley, 2007 FCA 370, paras. 13 to 25).

Subsection 5(1): “received by the taxpayer in the year”

The operative word is “received”, and employment income is determined on the cash method: the Tax Court’s only task is to find, as a fact, how much the employee received in the year, and whether the employer should have paid more is a matter for another forum (Seunath v. The King, 2026 TCC 140, paras. 14 to 17). Three extensions apply.

The first is constructive receipt, developed by the courts and adopted by the CRA. To receive is “to get or to derive benefit from something, to enjoy its advantages without necessarily having it in one’s hands” (Morin v. The Queen, [1975] C.T.C. 106 (F.C.T.D.)); salary that was unconditionally available to the taxpayer in one year, but which he chose not to draw until the next, was received in the first (Blenkarn v. M.N.R., 63 D.T.C. 581 (T.A.B.)); and money an employer pays to a third party for the employee’s benefit is received by the employee (Markman v. M.N.R., [1989] 1 C.T.C. 2381 (T.C.C.)). The Tax Court gathered these authorities, and the conditions of authorisation, acquiescence or legal obligation on which the third-party rule depends, in Sussex Group - Allan Sutton Realty Corp. v. The King, 2024 TCC 1, paras. 21 to 23, and in Martin v. The King, 2024 TCC 153, para. 41. A bonus that a controlling-family employee had declared, on which tax was withheld and remitted, and which was then lent back to the company, was received in the year of declaration (Sochatsky v. The Queen, 2011 TCC 41, paras. 77 to 80). The CRA’s formulation is that an amount is received in the earliest year in which it is received, paid to another at the employee’s direction or with the employee’s agreement (subsection 56(2)), or “credited to an employee’s debt or account, set apart for the employee or otherwise available to the employee without being subject to any restriction concerning its use” (Folio S2-F3-C1, para. 1.8, adopting IT-502, para. 10); a bonus the employee was entitled to in one year but asked to have paid in the next was taxed in the year of entitlement (technical interpretation 2008-0297841I7, 23 April 2009).

The second is mailing. Under paragraph 248(7)(a), anything sent by first class mail or its equivalent is deemed received on the day it was mailed; the CRA’s view is that the rule does not apply where a cheque was never actually received, and that the replacement payment is included under subsection 5(1) in the year it arrives (technical interpretation 2003-0049497, 23 December 2003).

The third is the salary deferral arrangement regime, which overrides the cash basis where one of the main purposes of a right to receive an amount after the year is to postpone tax. Subsection 6(11) deems the deferred amount to be received as a benefit at the end of the year, for the purposes of paragraph 6(1)(a) only; paragraph 6(1)(i) and paragraph 248(28)(a) prevent a second inclusion when the amount is paid, and paragraph 8(1)(o) allows a deduction where a deferred amount that was included is later forfeited. A bonus to be paid within three years after the end of the year in which the services were rendered is excluded by paragraph (k) of the definition, and a deferred salary leave plan meeting section 6801 of the Regulations by paragraph (l). The employer’s side is governed by subsection 78(4): salary, wages or other remuneration unpaid 180 days after the end of the employer’s year is deemed not to have been incurred as an expense in that year and is deductible when paid.

Unpaid pay is not received. A salary or bonus declared but neither paid nor made available is not income of the employee until it is, subject to the constructive receipt and salary deferral rules above, and the employer’s deduction is postponed by subsection 78(4). Withholding under paragraph 153(1)(a) attaches to actual payment, which is why a T4 shows the year of payment even where the inclusion falls in a different year; the CRA reconciled the two for a bonus paid after an employee’s death in technical interpretation 2018-0746971E5, 26 June 2018.

Subsection 5(1): “subject to this Part”, and the completion of the computation

Subsection 5(1) states only the base. Subsection 6(1) opens with the words “[t]here shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment”, and adds the value of benefits (paragraph (a)), personal and living allowances (paragraph (b)), directors’ fees, and the rest of its list; subsection 6(3) deems certain payments to be remuneration; section 7 brings in security option benefits as and when it provides; and section 8 lists the only deductions, subsection 8(2) providing that “[e]xcept as permitted by this section, no deductions shall be made in computing a taxpayer’s income for a taxation year from an office or employment”. The net figure is the income from the source that paragraph 3(a) aggregates. Paragraph 4(1)(a) computes that figure as if the taxpayer had no other source, allowing only the deductions “wholly applicable to that source” and a reasonable part of any others, and subsection 8(1) repeats the “wholly applicable” formula in its own opening words; subsection 4(2) keeps the Subdivision E deductions in sections 60 to 64 out of the source computation altogether. Sections 2, 3, 4 and 115 do not reduce a non-resident’s income from duties performed in Canada before that income is computed under sections 5 to 8; the computation is made source by source under Subdivision A first (Martin v. The King, 2024 TCC 153, paras. 58 to 59, affirmed on this point in Canada v. Martin, 2026 FCA 144).

Subsection 5(2): loss from an office or employment

Subsection 5(2) creates no separate rule; it applies the income computation in reverse so that an employment source can produce a negative amount, which paragraph 3(d) then subtracts. A loss arises where the deductions allowed by section 8 for the year exceed the inclusions under sections 5 to 7 from that source. Many section 8 deductions are capped by the income and cannot produce a loss: paragraph 8(1)(f), for example, limits a commission salesperson’s expenses to the commissions received in the year. Others are not capped: legal expenses to collect or establish a right to employment income (paragraph 8(1)(b)), travel and motor vehicle expenses (paragraphs 8(1)(h) and (h.1)) with capital cost allowance (paragraph 8(1)(j)), the repayment of salary (paragraph 8(1)(n)), a past-service pension contribution (paragraph 8(1)(m)), and the forfeited deferred amount under paragraph 8(1)(o), which is the paradigm of a loss arising in a later year. The clearest reported application is Hatt v. The Queen, 2015 TCC 207, where employment income of $2,497 against section 8 deductions of $22,799 produced, under subsection 5(2) with sections 6 and 8, a loss from employment of $20,302 (paras. 27 to 28 and 40), which fell within element A of the definition “non-capital loss” in subsection 111(8) and could be carried forward under paragraph 111(1)(a) (paras. 29 and 47 to 48), subject to the restriction for non-residents in subsection 111(9) (para. 46). The non-capital loss is deductible in the twenty taxation years after and the three before the loss year. The words “with such modifications as the circumstances require” direct the computational provisions to be applied as an adaptation, producing a negative figure rather than stopping at nil; they do not permit any deduction that subsection 8(2) forbids. No decision construing the phrase in subsection 5(2) was found.

