Glossary of Terms

Account - A formal record of transactions involving a particular item or person.

Accounts payable - Debts you have as a result of purchasing assets or receiving services on an open account or on credit. You have accounts payable when you have not yet paid for the assets or services you have received.

Accounts receivable - Amount of money you are owed. Generally, you are owed this amount because you sold assets or provided services.

Accrual method of accounting - With this method, income is reported in the fiscal period it is earned, regardless of when it is received. The expenses are also deducted in the fiscal period they are incurred, whether they are paid or not. This method is generally used by businesses or professionals.

Appeal - A process by which you ask a Court to review the decision the Appeals Division made on behalf of the Minister of National Revenue.

Articles of incorporation - Legal document filed with a provincial or territorial government, or the federal government, which sets out a Corporation's purpose and regulations.

Assessment - A formal determination of taxes to be paid or refunded. An assessment includes a reassessment. See notice of assessment.

Assets - Any property owned by a person or business. Assets include money, land, buildings, investments, inventory, cars, trucks, boats, or other valuables that belong to a person or business. They also may include intangibles such as goodwill.

Bad debt - Money owed to you that you can't collect.

Balance - The amount remaining in an account after recording all deposits and withdrawals.

Balance sheet - Statement of the financial position of a business. It states the assets, liabilities, and owners' equity at a particular point in time.

Budget - A plan outlining an organization's financial and operational goals.

Business expenses - Certain costs that are reasonable for a particular type of business, and that are incurred for the purpose of earning income. Business expenses can be deducted for tax purposes. Personal, living, or other expenses not related to the business cannot be deducted for tax purposes.

Business Number (BN) - A number you get when you register to do any business with us. It is a single number that replaces the numbers that Canadian businesses previously needed to deal with the federal government.

Calendar year - The twelve-month period beginning January 1 and ending December 31. Depending on your business circumstances, you may or may not use the calendar year as your fiscal period.

Canada Pension Plan (CPP) - An insurance program to help Canadians provide income for their retirement. It also gives them income if they become disabled. Contributions are directly related to annual earnings.

Capital cost allowance (CCA) - A yearly deduction or depreciation on the cost of certain assets. You can claim CCA for tax purposes on the assets of a business such as buildings or equipment, as well as on additions or improvements, if these assets are expected to last for some years.

Capital gains - The amount by which proceeds of disposition less outlays and expenses exceed the adjusted cost base of capital property.

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Capital loss - The amount by which the adjusted cost base and outlays and expenses of capital property exceeds proceeds of disposition.

Capital property - Generally, any property of value, including depreciable property. Common types of capital property include principal residences, cottages, stocks, bonds, land, buildings, and equipment used in a business or rental operation.

Cash method of accounting - With this method, you report income in the year it is actually received. Similarly, expenses are deducted in the year they are actually paid. Farmers, fishers, and certain salespeople who work on commission may use the cash method.

Confidentiality - The privacy of income tax and GST/HST returns and other related tax information. The only people with access to this information are those who are authorized by law or those to whom the taxpayer has given permission in writing.

Corporation - A form of business authorized by federal, provincial, or territorial law to act as a separate legal entity. Its purpose and regulations are set out in its article of incorporation. One or more persons may own a corporation.

Cost of goods sold - The actual cost of the items sold in the normal course of business during a specific period.

Debt - An amount that is owed. If you borrow money or purchase something on credit, you have created a debt.

Deemed - A legal term used when something is considered to be something else for certain purposes.

Depreciable property - Property that wears out as it is used over the years. For example, cars, farm equipment, and business machines are depreciable. See capital cost allowance.

Depreciation - A decrease in the value of an asset through age, use, and deterioration. In accounting terminology, depreciation is a deduction or expense claimed for this decrease in value.

Disposition - Generally, the disposal of property by sale, gift, transfer, or change in use.

Election - A formal choice among specific options on how tax laws are applied to a taxpayer's financial affairs. Usually you make an election on your tax return.

Employment income - See salary.

Employment Insurance (EI) - A federal program that provides financial assistance to people who are temporarily out of work. It is an insurance program, with employers and employees making payments into the Employment Insurance Fund.

