Canadian tax glossary

Plain-language definitions for 66+ tax terms. References cite the Income Tax Act section where applicable.

A

Adjusted Cost Base (ACB) ITA s. 53–54: The original cost of a capital property plus any additions (e.g., capital improvements, reinvested distributions) minus any returns of capital. You subtract the ACB from proceeds of disposition to calculate a capital gain or loss.
Allowable Business Investment Loss (ABIL) ITA s. 38–39: Half of a business investment loss on shares or debt of a small business corporation. Unlike other capital losses, an ABIL can offset ordinary income in the year, not just capital gains.
Attribution Rules ITA s. 74.1–75: Rules that redirect income or capital gains earned on transferred or loaned property back to the transferor. Most commonly apply when one spouse transfers or loans money to the other at below-market interest.
Automobile Benefit ITA s. 6(1)(e)–(k): A taxable benefit added to an employee's income when an employer-owned vehicle is available for personal use. Calculated as a standby charge plus an operating cost benefit.

B

Basic Personal Amount (BPA) ITA s. 118(1)(c): A non-refundable federal tax credit available to every resident. The credit equals the BPA multiplied by the lowest federal tax rate (15% in 2026). Higher-income taxpayers receive a reduced BPA.
Benefit Year: The 12-month period July–June during which GST/HST credit and Canada Child Benefit payments are issued, based on the prior tax year's return. See also: Canada Child Benefit (CCB)

C

Canada Child Benefit (CCB) ITA s. 122.61: A tax-free monthly payment from the CRA to eligible families with children under 18. The amount is based on family net income from the prior tax year and the number and ages of children.
Canada Pension Plan (CPP): A mandatory contributory pension program for workers outside Quebec. Contributions are split equally between employee and employer. Benefits include retirement pension, disability, and survivor benefits. See also: Quebec Pension Plan (QPP)
Capital Cost Allowance (CCA) ITA s. 20(1)(a), Reg. 1100: The tax depreciation system for depreciable property. Each asset class has a prescribed rate; you deduct CCA annually against business or rental income. The undepreciated capital cost (UCC) is the remaining balance.
Capital Dividend Account (CDA) ITA s. 83(2): A notional account tracking the tax-free portions of capital gains, life insurance proceeds, and certain other amounts received by a private corporation. Amounts in the CDA can be paid as tax-free capital dividends to shareholders.
Capital Gain ITA s. 38–40: The profit realized when you sell a capital property for more than its adjusted cost base plus selling costs. In 2026, 2/3 of the capital gain is included in income (the taxable capital gain).
Capital Loss: The loss realized when you sell a capital property for less than its adjusted cost base plus selling costs. Capital losses generally only offset capital gains; superficial loss rules may deny a loss in certain cases. See also: Superficial Loss , Adjusted Cost Base (ACB)
Carrying Charges ITA s. 20(1)(bb), s. 20(1)(c): Interest and certain fees paid to earn investment income, deductible against that income. Includes interest on money borrowed to purchase investments and management fees for non-registered accounts.
Combined Federal and Provincial Tax Rate: The total marginal rate at which each additional dollar of income is taxed, accounting for both the federal rate and the applicable provincial or territorial rate.
Connected Corporation ITA s. 186(4): A corporation that is controlled by, or owns more than 10% of, another corporation. The term affects dividend refund rules, Part IV tax, and various anti-avoidance provisions.
Controlled Foreign Affiliate (CFA) ITA s. 17, s. 91: A foreign affiliate in which the Canadian taxpayer (together with related persons) owns more than 50% of the voting shares. FAPI earned by a CFA is included in the Canadian shareholder's income annually.

