Quick answer: Plain-English definitions for the tax and accounting terms that appear on your CRA correspondence and your financial statements, each one written for a business owner rather than an accountant. Terms are listed alphabetically, and most link through to a full guide if you need more than a definition.
If a term on your CRA letter or your statements is not here, ask and it will be added. Ask about a term.
A
Accrual accounting
Recording income when earned and expenses when incurred, not when cash moves. Corporations report on the accrual basis, which is why receivables and payables matter at year-end.
Active business income
Income a corporation earns from carrying on a business, as opposed to passive investment income. Only active business income qualifies for the small business deduction.
AgriStability
A federal-provincial program that supports farm operations through large margin declines. Participation leans on clean accrual records — part of farm accounting done well.
Arm’s length vs related persons
Parties deal at arm’s length when neither controls or influences the other, so their price is a market price. Family members, and a corporation and its controlling shareholder, are related and not at arm’s length. Related-party transfers are re-priced to fair market value, and several reliefs, exemptions and loss rules switch off.
ASPE (Accounting Standards for Private Enterprises)
The accounting framework in Part II of the CPA Canada Handbook that most Canadian private corporations use when their financial statements must follow GAAP. Publicly accountable enterprises use IFRS instead. A sole proprietorship has no legal requirement to apply ASPE for its tax return; it matters when a lender, investor or other reader needs GAAP financial statements.
Associated corporations
Corporations under common control. Associated groups must share one $500,000 small business deduction limit and one Employer Health Tax exemption — you cannot multiply thresholds by multiplying companies. Full guide.
Attribution rules
Rules that tax investment income or gains to whoever funded the investment, not whoever holds it. If you give or lend money to your spouse or a minor child to invest, the income is generally taxed to you. They stop income shifting to lower-taxed family members.
AUT-01
Authorize a Representative for Offline Access — the CRA form that lets your accountant deal with the CRA by phone, mail or fax on your behalf. It replaced the old T1013/RC59 forms, must reach the CRA within six months of signing, and covers offline access only; online access runs through Represent a Client. Setup guide.
Automobile benefit
The taxable benefit arising when a corporation-owned or leased vehicle is available for your personal use. It has two parts: a standby charge (based on the vehicle’s cost and how much it was available to you) and an operating benefit (based on your personal-use share of running costs). A mileage log is what separates business from personal use. Full guide.
B
Balance-due date
The date corporate tax owing must be paid — generally two months after year-end (three for many CCPCs claiming the SBD), and earlier than the six-month T2 filing deadline. Interest runs from this date. Deadlines guide.
Bare trust
One person holds legal title while another has the real benefit and control: a parent on a child’s mortgage, or a nominee corporation holding land. The beneficial owner reports the income. Trust reporting rules can require a filing even for a purely administrative arrangement, so check each year.
Beneficial ownership
The person who truly benefits from and controls property, whatever the title or share register says. Canadian corporations must keep a register of individuals with significant control. Where shares sit in a holdco, trust or nominee, tax generally follows beneficial ownership, and your records should agree.
C
Capital cost allowance (CCA)
The tax version of depreciation: each asset class has a set rate (Class 8 — 20%, Class 10 — 30%, Class 50 — 55%) claimed on a declining balance. See the CCA guide and half-year rule.
Capital dividend account (CDA)
A notional account tracking the tax-free half of capital gains a private corporation realizes. Balances can be paid to shareholders as tax-free capital dividends with a CRA election.
Capital gain and capital loss
The profit or loss on selling an asset held for long-term value: shares, a rental, equipment sold above tax cost. Only part of a capital gain is taxable, and capital losses generally offset only capital gains. Capital versus income treatment turns on intention and pattern of activity, not labels.
CCPC
Canadian-controlled private corporation — private, resident in Canada, not controlled by non-residents or public companies. CCPC status unlocks the small business deduction and the LCGE.
Clearance certificate
CRA confirmation that a corporation (or estate) has paid or secured its taxes, protecting directors when dissolving a corporation or distributing assets.
