Canadian Tax Glossary 2026 | 75+ Terms Defined

The original cost of an investment plus any additional costs (commissions, reinvested distributions) and minus any return of capital. Your ACB is used to calculate your capital gain or loss when you sell. Tracking ACB accurately is essential for mutual fund and ETF investors. [Tax-Efficient Investing Guide]

The combined net income of you and your spouse, used by the CRA to calculate income-tested benefits like the Canada Child Benefit (CCB) and GST/HST credit. Reducing your AFNI through RRSP contributions directly increases these benefits.

A non-refundable tax credit available to individuals aged 65 or older. For 2026, the maximum amount is $9,028, but it's reduced when your net income exceeds $45,522 and eliminated entirely at approximately $105,291. [Retirement Guide]

A special type of capital loss on investments in qualifying small business corporations (Canadian-Controlled Private Corporations). Unlike regular capital losses, ABILs can be deducted against all types of income, not just capital gains.

The official notice the CRA sends after processing your tax return, showing whether you owe money or are getting a refund, and your RRSP deduction limit for the following year. Check it carefully — it also shows your TFSA and RRSP contribution room.

CRA rules that attribute investment income back to the transferor when assets are transferred to a spouse or minor child. For example, if you give your spouse money to invest, the income earned is taxed in your hands, not theirs. The spousal RRSP 3-year rule is an attribution rule. These rules are designed to prevent income splitting.

A CRA feature that automatically populates your tax software with information from your T-slips and other tax documents already on file with the CRA. Available through most NETFILE-certified software. [Tax Software Guide]

The amount of income every Canadian can earn tax-free at the federal level. For 2026, the BPA is $16,452. It's applied as a non-refundable credit worth approximately $2,303 (14% of $16,452). Each province has its own basic personal amount.

The phenomenon where inflation pushes your income into a higher tax bracket even though your real purchasing power hasn't increased. The CRA combats this by indexing bracket thresholds to inflation annually (2.0% for 2026).

A tax-free monthly payment to eligible families with children under 18. For the 2026–2027 benefit year: up to $8,157 per child under 6 and $6,883 per child aged 6–17. Amounts are reduced based on adjusted family net income. [Family Tax Guide]

A government matching grant for RESP contributions. The basic CESG matches 20% of the first $2,500 contributed per year per beneficiary, up to $500 per year. Lifetime maximum: $7,200 per beneficiary.

A mandatory contributory pension plan for employed and self-employed Canadians. Both employees and employers contribute. The maximum monthly benefit at age 65 is approximately $1,508 (2026). You can defer CPP to age 70 for a 42% increase or start as early as age 60 for a 36% reduction. [Retirement Guide]

A refundable credit that helps working Canadians pay for training. You accumulate $250/year in a notional training credit balance (for eligible workers aged 26–65 earning $10,000–$160,000). You can claim the lesser of your accumulated balance or 50% of eligible tuition fees.

A refundable tax credit for low-income working individuals and families. Maximum benefit: $1,633 for singles, $2,813 for families (2026). Includes a disability supplement. Formerly called the Working Income Tax Benefit (WITB).

The tax term for depreciation of business assets. Instead of deducting the full cost of an asset in the year of purchase, you claim a percentage each year based on the asset's CCA class. Common classes: Class 10/10.1 for vehicles ($39,000 ceiling in 2026), Class 50 for computers (55% rate). [Self-Employed Guide]

The profit from selling a capital property (investments, real estate, etc.) for more than its adjusted cost base. In Canada, only 50% of capital gains are included in your taxable income (the "inclusion rate"). A proposal to increase this to 66.67% was cancelled in March 2025. [Tax-Efficient Investing]

The loss from selling a capital property for less than its adjusted cost base. Capital losses can only be used to offset capital gains (not other income). Net capital losses can be carried back 3 years or carried forward indefinitely.

Expenses incurred to earn investment income, such as interest on loans used to purchase investments, investment management fees, and accounting fees for investment income. Deductible on Line 22100.

A quarterly payment to residents of provinces where the federal carbon pricing backstop applies (currently Ontario, Manitoba, Saskatchewan, Alberta, and others). You must file a tax return to receive it.

For CRA purposes, a person you've been living with in a conjugal relationship for at least 12 continuous months, or who is the parent of your child. Common-law partners are treated the same as married spouses for all tax purposes.

