Glossary

Canadian tax-law terms, defined.

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Plain-English definitions of the terms you'll see in CRA letters, audit packages, and our service pages.

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A B C D E F G H I L M N O P Q R S T U V W Z “

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Butterfly Reorganization

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Owner-Manager Remuneration

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Zero-Rated vs Exempt Supplies

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“Unnamed Persons” Search: An Enhanced Ability For The CRA To Identify Taxpayers To Audit.

A

Adjusted Cost Base
The adjusted cost base (ACB) of a property is its cost to the taxpayer for the purpose of computing a capital gain or loss on disposition. It generally starts with the acquisiti…
Allowable Business Investment Loss
An allowable business investment loss (ABIL) is a portion of a business investment loss — a capital loss on shares or debt of a small business corporation — that the Income Tax …
Alternative Source Argument
The alternative source argument is the principal way a taxpayer rebuts a net-worth or other indirect-income assessment. The net-worth method presumes that any unexplained increa…
Amalgamation
An amalgamation is the combination of two or more corporations into a single continuing corporation under corporate law. Section 87 of the Income Tax Act provides tax rules for …
Arbitrary Assessment
An arbitrary assessment — also called a notional assessment — is an assessment the Canada Revenue Agency issues for a tax year in which the taxpayer has not filed a return. Subs…
Asset Sale vs Share Sale
Asset Sale vs. Share Sale There are major considerations when considering an Asset Sale vs. Share Sale Whenever possible, you want to sell the shares of your corporation rather …
Asset Seizure
Asset Seizure When push comes to shove and the CRA needs to squeeze some funds out of a taxpayer they can apply for a certificate in Federal Court which will allow them to go ah…
Associated Corporations
Associated corporations are corporations connected by common control or common ownership under the rules in section 256 of the Income Tax Act. The concept is broad and captures …
Attribution Rules
The attribution rules in the Income Tax Act attribute income, and in some cases capital gains, earned on transferred or loaned property back to the person who transferred or loa…
Audit Risk Factors
Audit Risk Factors Sometimes a taxpayer is randomly selected for an audit. It’s like winning the worst lottery in the world. It’s just random. Nothing you can do to change that.…
Authorized Representative
Authorized Representative When the going gets tough there are always those who can act as an “authorized representative” with the CRA. This can be an accountant, a tax lawyer, o…

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Butterfly Reorganization
A butterfly reorganization is a corporate restructuring that divides a corporation's property among two or more corporations on a tax-deferred basis, typically to split asse…