Non-residents

Paragraph 2(3)(a) taxes a non-resident who was “employed in Canada” in the year, and subparagraph 115(1)(a)(i) includes in taxable income earned in Canada the income from the duties of offices and employments performed in Canada; subsection 115(2) deems certain non-residents to be employed in Canada. “Employed” means performing the duties of an office or employment, and the allocation of a year’s pay between Canadian and foreign duties is a question of fact: the Tax Court has allocated an international pilot’s remuneration by reference to flights and residual duties (Sutcliffe v. The Queen, 2005 TCC 812, paras. 6 to 7 and 97), counted a departing executive’s residual duty days in Canada (Nonis v. The King, 2021 TCC 31, paras. 72 to 78), and dealt with professional athletes’ duty days (Martin, 2024 TCC 153). A stock option benefit that arises from Canadian employment remains taxable to a non-resident under subparagraph 115(1)(a)(i) even when the option is exercised after departure (Hale v. The Queen, [1992] 2 C.T.C. 379 (F.C.A.), followed in Mullen v. The Queen, 2012 TCC 139, paras. 19 to 20). Subsection 104(2) of the Regulations confines withholding on a non-resident employee to remuneration attributable to duties performed in Canada, and the treaty articles on income from employment, discussed under Provincial and treaty parallels, may remove Canada’s right to tax short-term presence altogether.

← Legislative historyPolicy purpose and commentary →

Policy purpose and commentary

Section 5 performs three functions. It identifies office or employment as a distinct source, listed in paragraph 3(a), with its own computation; that choice fixes the line between employees, whose deductions are closed by section 8, and persons carrying on business, who are taxed on “profit” under section 9 with the open deductions of sections 18 and 20. It fixes the timing: since 1948 the operative word has been “received”, so that employment income is taxed on a cash basis while business income is computed on an accrual basis. And it fixes the breadth: “other remuneration, including gratuities” reaches payments from persons other than the employer, a reach the 1917 definition of income already contemplated with the word “gratuity”.

The gross-basis treatment of employment income was the central policy question of the 1960s reform debate. The Royal Commission on Taxation (the Carter Commission, 1966) considered that “the most equitable course would be to treat employment income on the same basis as income from a business or profession”, with an optional standard deduction of 3 per cent of employment income to a maximum of $500; the 1969 White Paper, E.J. Benson, Proposals for Tax Reform (Ottawa: Queen’s Printer, 1969), proposed instead a non-itemised deduction of 3 per cent to a maximum of $150; and the 1971 statute adopted the White Paper figure in paragraph 8(1)(a) while keeping the closed list of deductions (Gordon Bale, “The Individual and Tax Reform in Canada” (1971) 49 Canadian Bar Review 25, at 48 to 49, from which the Carter and White Paper passages are quoted; neither original was read for this page). Bale recorded that wage and salary earners “have long chaffed under a system which discriminates against employment income by taxing it on a gross basis”. The structure of section 5 is therefore a deliberate rejection of the Carter proposal to assimilate employment income to business income; the general employment expense deduction that softened it no longer exists, and the date and statute of its repeal remain to be added from the point-in-time record. No Department of Finance explanatory or technical note on section 5 from 1971 was found in digital form.

The employee-or-contractor line, which decides whether section 5 applies at all, is the subject of the largest body of commentary. Graham Purse, “Policy Forum: Sagaz at 20 - Evaluating Employment and Independent Contractor Relationships in a Changing World” (2021) 69:2 Canadian Tax Journal 453 to 473, reassesses the test in the light of platform work; Judy Fudge, Eric Tucker and Leah Vosko, “Employee or Independent Contractor? Charting the Legal Significance of the Distinction in Canada” (2003) 10:2 Canadian Labour and Employment Law Journal 193 to 230, examine the wider legal consequences of the distinction. On damages and the source concept, Martha O’Brien, “Surrogatum, Source and Tsiaprailis: Is There a Principled Basis for the Tax Treatment of Replacement Payments?” (2006) 54:4 Canadian Tax Journal 862 to 906, is the leading critique of the surrogatum principle applied in Tsiaprailis and Schwartz. The employment income chapters of the treatises are standard: Vern Krishna, Fundamentals of Canadian Income Tax, vol. 1, Personal Tax, 2nd ed. (Toronto: Thomson Reuters, 2021); Jinyan Li, Joanne E. Magee and J. Scott Wilkie, Principles of Canadian Income Tax Law, 10th ed. (Toronto: Carswell, 2022), and the 11th edition (2025) by Li and Magee; and David G. Duff et al., Canadian Income Tax Law, 7th ed. (Toronto: LexisNexis, 2023). The citations were verified on the publishers’ and repositories’ pages, but the chapters were not read, so no pinpoints are given. The Canadian Tax Foundation’s Tax for the Owner-Manager and Canadian Tax Focus could not be read because ctf.ca blocks automated access; notes from those newsletters on tips, bonus timing and employment status remain to be added by hand.

← Interpretation and applicationRelevant case law →

Relevant case law

Office or employment versus business: the characterization tests

• Wiebe Door Services Ltd. v. M.N.R., [1986] 3 F.C. 553 (C.A.). MacGuigan J.A. adopted the four-in-one test, control, ownership of tools, chance of profit and risk of loss, and integration, used to decide whether a worker earns income from employment under section 5 or from a business. Not opened; cited as characterised in Connor Homes, 2013 FCA 85, paras. 26 to 28.
• 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, [2001] 2 S.C.R. 983. No single test is conclusive (para. 46); the central question is whether the person performs the services as a person in business on his own account, having regard to control, equipment, helpers, financial risk, investment and management, and opportunity for profit (para. 47); the list is not closed (para. 48).
• Wolf v. Canada, 2002 FCA 96, [2002] 4 F.C. 396. A non-resident engineer engaged through an agency was an independent contractor (para. 95); the total relationship is examined, control on one side and subordination on the other (para. 117); the written contract carries weight only if it reflects the actual relationship (para. 71).
• Precision Gutters Ltd. v. M.N.R., 2002 FCA 207. Restates the four-fold test and the Sagaz question (paras. 12 to 18); eavestrough installers were independent contractors (paras. 32 to 33).
• Royal Winnipeg Ballet v. M.N.R., 2006 FCA 87, [2007] 1 F.C.R. 35. Characterising a contract is a search for the parties’ common intention (paras. 59 to 60), which is not determinative (para. 61) but must not be set aside as worthless; the Wiebe Door factors are weighed in its light (para. 64), and intention is not a mere tie-breaker (para. 81).
• City Water International Inc. v. Canada, 2006 FCA 350. Where the factors yield no clear result, greater emphasis is placed on the parties’ intention (para. 31).
• Combined Insurance Company of America v. Canada (National Revenue), 2007 FCA 60. The Sagaz question applied in an Employment Insurance appeal; the sales representative was not an employee (paras. 21 to 25 and 77).
• TBT Personnel Services Inc. v. Canada, 2011 FCA 256. Evidence of a common intention must still be tested against the Wiebe Door factors (para. 9); the question for each driver is whether the payer engaged him as a person in business on his own account (para. 10).
• 1392644 Ontario Inc. (Connor Homes) v. Canada (National Revenue), 2013 FCA 85. The two-step approach: subjective intent from the contract and conduct (para. 39), then whether the objective reality sustains it (para. 40); Royal Winnipeg Ballet explained (para. 33); order of analysis (para. 42).
• Schroeder v. The King, 2024 TCC 56. An RCMP chaplain engaged through a foundation was an employee under the Connor Homes test, there being no chance of profit or financial risk (paras. 26 to 27 and 49 to 50), so the clergy residence deduction under paragraph 8(1)(c) was available.
• Varga v. The King, 2026 TCC 138. Integration is no longer part of the test (para. 42); where the usual factors are inconclusive, the parties’ initial and continuing intention that the worker be an independent contractor is respected (paras. 43 to 45).