Employment Insurance premiums - Deductions that an employer must make from employees' paycheques and forward to the Receiver General for Canada. Employers must also contribute Employment Insurance payments.

Excise - Taxes on the manufacture, sale, or use of goods and items.

Fiscal period - This is the twelve-month period over which a business or profession reports its income-earning activities. The fiscal period may or may not coincide with the calendar year. The business usually establishes its fiscal period when it files its first income tax return.

Goodwill - The excess of the purchase price of a business over the fair market value of the net assets of the business.

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Gross profit - Sales minus cost of good sold.

Half-year rule - A provision in the Income Tax Act that allows you to claim only half of the capital cost allowance available on an asset in the year you purchased the asset.

Income - The sum of revenues earned in a specific period of time. It includes revenues from salaries, wages, benefits, tips, and commissions, profits from operating a business or profession, and investments earned.

Income statement - A financial statement that summarizes the results of business activities (income and expenses) for a given period of time. Sometimes called a profit and loss statement.

Income tax payroll deductions - Employers must deduct income tax from their employees' salaries or wages. They must base these deductions on the income tax deductions tables, which reflect each province's rates.

Information circulars - Publications that we issue to give detailed explanations on a variety of tax subjects.

Information slips - Forms that employers, trusts, and businesses use to tell taxpayers and the CRA how much income was earned, and how much tax was deducted.

Input tax credit - A credit GST/HST registrants may claim for GST/HST paid or payable on purchases relating to a commercial activity.

Instalment - A partial payment of a tax debt. The debt is divided into parts that are paid at different times within a certain period.

Interpretation bulletins - Publications that give our interpretation of parts of the Income Tax Act.

Inventory - Generally, the total value of the goods on hand that a business intends to sell, uses for manufacture, or use to render a service. In certain cases, inventory can also include services.

Investment - expenditure to acquire property that yields or is expected to yield revenue or services.

Lease - A contract under which a property is rented from one person or business to another for a fixed period of time at a specified rate.

Liability - debt owed by a person or business.

Loss - The amount by which expenses exceed revenues.

Net income - Income subject to taxation after allowable deductions have been subtracted from gross or total income.

Notice of Assessment - A form that we send to all taxpayers after we process their returns. It tells taxpayers or GST/HST registrants if we made any corrections to the returns or rebate applications and, if so, what they are. It also informs taxpayers or registrants if they owe more tax or what the amount of their refund will be.

Objection - A statement of facts and reasons detailing why a taxpayer or registrant disagrees with an assessment.

Operating expenses - The routine costs of running a business. They include expenses for gasoline, electricity, and office supplies. They do not include the cost of buildings or machinery that are expected to last for several years. See capital cost allowance.

Payroll deductions - Income tax deductions, Canada Pension Plan or Quebec Pension Plan contributions, and employment insurance premiums which are deducted from an employee's wages or salary and sent regularly to us. Employers also make their own contributions to the Canada Pension Plan or Quebec Pension Plan, and Employment Insurance.

Penalties - Amounts taxpayers or registrants must pay if they fail to file returns or remit or pay amounts owing on time, or if they try to evade paying or remitting tax by not filing returns. Penalties must also be paid by people who knowingly, or under circumstances amounting to gross negligence, participate in or make false statements or omissions in their returns, and by those who do not provide the information required on a prescribed form.

Personal tax credit return (Form TD1) - The first income tax form a person has to complete when starting a new job. It tells an employer how much income tax to deduct from the employee's pay.

Prepaid expense - An expense you pay for in advance; an expense you incur for goods and services you will receive in a later fiscal period; amounts you pay in interest, income taxes, municipal taxes, rent, dues, or insurance for later fiscal periods. These amounts are included as assets on the balance sheet at the end of a fiscal period.

Proceeds of disposition - Usually, the selling price of property when it is disposed of. Proceeds of disposition also include compensation received for property that has been destroyed, expropriated, stolen, or damaged. It is also the fair market value of property when it is transferred to another person, or when there is a change in its use.

Professional dues - Membership fees paid to maintain a professional status recognized by law, such as lawyers' annual law society fees.

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Profit and loss statement - Same as an income statement.