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CRA Business Audit
CRA Business Audit Business audits are not different from personal or sole proprietorship audits. The auditor examines one or more returns and tries to identify areas where addi…
CRA Collections
CRA Collections Tasked with the collection of billions of dollars of taxes each year, the CRA employs a large number of full-time collections officers. Not everybody who owes ta…
CRA Payment Plan
CRA Payment Plan If a taxpayer cannot pay off their entire tax debt in a reasonable period of time, they will require a payment plan. And in order to get a payment plan the taxp…
CRA Penalties
CRA Penalties Interest & Penalties In all cases, where tax returns are filed after the due date, interest will be applied from the date the amount was initially due. And it …
CRA Tax Audit
CRA Tax Audit In Information Circular 71-14R3, the CRA describes the purpose of the tax audit as follows: “While there is, in Canada, a high standard of public compliance with t…
CRA Trust Audit
CRA Trust Audit Trust Audits Payroll and HST audits are performed both randomly and when there are risk factors. The CRA identifies returns with a higher risk of errors or omiss…
Canadian-Controlled Private Corporation
A Canadian-controlled private corporation (CCPC) is a private corporation resident in Canada that is not controlled, directly or indirectly, by non-residents, public corporation…
Capital Cost Allowance
Capital cost allowance (CCA) is the income-tax equivalent of depreciation. Instead of writing off depreciable property over its accounting useful life, the Income Tax Act sorts …
Capital Dividend Account
The capital dividend account (CDA) is a notional account that tracks certain tax-free amounts accumulated by a private corporation, including the non-taxable portion of net capi…
Capital Gain Inclusion Rate
The capital gain inclusion rate is the portion of a capital gain that is included in income and subject to tax, set by section 38 of the Income Tax Act. The corresponding portio…
Capital Gains
Capital Gains Capital gains earnings result when capital property, other than personal property or inventory, is sold for an amount greater than that at which it was acquired. T…
Capital Gains Reserve
A capital gains reserve lets a taxpayer who sells capital property at a gain but is paid over time spread the resulting capital gain across the years in which the proceeds are r…
Certificate in Federal Court
A certificate in the Federal Court is the document by which the Canada Revenue Agency converts an unpaid, assessed tax debt into an enforceable judgment. Under section 223 of th…
Certificate of Accreditation (Pharmacy)
The authorization issued by a provincial College of Pharmacists that permits a particular pharmacy to operate. Depending on the province, it may be called a Certificate of Accre…
Change-of-Use Rules
The change-of-use rules in section 45 of the Income Tax Act treat a taxpayer as having disposed of property at fair market value, and immediately reacquired it, when the use of …
Collection Restrictions
Collection restrictions are the statutory limits on when the Canada Revenue Agency may take certain collection actions against an income-tax debt. For most individual income-tax…
Controlled Foreign Affiliate
A controlled foreign affiliate (CFA) is a foreign affiliate of a Canadian taxpayer that is controlled, in fact or by ownership, by Canadian residents alone or together with rela…
Corporate Wind-Up
A wind-up is the process of dissolving a corporation and distributing its remaining property to shareholders. Where a subsidiary is wound up into its parent, section 88(1) of th…
Corporate-Owned Life Insurance (COLI)
A life insurance policy purchased by a corporation on the life of a key individual, where the corporation pays the premiums and is the beneficiary. It is used to provide a finan…
Corporations
Corporations The way corporations work is as follows: A corporation is owned by shareholders. Each of these shareholders own shares, and most shares allow their owners to vote a…
Crystallization of the LCGE
The deliberate triggering of a capital gain on paper — without an actual sale to a third party — in order to use the Lifetime Capital Gains Exemption before a potential increase…

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Deemed Disposition
A deemed disposition is a rule that treats a taxpayer as having sold property at fair market value even though no actual sale has occurred, triggering recognition of any accrued…
Deemed Disposition on Death
A Canadian tax rule that treats a deceased person as having sold most of their capital property at fair market value immediately before death. Because the property is deemed sol…
Deemed Dividend under Section 84
A deemed dividend under section 84 of the Income Tax Act is an amount that the Act treats as a dividend, and therefore as taxable in the shareholder's hands, even though it …
Demand to File
A demand to file is a formal notice from the Canada Revenue Agency, issued under subsection 150(2) of the Income Tax Act, requiring a taxpayer to file an outstanding return by a…
Demolishing the Minister's Assumptions
In a Tax Court of Canada appeal, the Minister's assumptions of fact are presumed correct, and the taxpayer's task is to "demolish" them — to put forward credib…
Departure Tax
Departure tax refers to the deemed-disposition rules in section 128.1 of the Income Tax Act that apply when a person ceases to be a Canadian tax resident. On emigration, the ind…
Departure Tax Deferral (Form T1244)
Form T1244 is the election that lets an individual defer paying the departure tax that arises when they cease to be a Canadian tax resident. On emigration, the deemed-dispositio…
Derivative Liability
Derivative liability describes situations where a person becomes responsible for another person's tax debt because of their relationship or dealings with the original tax de…
Designated Manager (Pharmacy)
The licensed pharmacist who is responsible to the provincial College of Pharmacists for the day-to-day compliance of a pharmacy. Pharmacy legislation generally requires every lo…
Director's Liability Assessment
A director's liability assessment is the CRA's mechanism for collecting a corporation's unpaid trust amounts — GST/HST, CPP, and EI — directly from its directors. Al…
Director’s Liability
Director’s Liability Although a central purpose of incorporation is to create a shield between the company’s creditor’s and the personal assets of its principals, certain tax de…
Dual Wills (Primary and Secondary)
A planning method, available in provinces such as Ontario, that uses two coordinated wills to separate assets that require probate from those that do not. The primary will gover…
Due-Diligence Defence
A due-diligence defence is the argument that a person took all reasonable care to comply with an obligation and should therefore not bear a penalty or liability that otherwise a…