Compilation engagement
The standard financial-statement service for most small corporations (formerly “Notice to Reader”), prepared under CSRS 4200 without audit or review assurance. What it includes.
Connected corporation
A corporation is connected to another when it controls it or holds a large enough stake under the dividend rules. Dividends between connected corporations usually avoid the refundable portfolio-dividend tax, unless the payer got a dividend refund. That lets profits move from an operating company to a holding company without immediate corporate tax.
Corporate reorganization
A change in how a business is owned: adding a holding company, splitting a company between shareholders, freezing share values, or amalgamating. Done under the right provisions, it can be tax-deferred. Owners reorganize to add a shareholder, protect retained earnings, prepare a sale or plan succession.
CPP (Canada Pension Plan)
The federal retirement plan funded by contributions on employment earnings. Salary generates CPP contributions and future benefits; the corporation pays the employer half and you pay the employee half. Dividends are investment-type income and build no CPP at all. CPP for owners.
D
Deemed disposition
A sale treated as happening though nothing was sold: on death, emigration, a change in use, or certain trust anniversaries. The asset is deemed sold at fair market value, so gains are taxed with no proceeds to pay the bill. Planning for that cash gap is central to estate and succession work.
Departure tax
Tax on ceasing Canadian residency. Most property is deemed sold at fair market value the day you leave, so gains are taxed on your final return. Canadian real estate and some other property are excluded, and posting security defers payment until a sale. Departing owner-managers must also consider their corporation’s residence.
Directors’ liability
Directors can be personally liable for unremitted payroll source deductions and GST/HST; limited liability does not cover these trust amounts. Showing the care, diligence and skill of a reasonably prudent person may avoid assessment. Resigning does not erase liability for amounts due while in office.
Dividend
A distribution of corporate after-tax profit to shareholders. Not deductible to the corporation, no CPP, no RRSP room. Eligible vs non-eligible determines the personal tax rate. Salary vs dividends.
Due diligence defence
The argument that a penalty shouldn’t apply because you took genuine, documented steps to comply, used in directors’ liability and late or incorrect filing cases. Intentions rarely win; evidence does: your systems, questions asked, advice followed, and monitoring records. It is built before the problem.
E
Earned income
Mainly sets next year’s RRSP room. It includes salary and self-employment profit, not dividends, which is why many owners take some salary: dividends create no RRSP room or CPP contributions. The lower-income spouse’s earned income also caps the child care expense deduction.
EI (Employment Insurance)
Federal insurance providing benefits between jobs. Employees pay premiums and employers pay a larger share. Owners who control more than 40% of voting shares are generally not insurable on their own employment, so most incorporated owner-managers do not pay EI on their own salary, but do pay it for their staff.
Eligible vs non-eligible dividends
Eligible dividends (from income taxed at general corporate rates) carry a larger gross-up and credit than non-eligible ones (from income taxed at the small-business rate). Most small-corp dividends are non-eligible. Eligible vs non-eligible dividends: what the two types mean for an owner-manager. The small business dividend tax credit is the smaller credit attached to those non-eligible dividends, paid from income taxed at the small-business rate.
Employer Health Tax (EHT)
BC’s payroll tax: exempt at or under $1,000,000 of BC remuneration, 5.85% on the excess up to $1.5M, then 1.95% of the whole payroll. Associated employers share one exemption. EHT guide.
ERDTOH / NERDTOH
For tax years starting after 2018 the old RDTOH account was split in two. ERDTOH (eligible) tracks Part IV tax on eligible dividends received; NERDTOH (non-eligible) tracks refundable Part I tax on investment income and other Part IV tax. Paying eligible dividends refunds ERDTOH; non-eligible dividends refund NERDTOH first.
F
Fair market value
The price between a willing, informed, unhurried buyer and seller at arm’s length. It is the yardstick for family transfers, gifts, deemed dispositions on death or emigration, and shares issued in reorganizations. Deal with a related party at another price and the rules generally substitute it, so back your number with a defensible valuation.
