Canadian small business tax glossary

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.

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.

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.

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.

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.

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.

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. Full guide.

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.

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.

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.

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.

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.

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.)

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.

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.

My Business Account

The CRA’s online portal for corporations and registrants — balances, filings, mail and authorizing your accountant as representative. Setup guide.

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.

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.

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.

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.

RDTOH

Refundable dividend tax on hand — the notional account of refundable tax a corporation pays on investment income, recovered when it pays taxable dividends to shareholders.

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.

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. Leave it in or pay it out?

Shareholder loan

Money you owe your corporation (or it owes you). Owner balances outstanding past one corporate year-end are generally included in personal income — a top CRA review theme. Shareholder loan guide.

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. Full guide.

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.

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.

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.

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.

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.

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.

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.

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.

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.