Introduced in 2024, a second tier of CPP contributions on earnings between the first ceiling ($71,300) and second ceiling ($81,200) for 2026. The employee rate is 4.00%. Designed to enhance CPP retirement benefits. [Contribution Limits]

A CRA rule that treats you as if you sold your assets at fair market value even though no actual sale occurred. Common triggers: death, emigration from Canada, gifting property, and conversion of a property from personal to business use (or vice versa). Can generate significant tax liability.

An amount subtracted from your income before tax is calculated, reducing your taxable income. Examples: RRSP contributions, childcare expenses, moving expenses. Deductions are generally worth more to higher-income earners because they reduce income taxed at higher marginal rates. Compare with credit.

A non-refundable credit for individuals with a severe and prolonged physical or mental impairment, as certified by a medical practitioner on Form T2201. The base amount for 2026 is approximately $9,428. The DTC also unlocks eligibility for the RDSP and higher RESP and childcare limits.

A credit that reduces the effective tax on Canadian dividends. Eligible dividends (from large public corporations) are "grossed up" by 38% then receive a federal credit of 15.02% of the grossed-up amount. The net effect is that eligible dividends are taxed at a much lower effective rate than interest income.

The actual percentage of your total income paid in tax, calculated as total tax payable divided by total income. Always lower than your marginal rate due to progressive brackets. For example, someone earning $100,000 might have a marginal rate of 20.5% but an effective federal rate of only 14.5%. [Federal Brackets Table]

A dividend paid by a Canadian public corporation (or a CCPC that has paid full corporate tax rates). Eligible dividends receive a higher gross-up and larger dividend tax credit than non-eligible dividends, resulting in lower personal tax.

A federal program that provides temporary income support to workers who lose their jobs. Both employees and employers contribute through payroll deductions. For 2026, the maximum insurable earnings are $65,700 and the employee premium rate is 1.64%.

A registered account introduced in 2023 for first-time home buyers. Contributions are tax-deductible (up to $8,000/year, $40,000 lifetime), growth is tax-free, and withdrawals for a qualifying home purchase are tax-free. There is no first-year catch-up provision. Carry-forward of unused room is capped at $8,000. If you don't buy a home, funds can be transferred to an RRSP. [Complete FHSA Guide]

A credit that prevents double taxation when you've paid tax to a foreign government on foreign-source income. Claimed on Form T2209. The credit is limited to the Canadian tax that would otherwise be payable on that income.

The mechanism used to calculate the dividend tax credit. Canadian dividends are "grossed up" (increased) on your tax return to approximate the pre-tax corporate income, then you receive a credit to offset the corporate tax already paid. Eligible dividends are grossed up by 38%; non-eligible by 15%.

A tax-free quarterly payment to help low- and modest-income individuals and families offset the GST or HST they pay. Based on your family net income and family size. You must file a tax return to receive it, even if you have no income.

A monthly benefit for low-income OAS recipients. The amount depends on your marital status and income. You must file your tax return annually to continue receiving GIS payments. Not filing can result in suspension.

A program that allows you to withdraw up to $60,000 from your RRSP tax-free to buy or build a qualifying first home. The withdrawal must be repaid to your RRSP over 15 years, starting the second year after the withdrawal. If you don't repay, the annual repayment amount is added to your taxable income. [FHSA & HBP Guide]

The percentage of a capital gain that is added to your taxable income. In Canada, the inclusion rate is 50%, meaning only half of your capital gain is taxed. A proposal to increase this to 66.67% was announced in June 2024 but cancelled in March 2025.

Strategies to shift income from a higher-income earner to a lower-income family member, reducing the family's overall tax bill. Legal methods include spousal RRSPs, pension income splitting (Form T1032), and prescribed-rate loans. The Tax on Split Income (TOSI) rules limit some forms of splitting.

The annual adjustment to tax bracket thresholds, credit amounts, and benefit levels based on the Consumer Price Index. For 2026, the indexing factor is 2.0%. This prevents bracket creep and ensures benefits keep pace with inflation.

Quarterly tax payments required when your net tax owing exceeds $3,000 in the current year and either of the two preceding years. Due dates: March 15, June 15, September 15, December 15. Interest is charged on late or insufficient instalments. [Instalments Guide]

An exemption that allows you to shelter up to $1,275,000 (2026) in capital gains from the sale of qualifying small business corporation (QSBC) shares or qualifying farm/fishing property. One of the most valuable tax provisions for Canadian business owners.