Fiscal year-end
The date your corporation’s financial year closes. A new corporation may pick almost any date, as long as its first fiscal year does not exceed 53 weeks. The choice drives your balance-due date and T2 filing deadline. Changing it later needs CRA approval. How to choose.
Foreign accrual property income (FAPI)
Passive income — interest, rent, royalties, portfolio dividends — earned in a Canadian-controlled foreign corporation. It is attributed to the Canadian shareholder as earned, with relief for foreign tax, instead of sitting offshore untaxed. If you or your corporation owns a foreign company, this regime sets when its investment income is taxed here, with its own annual forms.
G
General Anti-Avoidance Rule (GAAR)
A rule letting the CRA undo the tax benefit of a transaction that follows the letter of the law but abuses its purpose. For owners: a structure should make sense beyond the tax saving, and steps taken purely to manufacture a deduction carry real risk.
GIFI
The General Index of Financial Information — the standardized code set (e.g., 8000 for sales) used to file financial statements with a T2 return.
Goodwill
A business’s value beyond identifiable assets: reputation, customers, systems, the phone that rings. It appears when you pay more than those assets are worth. Purchased goodwill is written off through its own capital cost allowance class. On a sale, how much price goes to goodwill changes both sides’ tax, so set it in the agreement.
GRIP (General Rate Income Pool)
A notional account tracking income a CCPC has taxed at the general corporate rate rather than the small business rate. A CCPC can designate eligible dividends only to the extent of its GRIP; paying more than the balance triggers Part III.1 tax.
Gross negligence penalty
A substantial penalty for a false statement or omission made knowingly or through gross negligence, not carelessness. It exceeds ordinary penalties, and the CRA must prove the conduct. Fictitious expenses or deliberately omitted income are typical. Voluntarily correcting an error before CRA contact generally avoids it.
GST/HST
The federal value-added tax (5% GST in BC). Registration is required once taxable sales pass $30,000 over four rolling quarters; registrants charge it, then recover tax paid via input tax credits. GST guide.
H
Half-year rule
In the year you buy an asset you generally claim CCA on only half the net addition, a Class 8 asset gives 10% in year one instead of 20%. Acceleration incentives have at times suspended it. How the first-year claim works · the classes.
Holding company
A corporation that owns shares of an operating company or investments rather than running a business. Used for creditor-proofing and moving profits via tax-free inter-corporate dividends — when it makes sense.
Home office
Workspace in your home used for business. Once you incorporate you can no longer use Form T2125 — instead the corporation reimburses a reasonable documented share under an accountable arrangement, or it issues a T2200 and you claim employment expenses on Form T777. Full guide.
I
Immediate expensing
Lets eligible businesses write off qualifying property in full the year it is available for use, instead of claiming capital cost allowance over years. It covers capped annual additions, shared among associated corporations, in designated classes only. It has been time-limited, so check the rules for when your property was acquired and used.
Income splitting
Shifting income to a lower-taxed family member through salary, dividends or shares. It is heavily restricted: split-income rules can tax family dividends at the top rate unless an exception applies, and attribution can return investment income to whoever funded it. Family salary is deductible only for real work at reasonable pay.
Inducement payment
Money received to persuade you to act: a landlord’s cash or free rent for a lease, a supplier’s signing bonus, a location grant. Generally taxable when received, or it reduces the related asset’s cost. A leasehold allowance is usually not tax-free, so settle the treatment while negotiating.
Input tax credit (ITC)
The mechanism letting GST registrants recover GST/HST paid on business purchases. Requires proper documentation; commonly denied when receipts are missing. ITC guide. (BC PST has no equivalent.)
Instalment interest
Interest on late or short instalments, measured against a compliant schedule and compounded daily. Paying early or overpaying later can offset it, because credit interest nets against debit interest. If it grows large enough, an instalment penalty can apply too.
