Updated Checked by the Tax-Services.ca editorial team How we check
Tax free income in Canada includes lottery winnings, most gifts and inheritances, the Canada Child Benefit and most withdrawals from a TFSA. The money you earn on any of it is taxable, and that’s the part people miss.
What counts as tax free income?
The CRA has a page called amounts that are not reported or taxed. The table below follows it, with the condition it attaches to each item.
| Amount | Condition on the CRA page |
|---|---|
| Lottery winnings | Any amount, unless the prize is really employment, business or property income, or a prize for achievement |
| Gifts and inheritances | Most of them |
| Canada Child Benefit | Listed as not taxed, with related provincial and territorial credits |
| Canada Groceries and Essentials Benefit | Listed as not taxed |
| TFSA withdrawals | Most amounts |
| Life insurance paid after a death | Most amounts |
| Strike pay | Most union strike pay |
| Compensation for crime or motor vehicle accident victims | Paid by a province or territory |
| Amounts exempt under section 87 of the Indian Act | Claimed with form T90 |
Read the words “most” and “unless” twice. Each one hides a rule, and the CRA page is where you check yours. The page is titled Amounts that are not reported or taxed, and it’s short enough to read in a few minutes.
Is a lottery win or an inheritance really untaxed?
Yes for the money itself, going by the CRA page. You don’t report a lottery prize as income or pay tax on it. Gifts and inheritances mostly follow the same rule.
Maria in Winnipeg picks up a $5,000 scratch-ticket prize. Nothing goes on her return for the prize. A few bucks of interest in a savings account later, though, and that interest does. The CRA says it plainly:
Income earned on any of the above amounts is taxable.
Amounts that are not reported or taxed, canada.ca
But what you do afterward is different. Say you park a $10,000 prize at 4% interest (our made-up rate for the example). That earns $400 a year. For someone with $70,000 of income in Ontario, the tax on that $400 comes to about $119, since the next dollar is taxed at roughly 29.65% in our engine. The prize stayed tax free. The interest didn’t.
The marginal tax rate calculator shows the rate on your own next dollar. Try it at your income before you decide where to park a windfall.
How does a TFSA keep growth tax free?
You put in after-tax money, so there’s no deduction when you contribute. In return, the CRA treats most withdrawals as untaxed, and that includes growth. The 2026 dollar limit is $7,000, and room builds from the year you turn 18 if you’re a resident.
Overshoot your room and our data file shows a 1% monthly charge on the extra. Check your room in your CRA account, not from memory. The TFSA calculator projects growth on a contribution, and every dollar of that growth stays outside your tax return.
An RRSP is different. You get a deduction now and pay tax on withdrawal, so it’s tax deferred, not tax free. People confuse the two constantly.
Are government benefits tax free?
Some are. The Canada Child Benefit and the Canada Groceries and Essentials Benefit are on the CRA’s not-taxed list. We haven’t checked every other benefit, so look each one up before you assume.
Use the Canada Child Benefit calculator for an estimate. We haven’t printed benefit amounts here, since we couldn’t confirm the current figures on a CRA page.
Do you still have to list tax free amounts on your return?
Usually not, because the point of the list is that these amounts aren’t reported. The exceptions are the ones where a form is involved, such as the T90 for amounts exempt under section 87 of the Indian Act. If you’re unsure whether an item on your slips belongs on a line, the safest check is the CRA page above, then a tax professional if it still isn’t clear.
It also pays to keep a note of where a big tax free amount came from, such as an estate paperwork or a gift letter. If a lender or the CRA ever asks, a one-page record is easier than trying to remember.
Where do people trip up?
The first slip is treating “tax free” as “not my business to report.” A tax free amount often needs no line on the return, but the interest or gain it earns does. Another is a prize connected to your job. If your employer hands it out because of your work, it may be employment income.
Low income doesn’t mean no filing. You may owe nothing, but a filed return is what benefits like the GST/HST credit are usually based on. Our income tax calculator shows how much tax a given income produces before credits you may add.
Capital gains are a mixed case. Only part of a gain is taxable, and we couldn’t find the 2026 inclusion rate printed on a CRA page, so treat 50% as a working assumption only. The proposal to raise it to two-thirds was cancelled in the Prime Minister’s release of March 21, 2025.
The sources behind this page
The list comes from the Canada Revenue Agency page on amounts that are not reported or taxed, read in September 2026. The TFSA limit and penalty rate come from CRA data compiled for this site, and the tax on the interest is our own calculation from 2026 federal and Ontario schedules. This is an independent guide, separate from any government body.
Frequently asked questions
Are lottery winnings taxable in Canada?
No, going by the CRA, unless the prize is really employment, business or property income or a prize for achievement. Interest earned on the winnings is taxable.
Do I pay tax on an inheritance?
The CRA lists most gifts and inheritances as not taxed. Income earned on the money afterward is taxable.
Are TFSA withdrawals taxed?
Most amounts are not. The 2026 contribution limit is $7,000, and going over your room costs 1% a month on the excess.
Is the Canada Child Benefit taxable?
The CRA lists it as not taxed, along with related provincial and territorial credits.
Do I have to file if all my income is tax free?
A return is usually needed to keep benefits such as the GST/HST credit flowing. Check the CRA page for your own case.
- How Canadian income tax works: brackets and credits
How federal and provincial Canadian income tax stack up, what marginal and average rates mean, and how credits and deductions change your bill