“Office”: the definition in subsection 248(1)

• Guérin v. M.N.R., 52 DTC 118 (I.T.A.B.). Per-sitting fees for arbitration boards, the number of sittings being unknown in advance, were neither fixed nor ascertainable, so there was no office. Not opened; cited as characterised in Payette, paras. 17 to 18.
• Merchant v. The Queen, 84 DTC 6215 (F.C.T.D.). Reed J. criticised Guérin and MacKeen; on the evidence, the remuneration of a party leadership candidate was not shown to be ascertainable, so no office was established. Not opened; cited as characterised in Payette, paras. 21 to 24.
• Payette v. M.N.R., T.C.C., docket 2001-2476(EI), 25 July 2002 (official English translation). Reviews Guérin, MacKeen and Merchant (paras. 16 to 24); the expenses a holder must bear do not make remuneration unascertainable (para. 24); members of a legal services review committee on one-year part-time appointments held an office (para. 26).
• Duguay v. The Queen, T.C.C., dockets 98-982(IT)I and 98-2803(IT)I, 27 June 2000. Compensatory payments to a union president and treasurer for working days lost to union business were income from an office under subsection 5(1); “stipend” and “remuneration” are very broad, and the test is whether the payment was received for activities in the performance of the office (para. 37); penalties vacated (para. 40).
• Canada (National Revenue) v. Conseil central des syndicats nationaux du Saguenay/Lac St-Jean, 2009 FCA 375. Elected union officials held an office within subsection 248(1): the election test was met (para. 37), the “entitle” and “fixed or ascertainable” requirements were analysed (para. 38), and the finding that they were volunteers was contrary to the evidence (para. 43).
• Real Estate Council of Alberta v. M.N.R., 2011 TCC 5. A hearing-panel member paid honoraria did not hold an office, there being no evidence that her remuneration was fixed or ascertainable (paras. 25 and 44 to 46).
• Sénéchal v. The Queen, 2011 TCC 365. Police officers on a union executive undertook the duties of their union positions while being remunerated (paras. 26 to 28); meal amounts were allowances, not reimbursements, applying MacDonald and Ransom (paras. 33 to 34).
• Jamieson v. The Queen, 2013 TCC 52. Directorships are offices because subsection 248(1) says so; director fees reported on a T4 were income from an office (para. 9), and being a lawyer was not by itself a business (paras. 8 and 16).

“Salary, wages and other remuneration”: the scope of the source

• Goldman v. M.N.R., [1953] C.T.C. 95 (S.C.C.). Any payment received by reason of an office or employment falls within “stipend” and “remuneration”. Not opened; cited as characterised in Duguay, para. 37. The report citation [1953] 1 S.C.R. 211 sometimes given for the case was not confirmed.
• Curran v. M.N.R., [1959] S.C.R. 850. A $250,000 payment by a third party to induce the taxpayer to leave his employment was not employment income, because the employer had not paid it, and was taxed under the general words of section 3. Not opened; cited as characterised in Schwartz, para. 56.
• Ransom v. M.N.R. (1967), 67 D.T.C. 5235 (Ex. Ct.). A true reimbursement of expenses is distinguished from an allowance; only the allowance is an amount received in the course of employment. Not opened; cited as characterised in Sénéchal, para. 33.
• The Queen v. Savage, [1983] 2 S.C.R. 428. Income need not be remuneration for services to be employment income; paragraph 6(1)(a) reaches any material acquisition conferring an economic benefit in respect of employment (at 440 to 441); the $300 award was a prize within paragraph 56(1)(n). The leading authority on the relation of sections 5 and 6.
• Canada v. Fries, [1990] 2 S.C.R. 1322. Strike pay from a union was not shown to be income from a source under section 3; the benefit of the doubt went to the taxpayer.
• Blanchard v. M.N.R. (1995), 185 N.R. 66, 95 D.T.C. 5479 (F.C.A.). Section 6 supplements section 5; remuneration covers only payments from employer to employee for services rendered or work performed, other advantages being caught by paragraph 6(1)(a). Not opened; cited as characterised in Martin v. The King, 2024 TCC 153, para. 62, and Smith v. Canada, 2019 FCA 173.
• M.N.R. v. Phillips, [1994] 2 F.C. 680, 94 D.T.C. 6177 (C.A.). The purpose of the employment income provisions is the equitable treatment of employees paid in cash and in kind. Not opened; cited as characterised in Smith, para. 34.
• Schwartz v. Canada, [1996] 1 S.C.R. 254. Damages for the repudiation of an employment contract before work began had not been allocated to lost salary (paras. 38 to 42), were not income from an unenumerated source (paras. 44 to 54), and were not a retiring allowance because employment begins when the employee is bound to start providing services (paras. 55 to 62).
• Overin v. The Queen, T.C.C., docket 95-3761(IT)G, 25 November 1997. A payment received from the Province after the employer’s receivership, claimed as a capital receipt for assigned rights, was a retiring allowance; the retiring allowance provision is more specific than the capital gains rules (paras. 23 to 24).
• Canada v. Fortino, F.C.A., dockets A-950-96 et al., 14 December 1999. No reviewable error in the finding that non-competition payments were not income from a source, the Minister having abandoned the alternative argument that they were income (paras. 1 to 2 and 5); decided before section 56.4.
• Buccini v. Canada, F.C.A., docket A-611-98, 20 November 2000. A payment discharging the employer’s liability for breach of a stock option agreement was not received for entering employment, for services, or for a covenant, and fell outside subsection 6(3) read with section 5.
• Tsiaprailis v. Canada, 2005 SCC 8, [2005] 1 S.C.R. 113. Damages and settlement payments are tax-neutral in principle and follow what they replace (para. 7); the questions are what the payment replaced and whether the replaced amount would have been taxable (para. 15).
• Canada (Attorney General) v. Henley, 2007 FCA 370. Cash compensation is included under subsection 5(1) in the year received, and section 7 applies only to rights to acquire shares of the employer (para. 13); warrants in a third company allocated to an employee were a paragraph 6(1)(a) benefit taxable on allocation (paras. 18 and 25).
• Smith v. Canada, 2019 FCA 173. “Other remuneration” in subsection 5(1) reflects a broad concept of income going back to 1917 (para. 33); paragraph 6(1)(a) taxes all compensation in money or money’s worth (para. 34, citing Phillips); Savage discussed (para. 35); an airport parking pass was a benefit (para. 53).