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Economic Substance Regulations (ESR)
The UAE's Economic Substance Regulations require entities carrying on certain "relevant activities" — such as banking, insurance, fund management, headquarters, sh…
Eligible Dividend
An eligible dividend is a dividend paid by a Canadian corporation that has been designated as eligible and that qualifies, in the hands of an individual shareholder, for the enh…
Employee vs Independent Contractor
Employee vs. Independent Contractor It is important when you are doing business to ensure that you are not incorrectly characterized as being an employee vs. independent contrac…
Estate Freeze
Estate Freeze The Estate Freeze is a great tax planning tool. It is a common business succession tool used to defer taxes. The Estate Freeze transfers the future increase in val…
Examination for Discovery
An examination for discovery is the oral, pre-trial questioning of one party's representative by the other side, under oath and before a court reporter, in a Tax Court of Ca…
Examination-in-Chief
The stage of a hearing where a party questions a witness they have called in order to bring out that witness's evidence. Questions are meant to be open and non-leading — for…
Extension of Time to Appeal
A request to the Tax Court of Canada for permission to file a Notice of Appeal after the 90-day deadline has passed. The application must be made within one year after that dead…

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FATCA (Foreign Account Tax Compliance Act)
The Foreign Account Tax Compliance Act (FATCA) is a United States regime aimed at identifying US persons holding assets outside the United States. It has two main components: an…
FBAR (Report of Foreign Bank and Financial Accounts)
The FBAR, formally the Report of Foreign Bank and Financial Accounts, is a United States filing required of US persons whose foreign financial accounts exceed an aggregate value…
FIRPTA (Foreign Investment in Real Property Tax Act)
FIRPTA, the Foreign Investment in Real Property Tax Act, is a United States regime that taxes a foreign person's gain on the disposition of a United States real property int…
Failure-to-File Penalty
The failure-to-file penalty, more commonly called the late-filing penalty, is charged under subsection 162(1) of the Income Tax Act when a return is filed after its deadline and…
Fairness Application
A fairness application — now usually called a taxpayer relief request — asks the Minister of National Revenue to use the discretion in subsection 220(3.1) of the Income Tax Act …
Family Trust
A family trust is a trust whose beneficiaries are members of a family, most often structured as a discretionary trust in which the trustees decide the timing and amount of distr…
Federal Court Judicial Review
Judicial review in the Federal Court of Canada is the procedural route for challenging certain Canada Revenue Agency decisions that are not directly disputable through the objec…
Federal Court of Appeal
The Federal Court of Appeal is the court that hears appeals from decisions of the Tax Court of Canada. It is not a retrial: it reviews the Tax Court's judgment for legal err…
Financial Disclosure Statement
A financial disclosure statement is the summary of a taxpayer's finances the Canada Revenue Agency requests when assessing a request for a payment arrangement or a hardship-…
Form T2062 (Non-Resident Disposition Notice)
Form T2062 is the request a non-resident files with the Canada Revenue Agency to obtain a section 116 clearance certificate on the disposition of taxable Canadian property. It r…
Frozen Bank Account
Frozen Bank Account Many taxpayers with collections issues will tell you about the fear they experience when they go to the checkout at the grocery store and pull out their Inte…
Future Value of Money
Future Value of Money The analysis of money and time is paramount in financial decision making. Time value of money concepts such as present value of money vs. future value of m…

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GST
GST Operating a Canadian business means in most cases, being an agent of the CRA for the collection and withholding of certain amounts. Most businesses will end up remitting to …
GST/HST Input Tax Credit
A GST/HST input tax credit (ITC) lets a registered business recover the GST/HST it paid or owes on property and services acquired for use in its commercial activities. The credi…
Garnishment
Garnishment is a collection action in which the Canada Revenue Agency directs a third party who owes money to a tax debtor — such as an employer, a bank, or a customer — to pay …
General Anti-Avoidance Rule
The general anti-avoidance rule (GAAR) in section 245 of the Income Tax Act is a catch-all provision that can deny a tax benefit obtained through abusive tax avoidance, even whe…
General Procedure
The General Procedure is the full-procedure track at the Tax Court of Canada. It applies to any appeal that exceeds the Informal Procedure limits, and a taxpayer may elect it re…
Gross Negligence Penalty
Gross Negligence Penalty The most severe penalties assessed by the CRA are the gross negligence penalty under subsection 163(2) of the Act. This penalty may be assessed when the…
Gross Negligence Penalty
The gross-negligence penalty under section 163(2) of the Income Tax Act equals the greater of $100 and 50% of the tax related to a false statement or omission, where the taxpaye…