D

Deemed Disposition ITA s. 45, s. 70(5), s. 128.1: A rule treating property as sold (and immediately reacquired) at fair market value even though no actual sale occurred. Triggered on death, emigration from Canada, or when property changes use.
Departure Tax ITA s. 128.1(4): Tax triggered when an individual ceases to be a Canadian resident. Most property is deemed disposed at fair market value on the date of departure, creating a taxable capital gain.
Dividend Gross-Up and Tax Credit ITA s. 82, s. 121: The mechanism that integrates corporate and personal tax on dividends. Eligible dividends are grossed up by 38%; the federal dividend tax credit is 15.0198% of the grossed-up amount (2026). Non-eligible dividends use a 15% gross-up and a 9.03% credit.

E

Eligible Capital Property ITA s. 14 (repealed), Reg. 1100(1)(a)(xiv): Pre-2017 category for intangibles like goodwill and customer lists. On January 1, 2017, eligible capital property became Class 14.1 depreciable property; existing pools converted at 75% of prior balances.
Eligible Dividend ITA s. 89(1), s. 89(14): A dividend paid by a Canadian resident corporation from income taxed at the general corporate rate, designated as eligible at the time of payment. Recipients receive a more favourable gross-up and dividend tax credit than for non-eligible dividends.
Employment Insurance (EI): Mandatory federal insurance providing temporary income to workers who lose their job, are ill, or take parental leave. Premiums are deducted from employment income; the employer pays a multiple of the employee rate. See also: Quebec Parental Insurance Plan (QPIP)

F

First Home Savings Account (FHSA) ITA s. 146.6: A registered account (since 2023) for first-time home buyers. Annual contribution limit is $8,000; lifetime limit $40,000. Contributions are deductible like an RRSP; qualifying withdrawals are tax-free like a TFSA.
Foreign Accrual Property Income (FAPI) ITA s. 91, s. 95: Passive income (interest, dividends, rents, royalties) earned by a controlled foreign affiliate of a Canadian taxpayer. FAPI is attributed to the Canadian shareholder and taxed annually even if not distributed.
Foreign Tax Credit (FTC) ITA s. 126: A credit against Canadian tax for income or profits tax paid to a foreign government on income also taxable in Canada. Prevents double taxation; excess credits generally cannot be carried forward.

G

General Anti-Avoidance Rule (GAAR) ITA s. 245: Allows the CRA to recharacterize transactions that produce a "tax benefit" from an "avoidance transaction" that misuses or abuses the Income Tax Act. Amended in 2024 to lower the misuse/abuse standard and add a 25% penalty for abusive transactions.
Gross Negligence Penalty ITA s. 163(2): A penalty of 50% of the understated tax when a taxpayer makes a false statement or omission on a return due to gross negligence. Heavier than the careless omission penalty; requires CRA to show wilful blindness.

H

Home Buyers' Plan (HBP) ITA s. 146.01: Allows first-time home buyers to withdraw up to $60,000 from an RRSP tax-free to purchase or build a home. The amount must be repaid to the RRSP over 15 years; missed repayments are added to income.
Home Office Expenses ITA s. 8(1)(i), s. 18(12): A portion of home costs (rent, utilities, property taxes, maintenance) deductible against employment or business income when a dedicated workspace is used regularly and exclusively (employees) or as a principal place of business (self-employed).

I

Income Splitting: Strategies that shift income from a higher-rate family member to a lower-rate one, reducing combined family tax. The Tax on Split Income (TOSI) rules limit the most common forms between adults in a family business. See also: Tax on Split Income (TOSI) , Attribution Rules
Integration: The policy that income earned through a corporation and paid as dividends should bear the same total tax as if earned directly by an individual. Achieved through the dividend gross-up and dividend tax credit mechanism. See also: Dividend Gross-Up and Tax Credit

L

Lifetime Capital Gains Exemption (LCGE) ITA s. 110.6: A cumulative lifetime exemption from capital gains on qualifying small business corporation shares, qualifying farm property, and qualifying fishing property. For 2026 the limit is $1,250,000 (indexed).
Lifetime Learning Plan (LLP) ITA s. 146.02: Allows withdrawals from an RRSP (up to $10,000 per year, $20,000 lifetime) to fund full-time education or training for the account holder or spouse. Must be repaid over 10 years.
Loss Carryover ITA s. 111: Non-capital losses can be carried back 3 years and forward 20 years to offset income. Net capital losses are carried back 3 years and forward indefinitely but only against net taxable capital gains.