“Including gratuities”

• Canadian Pacific Ltd. v. Canada (Attorney General), [1986] 1 S.C.R. 678. Tips paid to the employer and distributed by it were insurable earnings; “includes … a gratuity” enlarges the meaning of earnings, and gratuity is the ordinary synonym for a tip (paras. 21 to 25). The source of the controlled-tip analysis in payroll cases.
• Bach v. The Queen, 2003 TCC 328. A casino dealer’s unreported dealer bets and pooled tips distributed by an employees’ committee were tips containing no element of chance (para. 5) and were income from an office or employment under subsection 5(1) and paragraph 6(1)(a) (para. 6).
• Canada v. Lake City Casinos Limited, 2007 FCA 100. For EI and CPP purposes the Crown must show the tips were paid by the employer in the liberal sense given in Canadian Pacific (para. 2); it was open to the Tax Court to find that the employees, not the employer, distributed them (para. 3).
• Andrew Peller Limited v. M.N.R., 2015 TCC 329. Pooled restaurant tips possessed and controlled by the employer and used to fund contractual pay of salaried staff were contributory and insurable earnings (paras. 45, 49 and 52).
• Xia v. The Queen, 2019 TCC 30 (oral reasons). Tips paid by patrons to a slot attendant remained gratuities for services by virtue of his employment although pooled through a committee before distribution (paras. 12 to 14).

“Received … in the year”: the cash basis and constructive receipt

• Blenkarn v. M.N.R. (1963), 63 D.T.C. 581 (T.A.B.). Salary available to the taxpayer in 1960, which he chose not to take until 1961, was received in 1960, when he had an unconditional right to be paid. Not opened; cited as characterised in Martin, 2024 TCC 153, para. 41, and Sussex Group, 2024 TCC 1, para. 21.
• Morin v. The Queen, [1975] C.T.C. 106, 75 D.T.C. 5061 (F.C.T.D.). “Receive” means to get or to derive benefit from something, to enjoy its advantages without necessarily having it in one’s hands. Not opened; cited as characterised in Martin, para. 41, and Sussex Group, para. 21.
• Markman v. M.N.R., [1989] 1 C.T.C. 2381, 89 D.T.C. 253 (T.C.C.). Money an employer pays to a third party for the employee’s benefit is constructively received by the employee. Not opened; cited as characterised in Martin, para. 41, and Sussex Group, para. 22.
• Sochatsky v. The Queen, 2011 TCC 41. A $3.7 million bonus declared in 2001, on which tax was withheld and remitted, with the net amount lent back to the company, was received in 2001; constructive receipt applied to the disputed $700,000 (paras. 77 to 80).
• Sussex Group - Allan Sutton Realty Corp. v. The King, 2024 TCC 1. In a subsection 227(9) penalty appeal, the Court summarised constructive receipt under subsection 5(1): Morin, Blenkarn and the availability principle (para. 21); Markman and the conditions of authorisation, acquiescence or legal obligation (para. 22); the appeal was allowed because the remuneration on which the penalty was based was wrong (paras. 25 and 29).
• Seunath v. The King, 2026 TCC 140. The operative word in subsection 5(1) is “received”, and employment income is determined on the cash method (paras. 14 to 15); the Court’s only task is to find how much the employee received, and whether the employer should have paid more is a matter for another forum (para. 17); the employee bears the onus of displacing the T4 (paras. 16 and 18).

Non-residents and sourcing

• Hale v. The Queen, [1992] 2 C.T.C. 379, 92 D.T.C. 6473 (F.C.A.). A stock option benefit arising from Canadian employment is taxable to a non-resident under subparagraph 115(1)(a)(i) although exercised after departure; the reach of the “salary or wages” definition under a treaty was left open. Not opened; cited as characterised in Mullen, paras. 19 to 20, and Sutcliffe, para. 137.
• Sutcliffe v. The Queen, 2005 TCC 812. A non-resident pilot’s remuneration was allocated between duties performed in Canada and elsewhere; both parties’ extreme positions were rejected (paras. 6 to 7), the allocation for international flights was upheld (para. 97), and regular cash remuneration falls under Article XV of the Canada-United States convention (paras. 137 to 138).
• Mullen v. The Queen, 2012 TCC 139. A non-resident who exercised options granted by his employer was taxable on the paragraph 7(1)(a) benefit through subsection 2(3) and subparagraph 115(1)(a)(i), following Hurd and Hale (paras. 19 to 20).
• Nonis v. The King, 2021 TCC 31. “Employed” means performing the duties of an office or employment; a United States resident’s Canadian tax followed the days of residual duties performed in Canada, 37 in the year, rather than the Minister’s historical ratio (paras. 57, 72 and 77 to 78).
• Martin v. The King, 2024 TCC 153, affirmed Canada v. Martin, 2026 FCA 144. Sections 2, 3, 4 and 115 do not reduce income from duties performed in Canada before employment income is computed under sections 5 to 8 (para. 58); employment income is computed source by source under Subdivision A (para. 59); summaries of Morin, Markman and Blenkarn (para. 41) and of Blanchard (para. 62).

Subsection 5(2): loss from office or employment

• Hatt v. The Queen, 2015 TCC 207. Employment income of $2,497 against section 8 deductions of $22,799, including a past-service pension contribution under paragraph 8(1)(m), produced under subsection 5(2) a loss from employment of $20,302 (paras. 27 to 28 and 40 to 42), which entered element A of the non-capital loss definition in subsection 111(8) and was carried forward under paragraph 111(1)(a) (paras. 29 and 47 to 48), with the subsection 111(9) restriction for non-residents noted (para. 46).

Decisions of the characterization line opened but not listed above, for want of space, include Ristorante A Mano Limited v. M.N.R., 2021 TCC 22 (electronic tips paid by the employer were pensionable and insurable). Areas with no verified authority on this page: members of Parliament and judges as office-holders beyond Guérin; misappropriated funds as employment income; signing bonuses outside the non-resident context; uncashed cheques and payments into trust; and any application of subsection 5(2) other than Hatt.