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HST
HST Operating a Canadian business means in most cases, being an agent of the CRA for the collection and withholding of certain amounts. Most businesses will end up remitting to …
Henson Trust
A fully discretionary trust used to provide for a beneficiary who has a disability and who receives, or may receive, means-tested government assistance. Because the trustee has …
Holding Company
A holding company (often "holdco") is a corporation whose main function is to hold assets — typically the shares of an operating company, and sometimes passive investm…
How to deal with tax search warrants – tax guidance from a Canadian tax lawyer
How To Deal With Tax Search Warrants – Tax Guidance From A Canadian Tax Lawyer The CRA cannot use its civil audit powers in a criminal investigation When the Canada Revenue Agen…

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Income Splitting
Income splitting is the practice of shifting income from a higher-income family member to lower-income family members so that, taken together, the family pays less tax by using …
Income Tax
Income Tax Canadians are taxed on their income from sources inside and outside Canada. There are various ways in which income is taxed, depending on the person or entity earning…
Independent Contractor
Independent Contractor It is important when you are doing business to ensure that you are not incorrectly characterized as being an employee vs. independent contractor. And just…
Indirect Verification of Income
Indirect verification of income (IVI) is a family of audit techniques the Canada Revenue Agency uses to estimate income without relying solely on the taxpayer's books and re…
Informal Procedure
The Informal Procedure is a streamlined track at the Tax Court of Canada for smaller or simpler appeals. It is generally available where the federal tax and penalties at issue f…
Input Tax Credit (ITC)
An input tax credit (ITC) is a credit a GST/HST registrant can claim for the GST/HST it pays on purchases and expenses used in its commercial activities. ITCs reduce the net tax…
Integration
Integration is the principle underlying the Canadian corporate-personal tax system: income earned through a corporation and then distributed to an individual shareholder should …
Intergenerational Business Transfer (Bill C-208)
Rules that permit a tax-deferred or capital-gains-eligible sale of the shares of a family business — including a professional corporation — to a corporation controlled by the ow…

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LCGE Multiplication
A planning result in which the Lifetime Capital Gains Exemption (LCGE), which is available per individual, is used by several family members on the same business sale. A discret…
Lifetime Capital Gains Exemption
Lifetime Capital Gains Exemption A major consideration when planning for one’s exit is the lifetime capital gains exemption (the “LCGE”). Here’s how it works: When one disposes …

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Minister's Assumptions
The factual assumptions the Minister of National Revenue states, in the Reply, were relied on when issuing an assessment. On appeal these assumptions are presumed correct, and t…
Minutes of Settlement
Minutes of settlement are the written, signed agreement that records the terms on which a Tax Court of Canada appeal is resolved without trial. They typically set out how each i…
Multiplication of the LCGE
A planning strategy that spreads the gain on a sale of qualifying property across several family members — often through a discretionary family trust — so that multiple individu…
Mutual Wills Agreement
A binding contract under which two or more people — often spouses in a blended family — agree to make their wills in agreed terms and agree not to change them without the others…

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Net Worth Assessment
A net worth assessment is a technique the Canada Revenue Agency uses to reconstruct a taxpayer's income indirectly. Rather than auditing reported income line by line, the CR…
Net Worth Audit
Net Worth Audit If a taxpayer’s books and records are seriously lacking or if an auditor cannot obtain all the required documents to perform the audit, the auditor can elect to …
Non Arm’s Length Tax Assessments
Non Arm’s Length Tax Assessments When the collections agent has determined that there is nothing left to be collected from a tax debtor, besides going after directors (which is …
Non Arm’s Length Transaction
Non Arm’s Length Transaction Non Arm’s Length Transaction: A transaction which occurs between people or parties which the CRA deems to be related. Included in the definition of …
Non Filers
Non Filers There are many different consequences that can result from not filing tax returns. These consequences range from a small penalty to jail time. And when the CRA decide…
Non-Arm's-Length Transfer
A non-arm's-length transfer is a transfer of property between persons the Income Tax Act treats as related — such as family members, or a corporation and a person who contro…
Notice of Appeal
A notice of appeal is the document that starts a Tax Court of Canada appeal. It sets out the material facts, the issues, the statutory provisions relied on, the reasons the reas…
Notice of Assessment
Notice of Assessment After businesses and individuals file their returns with the CRA, the agency processes the returns, which involves making a decision as to whether to audit …
Notice of Confirmation
A notice of confirmation is the Canada Revenue Agency Appeals decision that confirms a reassessment, in whole or in part, after reviewing a notice of objection. It marks the end…
Notice of Objection
Notice of Objection If a taxpayer disagrees with the assessment, they have an option to appeal the decision, the first step of which begins by the filing of a “Notice of Objecti…
Notice of Reassessment
A notice of reassessment is the formal Canada Revenue Agency document that changes a prior notice of assessment for a tax year. It restates the tax, interest, and penalties owin…
Notional Assessment
A notional assessment is an assessment the Canada Revenue Agency raises when a taxpayer has not filed a required return. Acting under its authority to assess tax payable, the CR…
Notional Assessment
A notional or arbitrary assessment is an assessment the Canada Revenue Agency raises when a taxpayer has not filed a required return. Using the information available to it — oft…