M

Marginal Tax Rate: The combined federal and provincial rate applied to the next dollar of income. Canada uses a graduated system; the marginal rate increases as income crosses bracket thresholds.
Medical Expense Tax Credit (METC) ITA s. 118.2: A non-refundable credit for eligible out-of-pocket medical expenses exceeding the lesser of $2,759 (2026) and 3% of net income. Claimable for the taxpayer, spouse, and dependants.
Moving Expenses ITA s. 62: Deductible when moving at least 40 km closer to a new work or school location in Canada. Deductible against employment, business, or scholarship income earned at the new location in the year.

N

Net Income ITA s. 3: Income after most deductions (RRSP contributions, union dues, carrying charges) but before personal non-refundable credits. Many income-tested benefits use net income as the threshold.
Non-Capital Loss ITA s. 111(1)(a): A business or employment loss that exceeds income for the year. Can be carried back 3 years and forward 20 years to offset any type of income.
Non-Eligible Dividend: A dividend paid from income taxed at the small business rate or low-rate income pools. Less favourable gross-up (15%) and dividend tax credit than eligible dividends. See also: Eligible Dividend
Non-Refundable Tax Credit: A credit that reduces tax payable but cannot create a refund or negative tax balance. Examples: BPA, spousal credit, medical expense credit. Unused non-refundable credits are generally lost.

O

Old Age Security (OAS) ITA s. 180.2: A monthly government pension for Canadians 65 and older. Subject to a clawback (OAS repayment) when net income exceeds the annual threshold ($93,454 in 2026); fully clawed back above approximately $151,000.
Ontario Trillium Benefit (OTB): A refundable Ontario provincial credit combining the Ontario Energy and Property Tax Credit, Northern Ontario Energy Credit, and Ontario Sales Tax Credit. Delivered monthly by the CRA.

P

Passive Income (Corporate) ITA s. 125(5.1): Investment income earned by a Canadian-Controlled Private Corporation (CCPC): interest, rent, royalties, taxable capital gains, and portfolio dividends. Passive income above $50,000 per year reduces the small business deduction on a sliding scale.
Principal Residence Exemption (PRE) ITA s. 40(2)(b), s. 54: Exempts all or part of a capital gain on a home from tax if the property was your "principal residence" in each year of ownership. One property per family unit can be designated per year.

Q

Qualified Small Business Corporation (QSBC) ITA s. 110.6(1): A Canadian-controlled private corporation whose shares, at the time of sale, meet tests: at least 90% of assets used in an active business in Canada, and a 24-month holding period with the 50% active asset test met throughout.
Quebec Parental Insurance Plan (QPIP): Quebec's provincial program covering maternity, paternity, parental, and adoption leave, replacing EI maternity/parental benefits for Quebec workers. Has separate premium rates. See also: Employment Insurance (EI)
Quebec Pension Plan (QPP): Quebec's provincial equivalent of CPP, with its own contribution rates (QPP rate is higher). Quebec workers contribute to QPP instead of CPP. See also: Canada Pension Plan (CPP)