← Policy purpose and commentaryCRA documents →

CRA documents

• Income Tax Folio S2-F3-C1, Payments from Employer to Employee, effective 26 November 2015 (first published 14 April 2015, replacing IT-196R2 and IT-196R2SR). The principal CRA statement on section 5: salary, wages and other remuneration are not defined for the purposes of section 5 and are taxed when received (para. 1.1); employment status is generally decided by the civil or common law (para. 1.3); the operation of subsections 6(3) and 6(3.1), including signing bonuses and covenants (paras. 1.4 to 1.10 and Examples 1, 4 and 5); dual-purpose payments (para. 1.7); and the constructive receipt formula (para. 1.8).
• Income Tax Folio S2-F3-C2, Benefits and Allowances Received from Employment, which replaced IT-470R on 7 July 2016 and has been “under review” since; the page directs employers to Guide T4130.
• Income Tax Folio S2-F1-C2, Retiring Allowances, effective 8 November 2016. Separates section 5 employment income from retiring allowances under subparagraph 56(1)(a)(ii): pay in lieu of notice under the contract is employment income, damages for loss of employment are generally a retiring allowance, and special damages for lost earnings are employment income where the employee is reinstated (paras. 2.2 and 2.14 to 2.23).
• Archived IT-502, Employee Benefit Plans and Employee Trusts (28 March 1985). Paragraph 10 states the constructive receipt formula the folio later adopted for section 5.
• Archived IT-109R2, Unpaid Amounts (23 April 1993). Paragraphs 10 to 14 explain the 180-day rule in subsection 78(4) for unpaid remuneration, the employer-side counterpart of the cash basis.
• Cancelled bulletins still cited for history: IT-196R2 and IT-196R2SR, Payments by Employer to Employee (replaced by S2-F3-C1 on 14 April 2015); IT-470R (consolidated), Employees’ Fringe Benefits (replaced by S2-F3-C2 on 7 July 2016); IT-337R4 (consolidated), Retiring Allowances (replaced by S2-F1-C2 on 8 November 2016); IT-525R (consolidated), Performing Artists (replaced by Folio S4-F14-C1, Artists and Writers, on 9 October 2020). Status taken from the CRA’s table of concordance and its list of cancelled interpretation bulletins.
• Guide T4001, Employers’ Guide - Payroll Deductions and Remittances (modified 21 January 2026). Withholding from salary, bonuses and “certain tips and gratuities”; salary deferrals and deferred salary leave plans; the failure-to-deduct and failure-to-remit penalties; the last day of February T4 deadline; relief requests on Form RC4288.
• Guide T4130, Employers’ Guide - Taxable Benefits and Allowances (modified 17 August 2026). The CRA’s operative statement on paragraph 6(1)(a) benefits as distinct from cash remuneration, including the cash, near-cash and non-cash distinction and the CPP and EI treatment of benefits.
• Guide RC4120, Employers’ Guide - Filing the T4 Slip and Summary (modified 6 January 2026). Box 14 includes controlled tips and, in Quebec, declared tips; the 2025 slips were due 2 March 2026; the penalty for failing to give employees their slips.
• Employment status: employee or self-employed (modified 6 January 2026), which replaced Guide RC4110, Employee or Self-employed?, cancelled 30 January 2026, and its companion page Determine the employment status (modified 16 December 2025), which cites Wiebe Door, Sagaz and Connor Homes and states that all the facts, not just the intention, determine a worker’s status.
• Tips and gratuities (CPP and EI explained) (modified 24 December 2025). All tips are income earned in respect of employment for the purposes of the Act; controlled tips are pensionable and insurable, direct tips are neither, subject to the Form CPT20 election; Quebec declared tips.
• Line 10100, Employment income and Line 10400, Other employment income (both modified 20 January 2026). Salary, wages, commissions, bonuses, tips, gratuities and honoraria usually shown in box 14 go on line 10100; tips and gratuities not on a T4 slip go on line 10400.
• Request a CPP/EI ruling (modified 16 December 2025). Rulings on status and on pensionable or insurable earnings.
• Technical interpretations, read on a publisher’s site because the CRA does not publish severed letters on canada.ca: 9710705 (28 May 1997), cash tips left on the table attract no withholding under subsection 153(1), credit-card tips and a fixed 15 per cent service charge do; 2005-0163351E5 (18 April 2006), employer-controlled tips meet subsection 153(1), citing Union of Saskatchewan Gaming Employees Local 40005 v. M.N.R., 2004 TCC 799 (not opened); 2003-0049497 (23 December 2003), subsection 248(7) does not deem receipt of a cheque that never arrived; 2008-0297841I7 (23 April 2009), a bonus deferred at the employee’s request is taxed in the year of entitlement; 2018-0746971E5 (26 June 2018), a bonus paid after an employee’s death is reported on the final return while the T4 shows the year of payment. No roundtable answer on “received”, unpaid salary or accrued bonuses was located.

← Relevant case lawRegulations, forms, and elections →

Regulations, forms, and elections

• Income Tax Regulations, C.R.C., c. 945, Part I (current to 21 September 2026). Subsection 100(1) defines “remuneration” for withholding as including salary or wages and commissions, gratuities that provincial legislation requires the employee to declare to the employer (paragraph (a.1)), and amounts received as consideration for entering into a contract of service (paragraph (m)); section 101 requires every payer of an amount described in subsection 153(1) to withhold and remit; section 102 sets the periodic-payment formula, whose notional remuneration includes declared gratuities (subparagraph 102(1)(c)(ii)); section 103 governs bonuses and retroactive increases; subsection 104(2) confines withholding on a non-resident to remuneration attributable to duties performed in Canada; section 107 provides for the TD1 return (subsection (1)) and the commission employee’s TD1X (subsection (2)); section 108 sets the remittance dates, the 15th of the following month with accelerated and quarterly regimes; and section 109 provides for the election under subsection 153(1.2) to increase withholding.
• Income Tax Regulations, Part II. Subsection 200(1) requires an information return in prescribed form (the T4) for every payment described in subsection 153(1); subsection 205(1) makes it due on or before the last day of February for the preceding calendar year; section 209 requires copies to the employee by the same date and sets the electronic delivery rules.
• Income Tax Regulations, section 6801. Paragraph (a) prescribes the deferred salary leave plan excluded from the definition “salary deferral arrangement”: a leave of at least six consecutive months (three for full-time education), a deferral period of at most six years, deferrals of no more than one-third of salary, interest paid out annually, a return to work for at least the length of the leave, and payout by the end of the first taxation year after the deferral period; paragraph (d) prescribes share-value deferred arrangements paying out after retirement, death or loss of employment.
• Forms: T4, Statement of Remuneration Paid; T4A, Statement of Pension, Retirement, Annuity, and Other Income; TD1, Personal Tax Credits Returns; TD1X, Statement of Commission Income and Expenses for Payroll Tax Deductions; T1213, Request to Reduce Tax Deductions at Source, the form for a subsection 153(1.1) reduction; T2200, Declaration of Conditions of Employment, the employer’s certificate under subsection 8(10); T777, Statement of Employment Expenses; CPT20, Election to Pay Canada Pension Plan Contributions; and T1 lines 10100 and 10400.
• Elections and designations bearing on timing: the three-year bonus exclusion in paragraph (k) of the definition “salary deferral arrangement” and the deemed receipt rules in subsections 6(11) to (14) with the deduction in paragraph 8(1)(o); the deferred salary leave plan under paragraph 6801(a) of the Regulations; the former deferral of security option benefits in subsections 7(8) to (15), repealed by S.C. 2010, c. 25, s. 3, subsection 7(16) still requiring a prescribed form while deferred securities are held; the withholding variations under subsection 153(1.1) (undue hardship, Form T1213), subsection 153(1.2) and section 109 of the Regulations (increased withholding), and subsection 107(2) (Form TD1X); and the election under subsection 13(3) of the Canada Pension Plan to contribute on employment income, such as direct tips, from which no contribution was withheld (Form CPT20).

