Accounting glossary

The words accountants use, in plain English

63 terms Canadian business owners actually meet, on returns, on CRA letters and in conversations with an accountant. Each one is written to stand on its own.

Prepared by HBT Accounting, a CPA led firm in CalgaryUpdated October 20265.0 on Google, 59 reviews

Glossary sections

Corporate tax

Terms that come up once a business is incorporated.

T2 return: The corporate income tax return every Canadian corporation files each year, including corporations with no activity. It is generally due six months after the fiscal year end, which is a different date from when the tax itself is payable. More on this
CCPC: A Canadian controlled private corporation. A private corporation resident in Canada that is not controlled by non residents or public companies. The status matters because several tax preferences, including the small business deduction, are only available to a CCPC. More on this
Small business deduction: A reduction in the federal corporate tax rate available to a CCPC on active business income up to an annual limit. Losing access to it, through association rules or personal services business status, raises the rate sharply. More on this
Active business income: Income a corporation earns from actually carrying on its business, as opposed to passive income from investments. The distinction decides which rate applies and whether the small business deduction is available. More on this
Passive investment income: Income a corporation earns from investments rather than operations, such as interest, rent or portfolio dividends. Above a threshold it reduces the amount of active income eligible for the small business deduction. More on this
Fiscal year end: The date a corporation closes its books each year. It does not have to be 31 December, and the chosen date affects filing deadlines, instalments and when tax is payable. More on this
Tax instalments: Periodic payments a corporation or individual makes toward the current year's tax rather than paying it all at filing. They are generally based on prior year tax, which can fit badly with a business whose income is uneven. More on this
Capital dividend account: A notional account that tracks certain tax free amounts inside a corporation, most commonly the untaxed half of capital gains. Balances in it can generally be paid to shareholders as a tax free capital dividend when the correct election is filed. More on this
Associated corporations: Corporations connected by control or ownership in ways the Income Tax Act defines. Associated corporations share one small business limit between them rather than each claiming a full one. More on this
Personal services business: A corporation that is effectively an incorporated employee, typically working for one client under that client's direction. The classification removes the small business deduction and restricts deductions to a narrow list. More on this
Shareholder loan: An amount a shareholder owes to, or is owed by, their corporation. Amounts drawn and not repaid within the required period can be included in the shareholder's personal income. More on this
Section 85 rollover: An election that lets a person transfer property into a corporation on a tax deferred basis rather than triggering a disposition at fair market value. Commonly used when an existing business is incorporated. More on this

Personal tax

Terms on an individual return and on the slips behind it.

T1 return: The personal income tax and benefit return an individual files each year, reporting income from all sources along with deductions and credits. More on this
T4 slip: The slip an employer issues showing employment income and the amounts withheld from it for income tax, Canada Pension Plan and Employment Insurance. More on this
T5 slip: A slip reporting investment income such as interest and dividends, including dividends a corporation pays to its shareholders. More on this
T4A slip: A slip reporting other income such as self employed commissions, pension income, or fees for services, depending on the amount being reported. More on this
Notice of assessment: The statement the CRA issues after processing a return, showing the result and any change from what was filed. It also carries figures such as RRSP contribution room. More on this
Marginal tax rate: The rate applied to the next dollar of income, as opposed to the average rate across all income. It is the relevant figure when deciding whether additional income or a deduction is worthwhile. More on this
Capital gain: The increase in value realised when capital property is sold for more than its adjusted cost base. Only a portion of a capital gain is included in income. More on this
Adjusted cost base: The cost of a property for tax purposes, adjusted over time for items such as improvements and certain prior claims. It determines the gain or loss on a later sale. More on this
TOSI: Tax on split income. Rules that apply the top personal rate to certain amounts received by family members from a related business, which limits income splitting unless a specific exclusion applies. More on this
T1135: The foreign income verification statement, required where specified foreign property exceeds the reporting threshold. It is an information return, separate from reporting the income itself. More on this

GST and HST

Sales tax terms, including where provinces differ.

GST: The federal goods and services tax, charged at five percent across Canada on most supplies of goods and services. More on this
HST: Harmonized sales tax. In participating provinces the federal and provincial sales taxes are combined into one tax, administered federally and filed on one return. More on this
PST, RST and QST: Provincial sales taxes that are not harmonized with GST. British Columbia and Saskatchewan charge PST and Manitoba charges RST, each registered and filed with the province on its own return. Quebec charges QST, which Revenu Québec administers together with GST, so a business physically in Quebec registers once and files one combined return with Revenu Québec. More on this
Input tax credit: A credit a registrant claims for GST or HST paid on business purchases, which offsets the tax collected on sales. PST in British Columbia and Saskatchewan and RST in Manitoba generally have no equivalent, so they are usually a cost. Quebec's QST has its own input tax refund, claimed on the combined GST and QST return. More on this
Small supplier: A business whose worldwide taxable supplies stay at or under the registration threshold, generally thirty thousand dollars, both in any single calendar quarter and over the last four consecutive quarters. A small supplier may register voluntarily. More on this
Zero rated supply: A supply taxable at zero percent. No tax is charged to the customer, but the supplier can still claim input tax credits on related purchases. Basic groceries and most exports are common examples. More on this
Exempt supply: A supply on which no tax is charged and for which input tax credits generally cannot be claimed. Many health, education and residential rent supplies fall here, which is a different outcome from zero rated. More on this
Place of supply: The rules deciding which province's rate applies to a sale. They matter whenever a business sells across provincial lines, because the customer's province often governs rather than the seller's. More on this
Reporting period: How often a registrant files GST or HST returns, typically annually, quarterly or monthly. It is generally set by revenue, and a business can elect to file more frequently. More on this

Payroll

Terms around paying people and remitting what is withheld.