R

Refundable Tax Credit: A credit that can produce a refund even if it exceeds tax payable — i.e., the government writes the taxpayer a cheque for any excess. Examples: GST/HST credit, Canada Carbon Rebate, refundable portion of the SR&ED credit.
Registered Disability Savings Plan (RDSP) ITA s. 146.4: A long-term savings plan for Canadians with disabilities. Contributions are not deductible; withdrawals are taxable in the beneficiary's hands. Qualifies for government Canada Disability Savings Grants and Bonds.
Registered Education Savings Plan (RESP) ITA s. 146.1: A registered account for saving for post-secondary education. Contributions are not deductible; investment income grows tax-deferred. Education Assistance Payments taxed in the student's hands; subscribers get returns of contributions tax-free.
Registered Retirement Income Fund (RRIF) ITA s. 146.3: An account that RRSP holders convert to (mandatory by December 31 of the year they turn 71). The account continues to grow tax-deferred; annual minimum withdrawals are required and taxed as income.
Registered Retirement Savings Plan (RRSP) ITA s. 146: A registered account where contributions are tax-deductible and growth is tax-deferred until withdrawal. The annual limit is 18% of prior year earned income, up to $32,490 (2026), minus any pension adjustment.

S

Scientific Research and Experimental Development (SR&ED) ITA s. 37, s. 127(5)–(36): A federal tax credit program for R&D expenditures. Canadian-controlled private corporations earn a 35% refundable credit on up to $3M of qualified expenditures; other corporations earn a 15% non-refundable credit.
Small Business Deduction (SBD) ITA s. 125: A deduction reducing the federal corporate tax rate from 15% to 9% on the first $500,000 of active business income earned by a Canadian-controlled private corporation. The $500,000 limit is shared among associated corporations.
Spousal RRSP ITA s. 146(8.3): An RRSP owned by one spouse but contributed to by the other. Contributions use the contributor's deduction room. A 3-year attribution rule returns withdrawals to the contributor's income if the plan received contributions in the year or either of the prior 2 calendar years.
Superficial Loss ITA s. 54: A capital loss denied when the identical property is acquired within 30 days before or after the sale by the taxpayer or an affiliated person. The denied loss is added to the ACB of the repurchased property.

T

Tax on Split Income (TOSI) ITA s. 120.4: Rules taxing certain income received by adults (18+) from a related business at the top marginal rate, eliminating the income-splitting benefit. Applies to dividends, capital gains, and business income from a related private corporation.
Tax-Free Savings Account (TFSA) ITA s. 146.2: A registered account where contributions are not deductible but all growth and withdrawals are tax-free. Annual contribution limit is $7,000 (2026). Over-contributions attract a 1% per month penalty.
Taxable Capital Employed in Canada ITA s. 125(5.1): A measure of a corporation's asset base used to calculate the surtax for large corporations and to phase down the small business deduction. A CCPC with taxable capital above $10 million begins losing its $500,000 SBD business limit.
Terminal Loss ITA s. 20(16): A fully deductible loss arising when a CCA class is closed with a remaining undepreciated capital cost (UCC) but no property left in the class. The entire UCC balance is deductible against income.
Transfer Pricing ITA s. 247: The pricing of transactions (goods, services, loans) between related parties in different countries. Section 247 requires arm's length pricing; the CRA can adjust prices to what unrelated parties would have charged.

U

Undepreciated Capital Cost (UCC): The remaining tax cost of a CCA class after deducting accumulated CCA and accounting for disposals. Annual CCA deductions reduce UCC; on disposition, UCC determines recapture or terminal loss. See also: Capital Cost Allowance (CCA) , Terminal Loss

W

Withholding Tax ITA s. 212–218: Tax withheld at source on certain payments to non-residents: dividends, interest, royalties, rents, and pensions. The standard rate is 25%, reduced by tax treaty. The withholding obligation falls on the Canadian payer.
Winding-Up ITA s. 88: Dissolving a corporation and distributing its assets to shareholders. A 100% subsidiary can be wound up into its parent on a tax-deferred basis under section 88(1).

Y

Year's Maximum Pensionable Earnings (YMPE): The annual ceiling on employment income subject to CPP/QPP contributions. Earnings above the YMPE are not pensionable for CPP1 purposes. For 2026 the CPP YMPE is $71,300. See also: Canada Pension Plan (CPP)

General information only. Definitions are summaries. Tax law changes frequently and your situation may differ. For planning or filing decisions, consult a CPA. Find a CPA →