← CRA documentsCompliance →

Compliance

Section 5 creates obligations on both sides of the employment. The employer withholds, remits and reports; the employee reports everything received, including tips that never pass through payroll.

An employee reports the employment income shown in box 14 of the T4 on line 10100 of the T1, and tips and gratuities not shown on a T4 on line 10400. The inclusion under subsection 5(1) is not limited to amounts the employer paid or reported: a server who keeps direct cash tips must report them, and the employer’s failure to issue a slip for them does not reduce the employee’s liability. Where an employee disputes the amount on a T4, the employee bears the onus of displacing it (Seunath, 2026 TCC 140, paras. 16 and 18).

An employer must file an information return in prescribed form for every payment described in subsection 153(1) (Regulations, subsection 200(1)), on or before the last day of February for the preceding calendar year (subsection 205(1)), and give the employee copies by the same date (section 209); for 2025 the date was 2 March 2026. Under paragraph 153(1)(a) and sections 101 to 103 of the Regulations, the employer withholds tax from salary, wages and other remuneration and remits it by the 15th of the following month, or on the accelerated or quarterly schedule in section 108. Failure to deduct attracts a penalty of 10 per cent of the amount, rising to 20 per cent for a second failure in the same year made knowingly or under circumstances amounting to gross negligence (subsection 227(8)); late remittance attracts 3, 5, 7 or 10 per cent depending on the delay (subsection 227(9)), which the CRA’s practice generally applies only to the part above $500 unless the failure was knowing or grossly negligent (Guide T4001). Every person required to withhold must keep records sufficient to determine the amounts that should have been withheld (subsection 230(1)). Withholding follows actual payment, so a T4 shows the year of payment even where the employee’s inclusion, under the constructive receipt or salary deferral rules, falls in a different year.

Unreported tips are the commonest section 5 dispute. The normal reassessment period for an individual ends three years after the original notice of assessment (paragraph 152(3.1)(b)), but the Minister may reassess at any time where there is a misrepresentation attributable to neglect, carelessness or wilful default (subparagraph 152(4)(a)(i)), and may assess by a net worth or projection method under subsection 152(7). Unreported tips may attract the penalty in subsection 163(2) for a false statement or omission made knowingly or under circumstances amounting to gross negligence, the greater of $100 and 50 per cent of the tax attributable to the understatement, the burden of establishing the facts justifying the penalty lying on the Minister (subsection 163(3)).

For the Canada Pension Plan and the Employment Insurance Act, controlled tips, which pass through the employer, are pensionable and insurable earnings (CPP, section 12; Insurable Earnings and Collection of Premiums Regulations, SOR/97-33, subsection 2(1)); direct tips are not subject to contributions or premiums at source, although they remain income from pensionable employment computed under the Act, and the employee may elect under subsection 13(3) of the CPP, on Form CPT20, to contribute on them within one year from 15 June of the following year. Quebec, by contrast, requires employees in regulated hospitality establishments to declare their direct tips to the employer, after which the declared tips are subject to withholding (Regulations, paragraph 100(1)(a.1)) and are insurable (SOR/97-33, paragraph 2(1)(b)); see Provincial and treaty parallels.

← Regulations, forms, and electionsPlanning and dispute notes →

Planning and dispute notes

Planning

The cash basis in subsection 5(1) creates timing opportunities, each with a statutory limit. An employer may accrue a bonus at its fiscal year-end and deduct it if the bonus is paid within 180 days (subsection 78(4)), while the employee is taxed only when the bonus is received; where the employer’s year ends in July and payment is made the following January, the employee’s inclusion falls in the next calendar year. A bonus right escapes the salary deferral arrangement definition only if the bonus is to be paid within three years after the end of the year in which the services were rendered (paragraph (k)); beyond that, subsection 6(11) taxes the deferred amount annually. A deferral the employee asks for, of an amount already payable, risks constructive receipt (technical interpretation 2008-0297841I7). A deferred salary leave plan that meets paragraph 6801(a) of the Regulations is not a salary deferral arrangement: the deferred salary is taxed when paid during the leave, subject to the one-third cap, the six-year deferral period, the minimum leave, the return-to-work condition and the annual payout of interest, with the CPP, EI and withholding mechanics set out in Guide T4001.

Contractor structuring is the second area. The parties’ label is relevant under Royal Winnipeg Ballet and Connor Homes but is not decisive; the CRA’s guidance says that all of the facts, including the actual terms and conditions of the engagement, determine a worker’s status. If a worker is recharacterised as an employee, subsection 8(2) closes the worker’s deductions, and the payer faces the subsection 227(8) penalty and both shares of CPP contributions and EI premiums. Conversely, an individual who wants the deductions of section 8, such as the clergy residence deduction in Schroeder, must establish an office or employment.

Signing bonuses and inducements fall within section 5 through paragraph 6(3)(c), even where repayable, and an attempt to split a payment into a non-employment component succeeds only where a genuine dual purpose exists (Folio S2-F3-C1, para. 1.7). Settlement structuring follows the surrogatum principle: pay in lieu of notice under the contract is employment income subject to withholding; damages for the loss of employment are a retiring allowance; and general damages for harassment, defamation or a human rights violation unrelated to the loss of employment may be non-taxable (Folio S2-F1-C2, paras. 2.16 to 2.21). The allocation must be supportable on the facts, and the Minister is not bound by the parties’ labels.

