Net income in Canada is the money you have left after subtracting specific deductions, such as RRSP contributions, child care costs, and union dues, from your total income.
On your Canadian tax return, this figure is reported on Line 23600, and the Canada Revenue Agency (CRA) uses it to work out your taxable income, your benefits, and many of your tax credits.
If that already sounds like a lot of moving parts, don’t worry. This guide breaks net income down, and by the end, you’ll be able to read your own tax return with confidence and understand exactly where your net income number comes from.
What Does Net Income Mean?
The simplest net income meaning is this: it’s what’s left of your income after certain amounts are taken away. In everyday accounting, net income is often called the “bottom line” because it appears at the bottom of an income statement, after all subtractions are made. You may also see it called net earnings; the two terms describe the same thing.
It helps to compare it with its opposite.
Gross income (or total income) is the full amount you earn before anything is removed.
Net income is the smaller, more realistic figure that remains after eligible deductions.
So when someone asks “what does net income mean?”, the shortest honest answer is: money in, minus specific allowable amounts, equals net income.
The basic idea behind net income is similar in most countries, but the exact rules and allowable deductions vary by jurisdiction. What changes from country to country is which deductions are allowed and where the number sits on your tax return. In Canada, the CRA gives net income a very specific meaning, and that’s where we turn next.
What Is Net Income in Canada? (Line 23600)
In Canada, net income is not a vague concept; it’s an exact line on your T1 personal tax return. It appears on Line 23600, and it’s calculated by taking your total income and subtracting a defined list of deductions.
This number does a lot of quiet work behind the scenes. The CRA uses your Line 23600 net income, and, if you have one, your spouse’s or common-law partner’s net income to calculate major benefits and credits, including the Canada Child Benefit, the Canada Groceries and Essentials Benefit (CGEB, formerly the GST/HST credit), and the social benefits repayment, as well as many federal and provincial or territorial non-refundable tax credits. In other words, your net income helps determine how much government support you receive and how much tax relief you qualify for.
Because it drives so many benefit calculations, the CRA even asks you to report a spouse’s or common-law partner’s net income on your return even if that amount is zero. Our team at Bestax Accountants sees this small detail trip people up every filing season; missing information may affect benefit calculations or processing for the whole household.
The Net Income Formula
Here’s the official formula the CRA uses. To find your net income on Line 23600, you take:
Line 15000 (total income), minus the total of lines 20700 to 23500 (your deductions).
If the result is negative, you enter “0” on the line, but you note the negative figure, because it may matter later for credits such as the refundable medical expense supplement or the Canada Workers Benefit.
Put more simply:
Total income: allowable deductions = Net income (Line 23600)
A negative result isn’t just a rounding quirk. If your Line 23600 amount comes out below zero, you may have a non-capital loss, the actual loss must be calculated on Form T1A. If you do, you can carry it back to any of the three previous tax years, or generally carry it forward up to 20 years. This is common for small business owners who had a tough year, and it can unlock a refund of tax paid in earlier, more profitable years.
Total Income vs. Net Income vs. Taxable Income
One of the most common points of confusion is the difference between three similar-sounding figures. They appear in a specific order on your return, and each one builds on the last.
| Figure | Line | What it is |
|---|---|---|
| Total income | 15000 | Everything you earned from all sources, employment, self-employment, investments, pensions, rental income, and more, before deductions. |
| Net income | 23600 | Total income minus deductions such as RRSP contributions, child care, union dues, and support payments. Used for benefits and credits. |
| Taxable income | 26000 | Net income minus a few further deductions. This is the number your tax rate is actually applied to. |
As Bestax’s tax team often explains it, net income is what remains after subtracting certain deductions from total income, while taxable income is calculated after a few additional adjustments below the net income line.
Benefits and credits look at your net income; your actual tax bill is calculated on your taxable income. Keeping those two straight is half the battle in understanding your return.
Is Net Income Before or After Taxes?
This is one of the most searched questions on the topic, and the honest answer is: it depends on the context. Both answers are correct in their own setting, which is exactly why people find it confusing.
For a business income statement, net income is typically after taxes. It’s the final profit that remains once every expense, including income tax, has been subtracted. This is the “net income is after taxes” version that most accounting textbooks describe, and it’s the true bottom line of a company’s profit.
For your personal Canadian tax return, net income (Line 23600) is calculated before your income tax is applied. It’s an intermediate figure: you reach it first, then it flows down to taxable income (Line 26000), and only then does the CRA calculate the tax you owe. So on a T1 return, your net income is a pre-tax number used to figure out your tax and your benefits, not your take-home pay.
So, does net income include tax? On a company’s financial statements, yes, tax has already been deducted to arrive at it. On your personal CRA return, no, your income tax is calculated after the net income line. When you see the phrase “net income,” always check whether you’re looking at a business profit figure or a line on a personal tax return, because the answer shifts between the two.
What Does “Net of Tax” Mean?
The phrase “net of tax” comes up constantly in finance, and it’s simpler than it sounds. The net of tax is the amount after the relevant tax has been subtracted. If you take a figure and remove the tax portion, what’s left is that figure “net of tax.”