The tax rate applied to your next dollar of income. In a progressive system, your marginal rate is higher than your effective rate. Your combined marginal rate (federal + provincial) determines how much of each additional dollar you keep, and is the key rate for tax planning decisions. [Brackets Explained]

A non-refundable credit for eligible medical expenses exceeding the lesser of 3% of your net income or $2,759 (2026). Expenses can be claimed for yourself, your spouse, and your dependent children. Best claimed by the lower-income spouse to minimize the income threshold. [Missed Credits Guide]

The CRA's electronic tax filing system. Most Canadians file their returns through NETFILE using certified software. Filing electronically is faster (refunds typically arrive in 2 weeks vs. 8 weeks for paper) and reduces errors. [Tax Software Guide]

Your total income minus deductions (RRSP contributions, childcare expenses, moving expenses, etc.). Net income is used to calculate many income-tested benefits and credits. It appears on Line 23600 of your T1 return.

A dividend paid from a Canadian-Controlled Private Corporation (CCPC) that paid the small business tax rate. Non-eligible dividends receive a lower gross-up (15%) and smaller dividend tax credit than eligible dividends, resulting in higher personal tax.

A credit that reduces your tax payable but cannot create a refund. If the credit exceeds your tax owing, the excess is lost (with some exceptions for transfers and carry-forwards). Examples: basic personal amount, age amount, tuition credit, charitable donation credit. Compare with refundable tax credit.

A formal dispute filed with the CRA when you disagree with an assessment or reassessment. Must be filed within 90 days of the date on the notice. The CRA's Appeals Division reviews your objection independently from the original assessment. [CRA Audit Guide]

A monthly pension available to most Canadians aged 65 or older who meet residency requirements. The maximum monthly benefit is approximately $742 (2026). OAS is clawed back (reduced) when your net income exceeds $95,323 (the "OAS clawback" or OAS recovery tax), at a rate of 15 cents per dollar of excess income. [Retirement Guide]

The reduction of OAS benefits when your net income exceeds $95,323 (2026). For every dollar of net income above this threshold, your OAS is reduced by 15 cents. Full OAS is eliminated at approximately $158,000. Managing your income to stay below this threshold is a key retirement planning strategy.

Contributing more to a registered account than your available room allows. RRSP over-contributions are subject to a 1% per month penalty on the excess above a $2,000 lifetime grace amount. TFSA over-contributions are penalized at 1% per month on the entire excess (no grace amount).

The ability to allocate up to 50% of eligible pension income to your spouse for tax purposes, reported on Form T1032. Eligible income includes RRIF withdrawals and life annuity payments (for those 65+), and certain pension income at any age. One of the most effective income-splitting strategies for retirees.

A quarterly interest rate set by the CRA, used for various tax calculations including taxable benefits on employee loans, prescribed-rate spousal loans (an income-splitting strategy), and interest on late tax payments. Check the CRA website for the current rate.

The exemption that eliminates capital gains tax on the sale of your principal residence. Each family unit (you, your spouse, and minor children) can designate one property as a principal residence for each year of ownership. You must report the sale on your tax return even though the gain is exempt.

A system where tax rates increase as income rises, with income taxed in layers ("brackets"). Canada uses a progressive federal system with 5 brackets (14% to 33%) and each province adds its own progressive brackets. This means your marginal rate is always higher than your effective rate. [How Canadian Taxes Work]

A Canadian-Controlled Private Corporation (CCPC) that meets specific criteria, including that at least 90% of its assets are used in active business in Canada. Shares of a QSBC are eligible for the Lifetime Capital Gains Exemption ($1,275,000 in 2026).

A revised assessment issued by the CRA after reviewing your return, changing one or more items. This can result from a CRA review, audit, or your own request (T1 Adjustment). You have 90 days to file a Notice of Objection if you disagree.

A credit that can reduce your tax below zero and result in a payment to you. Even if you owe no tax, you'll receive the full credit amount. Examples: GST/HST credit, Canada Workers Benefit, Canada Child Benefit. Compare with non-refundable tax credit.

A savings plan for individuals eligible for the Disability Tax Credit. The government provides matching grants (Canada Disability Savings Grant, up to $3,500/year) and bonds (Canada Disability Savings Bond, up to $1,000/year). $200,000 lifetime contribution limit.