For non-resident employees, subparagraph 115(1)(a)(i) and subsection 104(2) of the Regulations confine Canadian tax and withholding to remuneration for duties performed in Canada, and Article XV of the Canada-United States convention, as amended by the 2007 Protocol, exempts a United States resident’s remuneration for work in Canada where it does not exceed $10,000 in Canadian currency, or where the individual is present in Canada for not more than 183 days in any twelve-month period commencing or ending in the fiscal year concerned and the remuneration is neither paid by or on behalf of a Canadian resident nor borne by a Canadian permanent establishment. The allocation of pay to Canadian duty days should be documented contemporaneously (Nonis; Martin).

Disputes

The taxpayer bears the burden of demolishing the Minister’s assumptions of fact (Hickman Motors Ltd. v. Canada, [1997] 2 S.C.R. 336); the Minister is not bound by the return (subsection 152(7)), and an assessment is valid despite defects (subsection 152(8)). The burden moves to the Minister for a penalty under subsection 163(2) (subsection 163(3)) and for a reassessment outside the normal period (subparagraph 152(4)(a)(i)). In a tip case assessed by net worth or projection, the taxpayer must show on the evidence that the assessment is wrong, which in practice requires reliable contemporaneous records (subsection 230(1)); the leading appellate statement on net worth assessments is usually taken to be Hsu v. Canada, 2001 FCA 240.

Disputes over status and over pensionable or insurable earnings follow a separate route. A worker, a payer, Employment and Social Development Canada (for the CPP) or the Canada Employment Insurance Commission (for EI) may request a ruling from the CRA (CPP, section 26.1; Employment Insurance Act, section 90); a party’s request must be made before 30 June of the year after the year in question; an appeal to the Minister lies within 90 days (CPP, section 27; EIA, section 91), and a further appeal to the Tax Court within 90 days of the Minister’s decision (CPP, section 28; EIA, section 103). Where no ruling is requested, amounts deducted or not deducted are presumed correct (CPP, subsection 26.1(4); EIA, subsection 90(4)). The income tax assessment follows the ordinary route: an individual objects by the later of one year after the filing-due date and 90 days after the notice of assessment is sent (paragraph 165(1)(a)), and appeals to the Tax Court after confirmation or after 90 days without a decision, and no later than 90 days after confirmation (subsection 169(1)). Penalties and interest may be waived or cancelled under subsection 220(3.1) for a taxation year ending within the ten calendar years before the request, made on Form RC4288.

← ComplianceProvincial and treaty parallels →

Provincial and treaty parallels

No province outside Quebec repeats section 5; each reaches federal employment income through its definition of income or taxable income. Ontario’s Taxation Act, 2007, S.O. 2007, c. 11, Sch. A, which applies to taxation years ending after 31 December 2008 (section 2), makes resident individuals and non-residents with income earned in Ontario liable under subsection 4(1), takes as the tax base an individual’s taxable income for the year (subsection 3(1)), defines an individual’s “income” in the ordinary case as “the individual’s income for the year as determined in accordance with and for the purposes of the Federal Act” (subsection 1(1)), and carries federal definitions over by subsection 1(8). Alberta’s Personal Income Tax Act, R.S.A. 2000, c. A-30, subsection 5(1), provides that an individual’s taxable income is the taxable income computed for Part I of the federal Act, and British Columbia’s Income Tax Act, R.S.B.C. 1996, c. 215, gives “taxable income”, “employee” and “employer” the same meaning as in the federal Act (subsection 1(1)) and defines “income for the year” as income determined in accordance with and for the purposes of the federal Act (subsection 4(1)). Section 5 operates in those provinces only through the federal computation, and Part XXVI of the Regulations allocates a non-resident’s employment income to the province where the duties were performed (paragraph 2602(1)(a)).

Quebec has its own text. Section 32 of the Taxation Act, CQLR c. I-3, provides that “[s]ubject to this Part, an individual’s income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by the individual in the year” (history: 1972, c. 23, s. 26; 1998, c. 16, s. 31), and section 33 computes an employment loss “with the necessary modifications”, mirroring subsection 5(2). Quebec then adds a code for tips in the hospitality sector that has no federal counterpart: sections 42.6 and 42.7 define the “regulated establishment” and the “tippable sale” and exclude cafeterias, institutional settings and certain fast-food outlets; section 42.8 requires the employee to include every tip received, net of amounts passed on under an employee-managed tip-sharing arrangement; section 42.10 includes tips attributed by the employer; section 42.11 requires the employer, each pay period, to attribute to the employee the amount by which 8 per cent of the employee’s tippable sales exceeds the tips declared; and section 42.12 sets the attribution aside where a mandatory service charge of at least 10 per cent applies. The employer’s obligations are in section 1019.7, which was not examined. Those declared tips are the “gratuities required under provincial legislation to be declared” that paragraph 100(1)(a.1) of the federal Regulations brings into withholding.

Treaties allocate taxing rights over employment income without defining the employment relationship; under section 3 of the Income Tax Conventions Interpretation Act, R.S.C. 1985, c. I-4, a term the convention does not fully define, such as “employment” or “salaries, wages and other remuneration”, has the meaning it has for the purposes of the Act, so section 5 and the case law on it supply the content. The OECD Model’s Article 15, Income from Employment, taxes remuneration only in the state of residence unless the employment is exercised in the other state, with the familiar 183-day exception; its text and Commentary were not read for this page because oecd.org blocks automated access. The Canada-United States convention, in the schedule to the Canada-United States Tax Convention Act, 1984, S.C. 1984, c. 20, has Article XV, retitled “Income from Employment” and rewritten in paragraphs 1 and 2 by Article 10 of the Fifth Protocol (2007): remuneration is taxable only in the state of residence unless the employment is exercised in the other state, and even then it is exempt where it does not exceed US$10,000 or C$10,000, or where the recipient is present in the other state for not more than 183 days in any twelve-month period commencing or ending in the fiscal year concerned and the remuneration is neither paid by or on behalf of a resident of that state nor borne by a permanent establishment there; Article III(2) gives undefined terms the meaning they have under the law of the state applying the convention. The Canada-United Kingdom convention of 8 September 1978, read in the United Kingdom’s official text (S.I. 1980/709, Schedule), deals with dependent personal services in Article 15, with a 183-day calendar-year test in paragraph 2 and an extension to directors’ remuneration in paragraph 4; a later protocol adds a paragraph 5 on withholding, and the full chain of protocols was not reconciled for this page.