Instalments
Periodic prepayments of corporate tax or GST once amounts owing pass thresholds — monthly or quarterly for corporations. Missing them accrues non-deductible interest. Instalment guide.
Inter-corporate dividend
A dividend between Canadian corporations, generally free of a second layer of tax, so profits can move from an operating company to a holding company. Conditions apply: refundable tax where the corporations aren’t connected, and anti-avoidance rules that can treat a pre-sale value-stripping dividend as a capital gain. The conditions on it · where holdcos use this.
K
Key person insurance
Life or disability insurance a corporation holds on an owner or key employee, payable to the corporation, to replace profit, repay a loan or buy out a family’s shares. Premiums are generally not deductible; the death benefit is generally tax-free, and much of it can reach shareholders through the capital dividend account. Lenders often require it.
L
Leasehold improvement
Spending to improve rented premises: build-out, partitions, lighting, flooring. It is neither a repair nor a real estate purchase; it goes in its own capital cost allowance class, written off over the lease plus a renewal period, within set minimums and maximums. Splitting repairs from improvements is a common year-end call.
Lifetime capital gains exemption (LCGE)
The exemption that can shelter capital gains on the sale of qualified small business corporation shares. Three tests must be met, and usually planned years ahead. LCGE guide.
LRIP (Low Rate Income Pool)
The mirror image of GRIP, for corporations that are not CCPCs. A non-CCPC with an LRIP balance must pay out ordinary (non-eligible) dividends to reduce that pool to zero before it can designate an eligible dividend.
M
Management fee
A charge from one corporation to another, usually a holding or management company to the operating company, for services. Done properly, it matches cost to benefit. Done carelessly, the CRA challenges it early: the fee must be for real, reasonably priced services, backed by an agreement, invoices and evidence of the work.
My Business Account
The CRA’s online portal for corporations and registrants — balances, filings, mail and authorizing your accountant as representative. Setup guide.
N
Net capital loss
Capital losses left after offsetting the year’s capital gains. They can’t reduce ordinary income, but can be carried back three years or forward indefinitely against capital gains. Timing the sale of an appreciated asset to absorb an old loss is common planning.
Non-capital loss
A business or property loss left after offsetting the year’s other income. Unlike a capital loss, it shelters ordinary income, and can generally be carried back three years and forward twenty. Carryforwards can be restricted when control of a corporation changes, which matters on a purchase or sale.
Notice of assessment (NOA)
The CRA’s summary after processing a return: tax assessed, balances and carry-forward amounts. Check it against the filed return — the objection clock runs from its date.
O
Opco
Shorthand for the operating company — the corporation that actually runs the business, holds the contracts and carries the commercial risk. Usually paired with a Holdco that owns its shares and holds retained earnings away from that risk.
P
Paid-up capital (PUC)
The tax measure of what shareholders contributed for their shares, separate from accounting share capital and retained earnings. It can be returned without being a dividend, is often far below share value, and can be ground down in some reorganizations. Know it before taking money out: a return of capital and a dividend are taxed very differently.
Partnership
Two or more people or corporations carrying on business together for profit. The partnership pays no income tax; partners report their allocated share, and larger partnerships file an information return. Partners are generally exposed to its liabilities, so many invest through a corporation. A written agreement on profits, decisions and exit is essential.
Passive income
Investment income (interest, rents, portfolio dividends, capital gains) inside a corporation. Over $50,000 a year of it starts grinding away the small business deduction. The $50K rule.
Payroll remittances
Income tax, CPP and EI withheld from pay plus the employer share, remitted to the CRA through an RP account on a set schedule. Unremitted amounts carry personal director liability. Payroll guide.
Personal services business (PSB)
What the CRA calls an incorporated worker who would be an employee without the corporation — single client, no business risk. PSB status strips the SBD and most deductions. PSB risk guide.
Place of supply
The GST/HST rules deciding which province’s rate you charge — generally the customer’s province for goods shipped and many services. Critical for e-commerce.
