The words accountants use, in plain English

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.

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.

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.

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

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.

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.

PST, RST and QST

Provincial sales taxes that are not harmonized with GST. British Columbia charges PST, Manitoba charges RST and Quebec charges QST, each filed separately from the federal return. QST is administered by Revenu Quebec.

Input tax credit

A credit a registrant claims for GST or HST paid on business purchases, which offsets the tax collected on sales. Unharmonized provincial sales taxes generally have no equivalent, so they are usually a cost. More on this

Small supplier

A business below the registration threshold, generally thirty thousand dollars of worldwide taxable supplies measured over a calendar quarter or 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.

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.

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.

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.

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.

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.

Accounts payable

Amounts the business owes suppliers for goods or services already received but not yet paid for.

Accounts receivable

Amounts customers owe the business for goods or services already delivered but not yet collected.

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.

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. The practitioner states whether anything came to their attention suggesting the statements are not plausible.

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.

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.

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.

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.