A tax-sheltered savings plan for a child's post-secondary education. Contributions aren't deductible but growth is tax-sheltered, and the government matches 20% through the CESG ($500/year max, $7,200 lifetime). $50,000 lifetime contribution limit per beneficiary.

An account you must convert your RRSP into by December 31 of the year you turn 71. RRIFs require minimum annual withdrawals based on your age (or your spouse's age). Withdrawals are fully taxable as income. Managing RRIF withdrawals is central to retirement tax planning.

A tax-deferred savings account. Contributions are tax-deductible (reducing your current tax bill), growth is tax-sheltered, and withdrawals are taxed as income. 2026 limit: $33,810 or 18% of prior-year earned income. Unused room carries forward indefinitely. [RRSP Playbook]

A CRA service that lets you submit adjustments to your T1 return electronically through NETFILE-certified software. Available for the current and previous four tax years. Faster than mailing a T1 Adjustment Request.

A distribution from a fund or investment that returns part of your original investment, not income or gains. ROC is not taxable when received, but it reduces your adjusted cost base. If your ACB reaches zero, further ROC is treated as a capital gain.

A deduction that reduces the federal corporate tax rate to 9% on the first $500,000 of active business income earned by a Canadian-Controlled Private Corporation (CCPC). Combined with provincial rates, the total small business rate ranges from approximately 11% to 12.2% depending on the province. [Incorporation Guide]

An RRSP where one spouse contributes (using their own contribution room and claiming the deduction) but the other spouse is the account holder. Designed for income splitting in retirement. Attribution rules apply if the annuitant withdraws within 3 years of the last contribution.

A CRA rule that denies a capital loss if you (or an affiliated person) buy back the same or identical investment within 30 days before or after the sale. The denied loss is added to the ACB of the repurchased property. Critical to understand for tax-loss harvesting strategies. [Investing Guide]

An additional tax on top of the regular provincial tax, applied when basic provincial tax exceeds certain thresholds. Ontario and Prince Edward Island apply surtaxes that increase the effective top marginal rate beyond the posted bracket rates.

The main personal income tax return filed by Canadian individuals. Due April 30 for most taxpayers (June 15 for self-employed, but balance owing is still due April 30). [CRA Deadlines]

The income tax return filed by Canadian corporations. Due 6 months after the corporation's fiscal year-end. Requires professional preparation in most cases.

The form used to report self-employment or professional income and expenses. Attached to your T1 return. Where you claim business deductions including home office, vehicle, supplies, and other expenses. [Self-Employed Guide]

The slip your employer issues showing your employment income, tax deducted, CPP and EI contributions, and other amounts. You'll receive a T4 for each employer you worked for during the year.

Rules designed to prevent income splitting through private corporations by taxing certain types of income received by family members at the highest marginal rate. Also known as the "kiddie tax" in its original form, TOSI was significantly expanded in 2018.

A registered account where contributions aren't deductible, but all growth and withdrawals are completely tax-free. 2026 annual limit: $7,000. Cumulative room since 2009: $109,000. Withdrawals restore contribution room on January 1 of the following year. [TFSA Strategies]

The strategy of deliberately selling investments at a loss to offset realized capital gains, reducing your current tax bill. Effective year-end planning tool. Must avoid the superficial loss rule (30-day buyback restriction). Sell by approximately December 27 for T+1 settlement by December 31.

Your net income minus additional deductions like capital losses, the northern residents deduction, and other items. This is the amount your tax is actually calculated on. It appears on Line 26000 of your T1 return.

The difference between your total lifetime contribution limit and what you've actually contributed to a registered account. RRSP unused room carries forward indefinitely. TFSA unused room also carries forward. FHSA carry-forward is capped at $8,000.

Tax deducted at source before you receive payment. Your employer withholds income tax, CPP, and EI from your paycheque. Financial institutions withhold tax on RRSP withdrawals (10–30% depending on the amount). Foreign governments may withhold tax on dividends paid to Canadian investors.

The maximum amount of earnings on which CPP contributions are calculated. For 2026: $71,300. Earnings above the basic exemption ($3,500) and up to the YMPE are subject to CPP contributions. Earnings between the YMPE and the second ceiling ($81,200) are subject to CPP2.