Prescribed rate
An interest rate the CRA sets quarterly from bond yields. It drives interest on overdue tax and refunds, the benefit on low-interest shareholder or employee loans, and the minimum rate for family loans to avoid attribution. A spousal loan at the prescribed rate can suit one quarter and not a year later. The current rates.
Principal residence exemption
Shelters the gain on a home you, your spouse or child ordinarily inhabited, for designated years. Only one property per family unit can be designated for a given year. Report the sale even if fully exempt. Converting between home and rental triggers a deemed disposition, and a corporation-held residence generally loses the exemption.
Provincial sales tax (PST)
BC’s separate 7% retail tax on taxable goods, software and certain services — expanding to professional services October 1, 2026. No input credits: PST paid is a real cost. PST guide.
Q
Quick Method
A simplified GST/HST calculation where you remit a flat percentage of sales instead of tracking most ITCs — often saves service businesses real money. Quick Method guide.
R
RDTOH
Refundable dividend tax on hand — the notional account of refundable tax a corporation pays on investment income, recovered when it pays taxable dividends. For tax years starting after 2018 it is split into ERDTOH and NERDTOH.
Reasonable expectation of profit
Whether an activity is a business or a personal pursuit. With no realistic path to profit and a strong personal element — a hobby farm, a boat, a side venture that only loses — the CRA can deny the losses. Courts ask whether it is run commercially; a written plan, real marketing and changing course after losses help.
Recapture
When you sell a depreciated asset for more than its remaining UCC, the excess CCA previously claimed is added back to income in the year of sale. Terminal loss and recapture are opposite results on a CCA class: one adds excess CCA back to income, the other deducts leftover UCC once the class is empty.
Retained earnings
Accumulated after-tax profits kept in the corporation rather than paid out. The engine of the deferral advantage, and of the passive-income problem if invested inside. What they are and what to do with them · Leave it in or pay it out?
S
s.85 rollover
A section 85 election under the Income Tax Act lets you transfer property into a corporation on a tax-deferred basis, choosing an elected amount rather than triggering the full gain. Commonly used when incorporating a sole proprietorship with appreciated assets, or moving shares into a holdco. It is a formal election with strict filing requirements.
Safe income
The after-tax income a corporation has earned and retained behind the accrued gain on its shares. It caps an inter-corporate dividend before the anti-avoidance rule treats it as a capital gain, which matters when profits move to a holdco before a sale or reorganization. Calculate and document it before declaring the dividend.
Salary vs dividend
The core owner-compensation decision. Salary is deductible to the corporation, creates RRSP room and builds CPP, and requires payroll. Dividends are paid from after-tax profit, need no payroll, and build neither RRSP room nor CPP. Most owners use a deliberate mix. Full comparison.
Small business deduction (SBD)
The rate cut giving CCPCs a ~9% federal rate (about 11% combined in BC) on the first $500,000 of active income. Shared among associated corporations; ground down by passive income over $50,000. Small business deduction: the $50,000 passive income rule.
Sole proprietorship
An unincorporated business — you and the business are one taxpayer, profits taxed on your T1 at personal rates, unlimited liability. Compare with incorporation.
Statute-barred
A year the CRA can no longer reassess because the normal period since the original assessment has run, three years for most Canadian-controlled private corporations and individuals. Reopening needs misrepresentation from neglect, carelessness or wilful default, fraud, or your waiver. It cuts both ways: you generally can’t amend it in your favour either.
Superficial loss
A capital loss denied because you or an affiliated person, such as your spouse or corporation, bought the same property within thirty days before or after the sale and still held it then. The loss is added to the new property’s cost, so it is deferred, not lost. It catches careless year-end tax-loss selling.
T
T1 return
The personal income tax and benefit return every Canadian individual files annually — due April 30, or June 15 if you or your spouse are self-employed (with any balance still due April 30). Your salary, dividends and other personal income all land here. Personal tax service.
T2 return
The corporate income tax return every Canadian corporation files annually, due six months after year-end (tax owing is due earlier. See balance-due date). T2 service.
