Understanding the difference between gross and net income is essential for budgeting, mortgage applications, and understanding your tax return. In Canada, these terms are used in specific and sometimes confusing ways.
Gross Income: Before Deductions
Gross income is your total earnings before any deductions are taken. For an employee, it’s the salary or hourly rate you agreed to with your employer — the number on your offer letter.
For self-employed Canadians, gross income includes all revenue before business expenses.
What’s included in gross income:
- Regular employment salary or wages
- Overtime pay
- Bonuses and commissions
- Tips (reportable)
- Self-employment revenue (before expenses)
- Rental income (before expenses)
- Investment income
Net Income: After Deductions
Net income (often called take-home pay) is what you receive after all mandatory deductions.
Deductions from a Canadian paycheque:
| Deduction | Rate (2025) | Annual Maximum |
|---|---|---|
| Federal income tax | Progressive 15%–33% | No cap |
| Provincial income tax | Varies by province | No cap |
| CPP contributions | 5.95% of pensionable earnings | $3,867.50 |
| CPP2 contributions | 4% on earnings above CPP ceiling | $188 |
| EI premiums | 1.64% of insurable earnings | $1,049.12 |
These deductions are mandatory for all employees. Your employer withholds them on your behalf and remits them to the CRA.
Take-Home Pay Estimates by Salary (Ontario, 2025)
| Gross Salary | Est. Annual Tax + CPP + EI | Est. Net Take-Home | Effective Rate |
|---|---|---|---|
| $40,000 | ~$8,200 | ~$31,800 | ~20.5% |
| $55,000 | ~$11,700 | ~$43,300 | ~21.3% |
| $70,000 | ~$16,200 | ~$53,800 | ~23.1% |
| $90,000 | ~$22,500 | ~$67,500 | ~25% |
| $120,000 | ~$34,000 | ~$86,000 | ~28.3% |
Estimates only. Amounts vary by province, deductions, and personal tax credits.
The “Net Income” Confusion on Your Tax Return
This is where many Canadians get confused: CRA’s definition of “net income” (line 23600 of your tax return) is not the same as your take-home pay.
CRA net income = Gross income − specific CRA deductions:
- RRSP contributions
- Union dues
- Childcare expenses
- Carrying charges and interest expenses
- Northern residents deductions
- Other specific deductions
This CRA net income figure is important because it determines:
- Canada Child Benefit (CCB) — benefit amount is reduced as family net income rises
- GST/HST credit — reduced for higher net incomes
- OAS clawback — triggered when net income exceeds ~$90,997 in 2025
- Certain provincial benefits
When Gross vs. Net Matters
| Situation | Which Income Applies |
|---|---|
| Budgeting and day-to-day spending | Net (take-home pay) |
| Mortgage qualification (GDS/TDS ratios) | Gross |
| RRSP contribution room | 18% of previous year’s earned income (gross wages, self-employment) |
| CCB and GST credit eligibility | CRA net income (line 23600) |
| OAS clawback threshold | CRA net income (line 23600) |
| Child support calculations | Gross income in most provinces |
Self-Employed Gross vs. Net
For self-employed Canadians, the terminology shifts:
- Gross business income = total revenue before any expenses
- Net business income = gross revenue minus allowable business expenses
- Taxable income = net business income, added to other income sources
Self-employed people pay both the employee and employer portions of CPP (11.9% combined on self-employment income up to the ceiling), making the total deduction load higher than for salaried workers.
Related Reading
- Hourly to Salary Calculator — Canada — Convert your hourly rate to annual gross income
- Salary Calculator — Canada — See pay by period and estimated deductions
- Overtime Pay Rules in Canada — When overtime kicks in by province
- Canadian Income Tax Calculator — Estimate your provincial and federal tax