Estimated reading time: 8 minutes
It’s common for people to include all income types when they budget, even when they don’t have to.
Over the years, I’ve made the same mistakes but changed how we budget through financial education.
The difference between a realistic budget and a slightly skewed one can influence the outcome.
Find out why you should never include these eight common income types in your monthly budget and the impact when you do.
How To Track Unexpected Income Types
Years ago, we decided not to include most, if all, of the unexpected income types I will discuss today.
However, we still wanted a way to track the money, so we had an idea about how it may have impacted our overall budget.
Let’s explore these income types to discuss why they should be excluded.
Lottery Winnings
If someone were to win the lottery, money at bingo, horse races, gambling, casinos, or a contest, it’s considered winnings – minus what you spent. (if anything)
For example, you purchase $50 of lotto max tickets and win $400.
That’s a fantastic win; however, you won $350. $400-$50 = $350
When documenting the expense in a budget, you would state that $50 was spent on lottery tickets.
As for the $350, leave it out of the income portion of your monthly budget.
It was a one-time win, non-taxable, and had nothing to do with earned income.
Save the money you won, pay down debt, or use it wisely towards something you need.
Income Tax Refund
You’ve already paid taxes on an income tax refund from Revenue Canada, so it’s not earned.
A tax refund is an amount the government owes you after they assess your income tax and benefit return.
You have more credit than the amounts payable, so the money is returned to you.
Any money from our tax returns instantly gets put into a Registered Retirement Savings Plan (RRSP).
For whatever reason, if you don’t invest a tax return, the money you get back is extra cash.
Please don’t include this as income in your monthly budget, as it’s not money earned.
It’s money you earned being returned to you.
Work Bonuses
A cash or near-cash gift provided to an employee is taxable. This includes reimbursements, where the employee selects and purchases something and then submits a receipt to the employer, receiving cash or a cheque in return.
Tax Tips.ca
Although you will pay taxes on a work bonus, you don’t need to include it as earned income for the month.
Nothing stops you from including it if you want to, but it’s a bonus.
If you’re unsure if your employer adds your bonus to your salary, ask your human resources department.
When Mrs. CBB would get a $1000 bonus at Christmas from her employer, she would put it into savings.
A work bonus is entirely up to you how you document it in your budget, but remember, it’s likely a one-time bonus.
Sometimes it’s nice to forget that you got it so you don’t spend it as “extra cash” on something you don’t need.
Put the money to work for you and pay off debt instead.
Coupon Savings
Tallying how much savings one gets from coupons is fantastic, but leave it off your budget.
Although coupons allow users to save money, they should not be used for profit.
Coupons allow Canadians to save more, spend less, or stretch their grocery budget.
For example, you give the cashier a $2 off coupon for buying a box of tissue that costs $2.50.
$2.50-$2.00 coupon = you pay $0.50 for the tissue box, plus any applicable taxes.
You saved $2 but did not earn that money, so it cannot be added to your monthly net income.
Gift Cards
Often I get gift cards in my line of work, but they are not recognized as income in our budget.
Although gift cards are technically cash, they must be used at the vendor(s) specified on them.
For example, you win a contest on Canadian Budget Binder, and I send you a $25 President’s Choice gift card to be used at qualifying Loblaws stores.
Yes, it’s extra money that can be used towards items at the grocery store, but it’s not earned income.
This would fall under the “gift” category concerning Revenue Canada.
You can do so if you get many gift cards throughout the year and want to track the money for personal knowledge.
At the end of the year, you may recognize that you earned $500 in gift cards and spent $200.
Extra Pay Cheques
Everyone loves getting extra pay cheques during the year, which boosts monthly net income.
If your first paycheck in 2023 was Friday, Jan. 6, your three-paycheck months will be March and September.
Otherwise, if your first paycheck in 2023 was Friday, Jan. 13, your three-paycheck months will be June and December.
CNBC
Equally important is not spending money on wants if you still have a debt to repay.
Income types such as the extra pay cheque can be documented as part of a budget and put towards savings.
We use a zero-based budget, so any money from extra pay gets directly put into emergency savings.
Side Hustles
We had a couple of side hustles over the years that we did not include as earned monthly income.
After having our son, we had toys, baby clothes, accessories, and educational games, all of which we sold.
Selling at a garage sale or online that is not considered a hobby or business does not have to be included as earned income.
When you sell personal-use property, such as a boat, personal computer or wardrobe, for over $1,000 more than you originally paid, you must report a capital gain on your tax return.
Turbox Tax
We had already paid for the items, including tax, and wanted to recoup some money.
Any money earned went into savings or helped pay down debt.
Initially, we included this in our budget as income, but it wasn’t, so we discontinued documenting it.
- Selling items that were new or used already purchased or gifted for cash
- Money earned from being a host family for international students
The money we made from being a host family was cash and tax-free from the government.
We had many students in the first five years of owning our home, and the money went toward paying down our mortgage.
Any money you earn that does not have to be included on your tax return doesn’t need to be included in your budget.
But this blog is also my side hustle, yet it must be included in my tax return as it’s for profit.
Cash From Gifts
When Mrs. CBB gets cash as a gift for her birthday, Christmas, or another special occasion, it gets put into her savings account.
Canada has no limit on how much you can gift someone. Whether you gift them, $100 or $30,000 is entirely tax-free.
There is no “gift tax” in Canada.
Any resident of Canada who receives a gift or inheritance of any amount, except from an employer or as a tip or gratuity due to their employment, will not have to include this in their income.
For example, if we gift our son $10,000 cash when he turns 18 for graduation, he would not have to declare it as income.
Another example is if I gifted my sister-in-law $100 for a wedding shower, she would not have to declare it.
In most cases, a gift is a voluntary transfer of property without valuable consideration. However, a transfer of property for which you received an advantage is still considered a gift for purposes of the Income Tax Act as long as the Canada Revenue Agency (CRA) is satisfied that the transfer of property was made with the intention to make a gift.
Canada.ca
Consult An Accountant, Tax Expert Or Financial Advisor
If you’re unsure about what you should or should not include as earned income when budgeting as an accountant.
Perhaps you can call a local accountant to see if they will answer one question for you or talk to a financial advisor.
The best financial advice always comes from a professional that has a designation.
Alternatively, you can contact a tax expert or whoever files your return.
Overall, we’re happy with the way we document these income types and put the money to work for us.
Discussion: Do you include any of the above income types in your monthly budget? Why or why not?
Please leave me your comments below, and I’ll respond to them all.
P.S.- Don’t forget to visit my free tools page to download my three new Budget Binder printables.
Thanks for stopping by,
Mr. CBB