← Planning and dispute notesAnnotated cross-references →

Annotated cross-references

• Section 3: paragraph 3(a) aggregates income from each office and employment; paragraph 3(d) subtracts the loss from an office or employment computed under subsection 5(2).
• Section 4: each office or employment is a separate source computed as if it were the only one, with only the deductions wholly applicable to it; subsection 4(2) keeps the Subdivision E deductions out of the source computation.
• Section 6: the inclusions that complete subsection 5(1), benefits (paragraph (1)(a)), allowances (paragraph (1)(b)), amounts deemed to be remuneration before, during and after employment (subsection (3)), the deemed receipt of deferred amounts (subsection (11)), and the automobile benefit rules that the July 2026 technical amendments revise.
• Section 7: employee securities, a code that displaces sections 5 and 6 for the benefit under a securities agreement (paragraph 7(3)(a)), limited to securities of the employer or a non-arm’s-length corporation (Henley).
• Section 8: the only deductions from income from an office or employment, and the bar on any other (subsection (2)); the deductions whose excess over income produces the loss in subsection 5(2).
• Section 56: subparagraph 56(1)(a)(ii), retiring allowances, the destination of damages for the loss of an office or employment; subsection 56(2), indirect payments, the statutory form of the third-party receipt rule.
• Section 56.4: restrictive covenants, which yield to sections 5 and 6 where those sections apply (paragraph (3)(a)).
• Section 78: subsection 78(4), the employer’s deduction for unpaid remuneration deferred until payment, the counterpart of the employee’s cash basis.
• Section 111: the non-capital loss in subsection 111(8), which begins with the loss from an office or employment, and the carry-over periods in paragraph 111(1)(a).
• Section 115: a non-resident’s income from the duties of offices and employments performed in Canada.
• Section 153: withholding from salary, wages and other remuneration, and the Part I Regulations made under it.
• Section 248: the definitions of “office”, “employment”, “employee”, “employer”, “salary or wages” (with its carve-out for section 5), “salary deferral arrangement”, “retiring allowance”, “amount”, “person”, “individual” and “taxpayer”; subsection 248(7), deemed receipt by mail; subsection 248(28), no double inclusion.
• Section 249: “taxation year”.

← Provincial and treaty parallelsSources →

Sources

• Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), s. 5: Justice Laws Website (Act current to 21 September 2026, last amended 18 June 2026), the point-in-time index and the 31 August 2004 version, the amendments not in force, and sections 2, 3, 4, 6, 7, 8, 56, 56.4, 78, 111, 115, 152, 153, 163, 165, 169, 220, 227, 230, 248 and 249.
• Income Tax Regulations, C.R.C., c. 945, ss. 100 to 109, ss. 200, 205 and 209, s. 2602 and s. 6801; Interpretation Act, R.S.C. 1985, c. I-21, ss. 3, 15, 33, 35 and 37; Income Tax Application Rules, R.S.C. 1985, c. 2 (5th Supp.), ss. 8, 9, 19 and 73; Income Tax Conventions Interpretation Act, R.S.C. 1985, c. I-4, ss. 3 and 5; Canada Pension Plan, R.S.C. 1985, c. C-8, ss. 12, 13, 26.1, 27 and 28; Employment Insurance Act, S.C. 1996, c. 23, ss. 90, 91 and 103; Insurable Earnings and Collection of Premiums Regulations, SOR/97-33, s. 2; Canada-United States Tax Convention Act, 1984, S.C. 1984, c. 20, Schedules (Articles III and XV; Fifth Protocol, Article 10).
• Historical texts: the Income War Tax Act, 1917, in the 1918 Pontrich compilation; Acts of Parliament 1948, vol. 1 (S.C. 1948, c. 52); Revised Statutes of Canada 1952, vol. 3 (c. 148); Revised Statutes of Canada 1970, vol. IV (c. I-5); Acts of Parliament 1970-71-72, vol. 2 (c. 63); Revised Statutes of Canada 1985, 5th Supplement (catalogue record; PDF not retrievable); E.J. Benson, Proposals for Tax Reform (1969) (catalogue record; not read); Gordon Bale, “The Individual and Tax Reform in Canada” (1971) 49 Can. Bar Rev. 25.
• Case law, on the courts’ sites: Supreme Court of Canada, decisions.scc-csc.ca (Sagaz, Savage, Fries, Schwartz, Tsiaprailis, Canadian Pacific, Stewart); Federal Court of Appeal, decisions.fca-caf.gc.ca (Wolf, Precision Gutters, Royal Winnipeg Ballet, City Water, Combined Insurance, TBT Personnel, Connor Homes, Conseil central, Fortino, Buccini, Henley, Smith, Lake City Casinos, Martin 2026 FCA 144) and the Federal Courts Reports site for Wiebe Door (file A-531-85); Tax Court of Canada, decision.tcc-cci.ca (Schroeder, Varga, Payette, Duguay, Real Estate Council of Alberta, Sénéchal, Jamieson, Overin, Bach, Andrew Peller, Xia, Sochatsky, Sussex Group, Seunath, Sutcliffe, Mullen, Nonis, Martin 2024 TCC 153, Hatt, Bykov). Twelve older decisions (Wiebe Door‘s report citation, Guérin, Merchant, Goldman, Curran, Ransom, Blanchard, Phillips, Blenkarn, Morin, Markman, Hale) are not in the courts’ databases and are cited as characterised in the later decisions named with each; Hickman Motors and Hsu were not opened for this page.
• CRA documents on canada.ca as linked above; technical interpretations 9710705, 2005-0163351E5, 2003-0049497, 2008-0297841I7 and 2018-0746971E5 read on taxinterpretations.com.
• Commentary: Purse (2021) 69:2 CTJ 453 (index record); O’Brien (2006) 54:4 CTJ 862 (author’s page); Fudge, Tucker and Vosko (2003) 10:2 CLELJ 193 (Osgoode repository); Krishna, Fundamentals, vol. 1, 2nd ed. (publisher); Li, Magee and Wilkie, Principles, 10th ed. (Osgoode) and Li and Magee, 11th ed. (publisher); Duff et al., Canadian Income Tax Law, 7th ed. (UBC). The articles on ctf.ca and the OECD Commentary could not be opened.
• Provincial and treaty texts: Ontario Taxation Act, 2007; Quebec Taxation Act, CQLR c. I-3 (official PDF); Alberta Personal Income Tax Act; British Columbia Income Tax Act; Canada-United Kingdom convention, S.I. 1980/709 and the later protocol; OECD Model Tax Convention 2017 (DOI record; text not read).
• Department of Finance, Legislative Proposals Relating to the Income Tax Act and the Income Tax Regulations (Technical Amendments), 23 July 2026 (clause 1 amends paragraphs 6(1)(k) and (l) and subsection 6(2) only).

← Annotated cross-references