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Owner-Manager Remuneration
Owner-manager remuneration refers to how the owner of an incorporated business pays themselves from the corporation — principally through salary, dividends, or a blend of the tw…

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Paid-Up Capital
Paid-up capital (PUC) is a tax measure of the amount a corporation can return to its shareholders as a tax-free repayment of capital, without producing a deemed dividend under s…
Partnerships
Partnerships Partnerships are one type of business structure, and are different from corporations and sole proprietorships. If two or more people form a business and start opera…
Passive Foreign Investment Company
A passive foreign investment company (PFIC) is a United States tax concept, not a Canadian one. It refers to a foreign corporation that meets either an income test or an asset t…
Payment Arrangement
A payment arrangement is an agreement under which the Canada Revenue Agency accepts payment of a tax debt by scheduled instalments rather than in full immediately. It does not r…
Payroll vs Dividends
Payroll vs. Dividends If you are operating a corporation there are a variety of ways that you could pay yourself. Sole proprietors have no options. They directly earn their inco…
Penalty Recommendation Report
A penalty recommendation report is the internal CRA document in which an auditor sets out the facts and reasoning supporting a proposed gross negligence penalty under subsection…
Permanent Establishment (UAE Corporate Tax)
A permanent establishment is a taxable presence that a foreign person can create in the UAE, bringing the income attributable to that presence within UAE Corporate Tax even wher…
Personal Services Business
Personal Services Business The Personal Services Business (“PSB”) is defined by the CRA as “a business that a corporation carried on to provide services to another entity (such …
Personal Services Business (PSB)
A personal services business (PSB) is, in the CRA's words, a business a corporation carries on to provide the services of an "incorporated employee" — an individua…
Pharmacy Professional Corporation (PPC)
A corporation formed under provincial law that allows a licensed pharmacist to carry on the practice of pharmacy while maintaining limited liability and access to corporate tax …
Pipeline Planning
Pipeline planning is a structure that allows corporate surplus to be extracted as a repayment of capital rather than as a taxable dividend. In the post-mortem context, the estat…
Post-Mortem Pipeline
A post-mortem tax strategy used to avoid double taxation on private-corporation shares held at death. On death, the shares face capital-gains tax under the deemed disposition; w…
Post-Mortem Planning
Post-mortem planning addresses the potential double taxation that can arise when a shareholder of a private corporation dies. At death, the deemed disposition rules tax the accr…
Predominant Purpose Test
The predominant purpose test, established by the Supreme Court of Canada in R. v. Jarvis and R. v. Ling , determines when a CRA inquiry has shifted from a civil audit to a crimi…
Principal Purpose Test (PPT)
The Principal Purpose Test is an anti-abuse rule found in many modern double taxation agreements, including a number of the UAE's treaties. Under the PPT, treaty relief can …
Principal Residence Exemption
The principal residence exemption shelters all or part of the capital gain realized on the disposition of a property that qualified as the taxpayer's principal residence. A …

