What is net income for tax purposes and why does it matter in Ontario?

Net income (also called net income for tax purposes, or "line 23600" on your T1) is your total income minus specific deductions such as RRSP contributions, union dues, child care expenses, support payments paid, and employment expenses. It is a central figure on your return because many benefit programs, credits, and calculations use it as their income base.

In Ontario, net income affects eligibility for the Ontario Trillium Benefit, GST/HST credits, the Ontario Child Benefit, the age amount credit, and other income-tested programs. The lower your net income, the more benefit you generally receive from these programs. This is why RRSP contributions and other deductions that reduce net income — not just taxable income — are valuable beyond just the direct tax saving.

Net income is distinct from "taxable income" (line 26000), which is net income less a further set of deductions including the capital gains deduction, losses carried forward, and the northern residents deduction. Taxable income is what your actual federal and provincial tax rates are applied to. Understanding which deductions land at the net income stage versus the taxable income stage helps with planning, especially for anyone close to a benefit threshold or OAS clawback territory.