To define net of tax with an example: if you earn $1,000 in interest and pay $200 in tax on it, your return “net of tax” is $800. The net of tax definition simply describes the leftover amount once tax is accounted for, so when someone asks “what does net of tax mean?” or “what does it mean, net of tax?”, you can tell them it’s the value that survives after taxes are stripped out.
People sometimes shorten this to “net tax,” which can cause mix-ups. Generally, net tax means the actual tax amount owing after adjustments and credits are applied, for example, the net federal tax figure on your return, or the net tax a GST/HST registrant remits after subtracting input tax credits.
So the two ideas are related but distinct: net of tax is the income left after tax, while net tax is the tax itself after its own adjustments. Reading the full phrase in context is the surest way to tell which one is meant.
Net Income for a Business (Business Income)
For a business, net income answers a straightforward question: after everything is paid, what’s actually left? The business income version of the formula is:
Total revenue – total business expenses = Net income
Business expenses here include the cost of goods sold, rent, wages, supplies, interest, and, for the final bottom-line figure, income tax. Whatever remains is the company’s net income, or net profit. This is the number that tells an owner whether the business is genuinely making money, not just generating sales. Note that this after-tax bottom line applies to a corporation’s financial statements. A sole proprietor’s net business income for tax purposes (Form T2125) is calculated before personal income tax; your own income tax is never a deductible business expense.
The picture is a little different for the self-employed and small business owners in Canada. As our advisors point out in Bestax’s tax refund guide, business owners calculate their own net income after expenses, estimate their full-year tax bill, and either pay by instalments or settle up at filing; no employer is withholding tax on their behalf. (Instalments are only required if net tax owing exceeds $3,000 in the current year and either of the two prior years; $1,800 in Quebec.
That makes accurate bookkeeping essential: every eligible current expense you track lowers your net income and, with it, the tax you owe. (Capital purchases like equipment are treated differently; they’re deducted gradually through capital cost allowance rather than expensed in full.) If you’re unsure which costs qualify, our guide to small business tax deductions walks through the most commonly missed ones.
Deductions That Reduce Your Net Income
The reason your net income is lower than your total income comes down to deductions the amounts on lines 20700 through 23500 that get subtracted before you reach Line 23600. Some of the most common and valuable ones include (CRA, 2026a):
- Registered pension plan (RPP) contributions: Line 20700
- RRSP deduction: Line 20800
- FHSA (First Home Savings Account) deduction: Line 20805
- Annual union, professional, or like dues: Line 21200
- Child care expenses: Line 21400
- Moving expenses: Line 21900
- Support payments made: Line 22000
- Carrying charges and interest expenses: Line 22100
- Other employment expenses (such as home office costs): Line 22900
The RRSP deduction you claim on Line 20800 is among the most powerful of these because it reduces your net income directly (contributions only help once claimed, and only up to your available deduction room), which lowers the tax applied to the rest of your income. Deductions matter most to people in higher tax brackets, since reducing income by $1,000 saves more when your marginal rate is high than when it’s low. For more legal ways to bring this number down, see Bestax’s guide on how to save tax in Canada.
Net Income Examples
Numbers make this concrete. Here are two simple, illustrative examples (figures are for demonstration only).
Example 1:
An employee. Priya, a marketing manager in Ontario, has a total income of $85,000. During the year, she contributed $6,000 to her RRSP, paid $900 in union dues, and had $8,000 in eligible child care expenses. Her net income is:
$85,000 − ($6,000 + $900 + $8,000) = $70,100 (Line 23600)
That $70,100, not her $85,000 gross, is the figure the CRA uses to determine her benefits and to move toward her taxable income.
Example 2:
A small business. Marc runs a freelance design studio. In 2025 he earned $120,000 in revenue and had $45,000 in eligible business expenses (software, rent, equipment, and supplies). His net business income is:
$120,000 − $45,000 = $75,000
Because no employer withheld tax on Marc’s behalf during the year, he’ll use that $75,000 to estimate what he owes and plan his instalment payments, a key reason self-employed filers benefit from year-round bookkeeping.
Why Your Net Income Matters
Net income isn’t just an accounting formality; it directly affects your wallet. Because the CRA uses your Line 23600 figure to calculate the Canada Child Benefit, the CGEB (formerly the GST/HST credit) t, the social benefits repayment, and a range of non-refundable tax credits, a lower net income can mean higher benefit payments and more credits, while a higher net income can phase some of them out.
It also matters for context around tax rates. For 2026, the CRA has set the lowest federal tax bracket at a rate of 14%, but remember that rate is applied to your taxable income, which you only reach after passing through the net income line. Understanding net income first is what makes the rest of your return make sense.
How to Calculate Your Net Income
You can arrive at your net income by hand, by software, or with an official CRA tool.
- Do it manually. Add up all your income to get your total (Line 15000), then subtract your eligible deductions (lines 20700 to 23500). The result is your net income on Line 23600. Working through it once by hand is the best way to truly understand your return rather than just trusting a software result.
