Payments and amounts that are tax-free
Amounts not included in income
Section 81 lists specific amounts that are not included in a taxpayer's income despite being received — including certain social benefits, war veterans allowances, lottery winnings, and amounts received under certain government programs.
Plain-language explanation
Section 81 lists amounts that are specifically excluded from income under the ITA. If an amount is in s.81, you do not report it on your T1 return.
Key non-taxable amounts:
*s.81(1)(a) — Statutory exemptions:* Amounts exempt from tax by any other federal statute. The most important are amounts received by status Indians under the Indian Act if the income is situated on a reserve.
*s.81(1)(b) — War veterans allowances:* Allowances paid under the War Veterans Allowance Act and similar legislation to veterans and their survivors are not taxable.
*s.81(1)(d) — Tax-free insurance proceeds:* Amounts received under a group sickness or accident insurance plan (where the premiums were entirely paid by the employee), or a private health services plan, are generally not taxable.
*s.81(1)(h) — Social assistance:* Social assistance payments are not included in income (though they are used in calculating certain income-tested benefits).
*Not in s.81 but often asked about:* Lottery winnings, inheritances, gifts from non-employers, life insurance death benefits paid to beneficiaries — these are not taxable as income, though they may be under general ITA principles if received in a business context.
Example
Carolyn receives a $50,000 life insurance death benefit after her husband dies. This is not included in her income — life insurance proceeds paid on death are tax-free to the beneficiary (though the deceased's estate may have other tax consequences). She also wins $5,000 in a lottery — also not taxable income.
Amendment history
Significant changes to this provision. Older versions help you understand rules that applied in prior tax years.
Canada child benefit (CCB) — the successor to CCTB and UCCB — is not included in income, codified in the Income Tax Act as a non-taxable payment under the Canada Child Benefit Act.
Common questions
Are lottery winnings taxable in Canada? +
No. Lottery winnings, gambling winnings, and prizes from games of chance are not taxable income for most Canadians. However, if gambling is your primary source of income and constitutes a business (professional gambler), the profits could be taxable under s.9.
Are gifts taxable? +
Gifts from individuals are not taxable income to the recipient. However, gifts from employers are generally employment benefits under s.6. CRA allows non-cash gifts and awards from employers up to $500 per year to be tax-free.
Key terms
Related sections
Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 81. — Read the official text on Justice Canada
These summaries are for educational purposes only and do not constitute legal or tax advice. Speak with a CPA for advice on your specific situation.