Common tax exempt income sources

Many people don’t realize that there are certain income sources that are in fact, completely exempt from tax. They include the following:

  • Gifts or inheritances (gifts from employers are generally taxable if over $100)
  • Lottery winnings and other windfalls
  • Income received as a personal injury award (income earned as a result of subsequent investment of such sums received by children under age 21 also will not be taxable)
  • Life insurance policy proceeds on death of the insured
  • Profit from the sale of a person’s principal residence
  • Private health services plan payments – if your employer paid no part of premiums

Investment income resulting from the investment of life insurance policy proceeds will be taxed according to normal rules, so recipients should be prepared to start paying tax and possibly quarterly instalment payments on such earnings.