Source deductions: Amounts an employer withholds from pay for income tax, Canada Pension Plan and Employment Insurance, then remits to the CRA along with the employer portion. More on this
Trust funds: Amounts withheld from employees or collected as sales tax are held in trust for the Crown rather than owned by the business. That status is why the CRA treats shortfalls in them more seriously than ordinary debts. More on this
Remitter type: The classification setting how often an employer must remit source deductions, from quarterly through to several times a month. It is based on average withholding in prior years. More on this
CPP: The Canada Pension Plan. Employers and employees each contribute on pensionable earnings between a basic exemption and an annual maximum. Self employed individuals pay both portions. More on this
EI: Employment Insurance. Premiums are withheld from insurable earnings and matched by the employer at a higher rate. Certain related parties and controlling shareholders may not be insurable. More on this
Record of employment: The form an employer issues when an employee has an interruption of earnings. It is used to determine Employment Insurance entitlement and has its own filing deadline. More on this
Taxable benefit: A non cash benefit an employer provides that has to be included in the employee's income, such as personal use of a vehicle. Most taxable benefits also affect source deductions. More on this
T5018: The contract payment information return used to report payments to subcontractors by businesses whose primary activity is construction. More on this

Bookkeeping and financial statements

Terms that describe how the records themselves work.

Accrual basis: Recording revenue when it is earned and expenses when they are incurred, regardless of when cash moves. It is the basis required for most business financial reporting. More on this
Cash basis: Recording revenue and expenses when cash is actually received or paid. Simpler to maintain, but it can misstate performance where invoicing and payment are far apart. More on this
Reconciliation: Comparing an account in the books to an independent record, usually a bank or credit card statement, and explaining every difference. An account is only reconciled when the differences are identified rather than merely small. More on this
Chart of accounts: The list of accounts a business records transactions into. A chart that matches how the owner actually thinks about the business is what makes monthly reports readable. More on this
Accounts payable: Amounts the business owes suppliers for goods or services already received but not yet paid for. More on this
Accounts receivable: Amounts customers owe the business for goods or services already delivered but not yet collected. More on this
Deferred revenue: Money received before the related goods or services have been delivered. It is a liability until earned, which matters for any business billing annually in advance. More on this
Holdback: A portion of a construction contract payment retained for a statutory period before release. It makes revenue earned and cash received diverge, so it is tracked separately. More on this
Compilation engagement: An engagement in which a practitioner presents information supplied by management in the form of financial statements. It provides no assurance, which is the key difference from a review or an audit. More on this
Review engagement: An engagement providing limited assurance, based mainly on enquiry and analysis rather than detailed testing. Under Canadian Standard on Review Engagements 2400, the practitioner concludes whether anything came to their attention that causes them to believe the statements are not prepared, in all material respects, in accordance with the applicable financial reporting framework. More on this
Audit engagement: The highest level of assurance, involving substantive testing and third party verification, resulting in an opinion on whether the statements are fairly presented. More on this
Working papers: The supporting schedules and evidence behind a set of financial statements or a return. They are what makes a figure defensible if it is later questioned. More on this
Capital expenditure: Spending on an asset expected to provide benefit over several years, recorded on the balance sheet and deducted over time rather than expensed immediately. More on this
Capital cost allowance: The tax system's version of depreciation. Rather than deducting an asset's full cost at once, a prescribed percentage is claimed each year according to the asset's class, although some classes allow a larger first year claim. More on this

CRA processes

What the CRA can do, and the routes available in response.

Reassessment: A revised assessment the CRA issues after changing a previously filed return. It generally has to be issued within a set period, which is longer where misrepresentation is alleged. More on this
Audit: A CRA examination of books and records to verify what was reported. It is broader than a review and generally involves direct contact and document requests. More on this
Trust accounts examination: A targeted CRA review of payroll withholding and sales tax, checking that amounts held in trust were calculated and remitted correctly. Common in payroll heavy sectors. More on this
Notice of objection: The formal route for disputing an assessment or reassessment. It has a filing deadline, and missing it generally removes the right to object. More on this
Voluntary Disclosures Program: A CRA program allowing a taxpayer to correct an inaccurate or incomplete filing, or file something not filed, before the CRA contacts them. Acceptance is not automatic and depends on meeting the program conditions. More on this
Taxpayer relief: A request asking the CRA to cancel or waive penalties and interest in defined circumstances such as serious illness or a CRA error. It does not reduce the underlying tax. More on this
Demand to file: A formal CRA request for an outstanding return. Ignoring it can lead to a larger penalty than filing late would have carried, and to the CRA assessing on its own estimate. More on this
Arbitrary assessment: An assessment the CRA raises on its own estimate when a return has not been filed. It is often higher than a correct return would show, and correcting it means filing the real return. More on this
Director liability: Directors can in defined circumstances be held personally responsible for a corporation's unremitted source deductions and sales tax. It is one reason trust amounts are treated differently from trade debt. More on this
Books and records: The requirement to keep adequate records supporting what was reported, and to retain them for the prescribed period. A deduction without support behind it is the most common audit adjustment. More on this

A definition tells you what a term means. It does not tell you what to do about it. Call or ask for a call back; the first conversation is free and carries no obligation.

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