T2200
Declaration of Conditions of Employment — the form an employer (including your own corporation) signs certifying that you were required to pay certain expenses as a condition of employment. It is what lets an employee claim home-office and other employment expenses on Form T777. The employee keeps it; it is not filed with the return.
T4 / T4A / T5 slips
Information slips: T4 for employment income, T4A for certain other payments, T5 for investment income including dividends. Due to recipients and the CRA by the end of February. Slip guide.
T5018
The slip construction businesses file reporting payments to subcontractors. The CRA cross-matches every slip against the subcontractor’s reported revenue. T5018 guide.
Taxable benefit
Any non-cash advantage your corporation provides that the CRA treats as employment income, a company vehicle, certain insurance, personal expenses paid by the company. Taxable benefits are added to your T4 and taxed like salary. Getting them un-reported is a common review adjustment.
Taxable capital employed in Canada
A measure of corporate size based on capital — share capital, retained earnings and debt — not profit. As taxable capital of a corporation and its associated group passes a threshold, the small business deduction shrinks and eventually disappears. Growth in retained investments, not just sales, can erode it.
Terminal loss
The opposite of recapture. If you dispose of the last asset in a CCA class and UCC still remains, the leftover balance is deducted in full that year — recognizing that the asset depreciated faster in reality than the class rate allowed. When and how to claim it.
Thin capitalization
Rules limiting interest deductible on debt owed to significant non-resident shareholders and related non-residents, so a foreign parent can’t strip profits out as interest. Interest beyond the permitted debt-to-equity ratio is denied and treated as a dividend subject to withholding tax. They matter only with a foreign parent, foreign investor, or family financing from abroad.
TOSI
Tax on split income — rules taxing dividends paid to family members at top rates unless an exception applies (like the excluded-business test for family who genuinely work in it). TOSI guide.
Trust
A trustee holding property for beneficiaries on a settlor’s terms. Owner-managers usually meet a family trust holding operating-company shares, adding flexibility in who receives dividends and potentially multiplying the capital gains exemption on a sale. Trusts file annual returns, face beneficiary reporting and periodic deemed dispositions, so they need active management.
U
Undepreciated capital cost (UCC)
The remaining tax value of an asset class after CCA claims — the base for next year’s claim, and the reference point for recapture or terminal loss on sale.
V
Voluntary Disclosures Program (VDP)
The CRA program for correcting past non-compliance — unfiled returns, unreported income — with penalty relief when the disclosure is voluntary and complete. VDP guide.
W
Work in progress (WIP)
Work done but not yet billed: hours on an unfinished job, labour and materials on a contract under way. It is an asset, generally taxable as earned, not when invoiced; the professionals’ election to exclude it was phased out. Valuing it consistently makes year-end profit credible to a lender.
Working capital
Current assets minus current liabilities — the cash and near-cash a business has to fund day-to-day operations. Positive and stable working capital is what lets a profitable company still pay its bills; profit on the income statement and cash in the bank are not the same thing.
WorkSafeBC premiums
BC’s workers’ compensation coverage — registration is generally required when you hire workers, with premiums based on payroll and industry classification. Separate from CRA payroll and from EHT.
Y
YMPE
Year’s maximum pensionable earnings — the earnings ceiling for CPP contributions. Pay above it attracts no further base CPP, which is why contributions stop partway through the year for higher-paid employees. A second ceiling, the YAMPE, sits above it for CPP2. The figures change annually; the current ones are on the 2026 payroll figures page.
Z
Zero-rated supplies
Sales taxed at 0% GST (exports, basic groceries) — you charge nothing but still claim ITCs. Different from exempt supplies, where ITCs are lost. Zero-rated vs exempt.
No term matches that. Try a shorter word, or ask us directly, which is usually faster anyway.
Missing a term? Tell us and we will add it. Definitions are simplified for orientation — the linked guides carry the detail, and none of this replaces advice on your specific situation.
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