Top 10 Tax Myths—and Why You Shouldn’t Believe Them

Myth 3: "The government takes half of my capital gains!"

Reality: The government doesn't take half of your capital gains—it taxes half of any capital gains earned outside of a registered account. Or, to put it another way, half of your capital gains are completely tax-free.

"When capital gains are realized, 50% of the amount is taxed at the taxpayer's marginal tax rate," says Maria Eliza Santos, a tax expert at TurboTax Canada. "Realized" means the gains are real, not imaginary. For example, you've actually sold an investment or asset for a profit, not just calculated how much you might make by selling it. And the applicable tax rate depends on your personal tax situation, including your total income and where you live.

What about registered accounts? If the investments in question are in a Tax-Free Savings Account (TFSA) or First Home Savings Account (FHSA), any growth is yours to keep, no matter when you sell or withdraw. (With the FHSA, the money must be used to purchase a qualifying home.) As for investments held in a Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF), or Registered Education Savings Plan (RESP), any interest or capital gains earned within the account stay there tax-free. It's taxed as income only when you withdraw money from these accounts.

Myth 4: "I don't need to pay taxes on my side-hustle income."

Reality: If you're making money, that's taxable. "All income must be reported to the CRA," says Santos, "even if it's from side gigs." From Uber drivers and freelancers to those running common Gen Z side hustles promoting products on TikTok or selling handicrafts on Etsy, your income is income, and the CRA wants its share.

That said, here's a tip: you might have business expenses or other deductions that can lower your taxable income. Brush up on this topic with TurboTax's guide to small-business taxes.

Myth 5: "I don't have to pay tax on tips I earn."

Reality: Undocumented cash or cash-like payments—a.k.a. tips and gratuities, cash payments, gift cards, bartering, or even that "free" swag you may have received from a brand—count as taxable income. No surprise, the CRA pays extra attention to businesses and workers in the "underground economy." 

Nobody wants a tax audit, so it's best to play by the rules and declare all your income when you file your tax return. The consequences if you don't? At best, it's paying your back taxes—with interest. At worst, you could face fines, criminal charges, or even jail time in extreme cases of tax fraud. 

How much of your cash payments should you set aside for income tax? A common recommendation is 25%. Consider putting it into a separate savings account earmarked for taxes.

Myth 6: "I've made big money trading crypto—and it's all tax-free!"

Reality: Earnings from crypto count as income, and unless your crypto is held indirectly via, for instance, an exchange-traded fund (ETF), you can't shelter that inside a registered account. The CRA considers cryptocurrencies to be taxable as business income (if trading crypto is basically your day job) or capital gains (if your crypto holdings are more of a general investment). As with stocks, taxes on capital gains only apply if you sell some of your crypto or use it to make a purchase. And earnings from non-fungible tokens (NFTs), crypto mining and staking are taxable, too, just like any business income.

The smart strategy? Keep detailed records and be ready to show the CRA proof of transactions, expenses, and other information related to your crypto assets.

Myth 7: "My pet depends on me! That makes her a dependant, for tax purposes."

Reality: Yes, your pet is a beloved member of your family, and, yes, caring for them doesn't come cheap. (Have you seen how big pets' medical expenses can get?) But, unfortunately, the only ways you can claim animal-related costs on your taxes are if you have a service animal or you're a farmer—and that's still under specific conditions.

Myth 8: "In Canada, you have to pay taxes on lottery winnings."

Not true! Unlike in the United States, lottery prizes in Canada—whether you win $20 or $20 million—are tax-free. Lottery winnings are considered windfalls, which aren't taxed. Note, however, that you may be taxed on any income your prize money generates if you invest it in a non-registered account or investment. And although lottery prizes are tax-free, keep in mind that the chances of winning are vanishingly small—consider better ways to maximize your disposable income, and always play responsibly. 

Myth 9: "Work bonuses are exactly that: bonus money, with no income tax!"

Reality: Sorry to burst your bonus bubble, but income tax applies to all income. That sweet end-of-year bonus gets added to your other income in the tax year you receive it. (Many Canadian workplaces pay out bonuses in February, so your 2025 bonus will count toward your 2026 income.) All the usual deductions—taxes, Canada Pension Plan, Employment Insurance, etc.—apply to bonuses, too. Getting a bonus is still sweet, but maybe don't spend the full amount.

The same applies to a lot of other employee perks, too, even if they're not cash going into your bank account. These "taxable benefits" might include your parking space, free housing, or gifts and prizes. And they're only taxable when you're getting personal use out of them, as opposed to using them for your job.

Myth 10: "Filing taxes is too complicated. I need an accountant."

Reality: Filing taxes is pretty simple for many Canadians, and it's made easier thanks to convenient online software and guides. You really can file your own taxes with the right tools, even if you've never done it before. You might even save time and money.

The best way to approach things? Start early and be organized. Ensure you put relevant receipts and paperwork (both real and virtual) in a logical place throughout the year, so you can find everything at tax time. "It's a good idea to have a system to keep track of tax-related documents," says Santos. "If you're organized, filing your taxes can be quick and painless."

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