- Use the CRA’s calculator for the payroll side. If you’re an employee or an employer trying to understand what’s withheld from a paycheque, the CRA’s free Payroll Deductions Online Calculator (PDOC) calculates Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and income tax deductions based on the details you enter. It’s a reliable way to see how gross pay becomes net pay before your annual return is even filed. If you’d like a plain-language walkthrough, Bestax’s guide to calculating payroll taxes in Canada explains the withholding side step by step.
- Get a professional to check it. Once you add rental income, investments, a business, or a major life change, the calculation gets more complex and the cost of a mistake rises. That’s the point where expert help usually pays for itself.
Working Income vs. Net Income
These two terms sound alike but aren’t the same. Working income refers to money you earn from actually working, your employment and self-employment earnings. It’s a narrower idea used mainly to determine eligibility for benefits like the Canada Workers Benefit.
Net income (Line 23600) is much broader. It includes all your income sources, not just what you earned from working, but also investment income, pension income, and more, and then subtracts your deductions.
So the difference between working income vs net income comes down to scope: working income captures your earnings from labour, while net income captures your whole financial picture minus allowable deductions. When you compare income and net income generally, the same logic applies: “income” is the raw amount coming in, and “net income” is what’s left after the permitted subtractions.
Get Expert Help With Your Net Income and Taxes
Understanding net income is the foundation of a smart, stress-free tax return, but applying it to your situation, with all its deductions, benefits, and business income, is where things get personal. That’s exactly what our team does every day.
At Bestax Accountants, our Canadian tax specialists help individuals and businesses calculate net income correctly, claim every eligible deduction, and stay fully compliant with the CRA, whether you’re filing a simple T4 return, personal income tax, a T2 corporate return, or small business taxes. Clients regularly tell us the process was far easier than expected, with everything explained in plain language and no jargon.
Based in Mississauga and serving clients across Canada, we turn financial stress into financial confidence. Book your free consultation and let our experts handle the numbers, so you can focus on what matters most.
Quick FAQs
Is net income before or after taxes?
It depends on the context. For a business’s income statement, net income is after taxes, it’s the final profit once every expense, including income tax, is subtracted. For your personal Canadian tax return, net income on Line 23600 is calculated before your income tax is applied, because tax is worked out later on your taxable income.
Does net income include tax?
On a company’s financial statements, yes, income tax has already been deducted to reach net income. On your personal CRA return, no, your income tax is calculated after the net income line, on your taxable income instead. Always check whether you’re looking at a business figure or a tax-return line.
What does “net of tax” mean?
“Net of tax” means an amount left over after the relevant tax has been subtracted. For example, if you earn $1,000 and pay $200 in tax, your income net of tax is $800. It simply describes the value that remains once taxes are accounted for.
What does “net tax” mean?
Net tax usually refers to the actual tax owing after adjustments and credits are applied, for instance, the net federal tax on your return, or the net tax a GST/HST registrant remits after claiming input tax credits. It’s different from “net of tax,” which describes income left after tax rather than the tax itself.
What is net income on Line 23600?
Line 23600 is where net income appears on your Canadian T1 return. It equals your total income (Line 15000) minus the deductions on lines 20700 to 23500, and the CRA uses it to calculate your benefits and many of your tax credits.
What does net income mean in simple terms?
Net income is the money left after specific allowable amounts are subtracted from your total income. In everyday accounting it’s called the “bottom line,” and it’s also known as net earnings. It’s the more realistic picture of what you actually keep or what a business actually profits.
Is net income the same as net earnings?
Yes. “Net income” and “net earnings” are two names for the same figure, what remains after the relevant subtractions from total income or revenue. You may see either term used depending on the source, but they mean the same thing.
What’s the difference between income and net income?
Income (or gross income) is the full amount you receive before anything is taken out. Net income is the smaller figure that remains after eligible deductions. So income is the starting point, and net income is the result after the permitted subtractions.
What is net income for a business?
For a business, net income is total revenue minus all business expenses, including the cost of goods sold, operating costs, interest, and income tax for the final bottom-line figure. Whatever remains is the company’s net profit, the number that shows whether it’s truly making money.
How do I calculate my net income in Canada?
Add up all your income to get your total income (Line 15000), then subtract the eligible deductions on lines 20700 to 23500. The result is your net income on Line 23600. If the number is negative, you enter “0” but keep a note of it, since it may reduce certain credits or create a loss you can carry back.
Is net income my take-home pay?
Not exactly. On your personal tax return, net income (Line 23600) is a calculated figure used for tax and benefit purposes, not the amount deposited in your bank account. Your take-home pay is your gross pay minus payroll deductions like CPP, EI, and withholding tax, which you can estimate using the CRA’s Payroll Deductions Online Calculator.
What’s the difference between working income and net income?
Working income is money earned from employment or self-employment, and it’s used mainly for benefits like the Canada Workers Benefit. Net income (Line 23600) is broader, it includes all your income sources minus your deductions. Working income is a subset of your overall financial picture; net income reflects the whole of it.
Disclaimer: The information provided in this blog is for general informational purposes only. For professional assistance and advice, please contact experts.