Proprietorship - A non-incorporated business entirely owned by one person. Same as a sole proprietorship.

Quebec Pension Plan (QPP) - A pension plan equivalent to the Canada Pension Plan (CPP) but maintained by the province of Quebec. The provincial government handles the contributions.

Rates of tax - Percentages of income that must be paid as tax. The Department of Finance sets the basic income tax rates, which vary progressively with the amount of income received.

For GST/HST purposes, the GST rate is 7%, while the HST rate is 15% (Effective July 1st, 2006, the GST rate will be reduced to 6% and the HST rate to 14%).

Records - Documents such as account books, sales and purchase invoices, contracts, bank statements, and cancelled cheques. You must keep records in an orderly manner at your business or residence in Canada for at least six years from the end of the last taxation year to which the records relate. You must make these books and other documents available to our officers for audit purposes.

Refund - The overpayment of income tax returned to a taxpayer after we assess the return.

Registrant - A person who is registered or required to be registered under GST/HST legislation.

Remittance - A payment of CPP or QPP, EI, income tax, or GST/HST that is paid to us through a financial institution, or that a business or individual sends directly to us. It also includes the employer's share of CPP contributions and EI premiums.

Research grants - Amounts of money given to individuals to explore areas in various fields of study. The grants cover the cost of research plus the researcher's income. These amounts are taxable but some of the researcher's expenses may be deductible for tax purposes. For more specific information, refer to Interpretation Bulletin IT-75, Scholarships, Fellowships, Bursaries, Prizes, and Research Grants.

Reserves - Funds set aside to cover future expenses, losses, or claims.

Salary - The amount an employer pays an employee for work done. Each employer records this type of employment income on T4 slips. Same as employment income and wages.

Self-employment - The operation of your own business.

Social insurance number (SIN) - A number given to each contributor to the Canada Pension Plan, Quebec Pension Plan, and Employment Insurance Plan. It helps record the contributions and premiums paid into and the benefits paid out of the plans. Since these social insurance programs are connected to the tax system, the SIN is also used as an identifier for federal income tax purposes. Everyone who files an income tax and benefit return must provide a SIN.

Sole proprietorship - An unincorporated business entirely owned by one person. Same as a PROPRIETORSHIP.

Spouse - For purposes of the Income Tax Act, starting in 2001, the term spouse will mean only a married partner. The term common-law partner will include partners of the same sex or opposite sex, who meet certain conditions. For more information, see your General Income Tax and Benefit guide.

Statement of income and expenses - Form that summarizes revenue, income, and expenses for a specific period.

Statement of remuneration paid (T4 slip) - Information slip that shows the income that an employer pays to an employee. Taxable allowances and benefits, such as payments made on the employee's behalf to a provincial health care plan, are included as income. A T4 slip also shows how much the employer deducted for income tax, CPP or QPP contributions, employment insurance premiums, and contributions to the employer's pension plan.

Supply - For GST/HST purposes, this generally means the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift, or disposition.

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Tax centres - Offices in different regions of Canada where we process tax returns.

Tax Court of Canada - A court that hears appeals about income tax and GST/HST assessments. In addition, the Court has jurisdiction to hear appeals under the Canada Pension Plan, Employment Insurance Act and several other acts. The Tax Court maintains four offices (Vancouver, Ottawa, Toronto, and Montréal) and regularly conducts hearings in major centres across Canada.

Tax payable - The amount of income tax that you must pay on taxable income for the taxation year. It is also the amount of tax payable on a taxable supply (for GST/HST purposes).

Tax services offices - Offices across the country that provide main point of contact for the public.

Tax treaties - Government agreements signed between countries. They help citizens who earn foreign income avoid double taxation.

Taxable benefits - Amounts of money, or the value of goods or services, that an employer pays or provides in addition to salary. For example, the part of a health insurance plan that the employer pays is a taxable benefit.

Taxable income - The amount of income left after all allowable deductions have been subtracted from NET INCOME. This amount is used to calculate the tax payable.

Taxation year - The calendar year or fiscal period for which income tax is to be paid.

Workers' compensation - Money paid to compensate a person injured on the job. It is an insurance plan paid for by employers and administered by the Workers' Compensation Board.

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