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QSBC Purification
The process of removing or restructuring passive and non-active assets from an operating corporation so that it satisfies the Qualified Small Business Corporation (QSBC) tests, …
Qualified Domestic Trust (QDOT)
A qualified domestic trust (QDOT) is a United States estate-planning structure that allows the United States estate-tax marital deduction to apply where the surviving spouse is …
Qualified Small Business Corporation
Qualified Small Business Corporation A major consideration when planning for one’s exit is the lifetime capital gains exemption (the “LCGE”). Here’s how it works: When one dispo…
Qualified Small Business Corporation Shares
Qualified small business corporation (QSBC) shares are shares of a Canadian-controlled private corporation that meet a set of tests in the Income Tax Act, the reward for which i…
Qualifying Free Zone Person (QFZP)
A Qualifying Free Zone Person is a UAE free zone entity that qualifies for a 0% Corporate Tax rate on its qualifying income, with a 9% rate applying to any non-qualifying income…
Qualifying Income (UAE Free Zones)
Qualifying income is the category of a UAE free zone entity's income that can benefit from the 0% Corporate Tax rate available to a Qualifying Free Zone Person. It generally…
Quick Method of Accounting
The Quick Method of Accounting is a simplified way for eligible small businesses to calculate the GST/HST they remit. Instead of tracking and claiming input tax credits on most …
Quick Method of Accounting for GST/HST
The Quick Method is a simplified way for eligible smaller businesses to account for GST/HST. Instead of tracking and claiming input tax credits on most purchases, the registrant…

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Reasonableness (Section 67)
Section 67 of the Income Tax Act limits the deduction of an expense to an amount that is reasonable in the circumstances. Even where an outlay is otherwise deductible because it…
Recapture of Capital Cost Allowance
Recapture arises when depreciable property is disposed of for more than the undepreciated capital cost of its class. The excess, up to the property's original capital cost, …
Record Keeping
Record Keeping Whether you plan on selling the business and need to show immaculate records to a buyer or whether you just want to ensure that an audit goes smoothly and that yo…
Rectification
Rectification is an equitable remedy that asks a court to correct a written instrument so that it reflects the parties' true, agreed intention where the document, as drafted…
Refundable Dividend Tax on Hand
Refundable dividend tax on hand (RDTOH) is an account that tracks refundable corporate tax paid on a private corporation's investment income — both Part I tax on aggregate i…
Replacement Property Rules
The replacement property rules in section 44 of the Income Tax Act, with a parallel rule in subsection 13(4) for depreciable property, allow a taxpayer to defer the capital gain…
Reply (Tax Court)
The reply is the Crown's responding pleading in a Tax Court of Canada appeal, filed by Department of Justice counsel for the Minister of National Revenue. It admits or denie…
Reply (Tax Court)
The document the Crown (the Department of Justice, acting for the Minister of National Revenue) files in response to a Notice of Appeal, usually within 60 days. It sets out the …
Representation Agreement (British Columbia)
A British Columbia legal instrument, similar in function to a power of attorney for personal care, that lets an adult appoint a representative to make health-care, personal-care…
Requirement To Pay
Requirement To Pay A “Requirement To Pay” or an “RTP” is a tool which is used to collect money which business clients owe the CRA. The way an RTP works is that the collector iss…
Requirement to Pay (RTP)
A Requirement to Pay (RTP) is a CRA collections tool that directs a third party who owes money to a tax debtor to remit those funds to the CRA instead. Issued to a customer of a…
Reverse Onus (Subsection 163(3))
The reverse onus is the rule that shifts the burden of proof from the taxpayer to the Minister of National Revenue. In almost every tax appeal the taxpayer must prove the assess…
Rollover
A rollover is a tax provision that allows property to be transferred without triggering an immediate disposition, deferring any accrued gain until a later event. Rollovers prese…
Rule 147 Settlement Offer
Rule 147 of the Tax Court of Canada Rules (General Procedure) governs costs, including the enhanced cost consequences that flow from a written settlement offer. Where a party ma…

S

Safe Income
Safe income is the retained earnings of a corporation, computed for tax purposes, that can reasonably be considered to contribute to the accrued gain on a share. The concept is …
Secondary Will
A separate will that governs specific assets — most often shares of a private corporation — alongside a primary will that covers the rest of the estate. Business owners use a se…
Section 116 Clearance Certificate
A section 116 clearance certificate is the Canada Revenue Agency document confirming that a non-resident's disposition of taxable Canadian property has been reported and tha…
Section 160 Derivative Liability
Section 160 of the Income Tax Act (and section 325 of the Excise Tax Act for GST/HST) imposes joint and several liability on a person who receives property from a tax debtor for…
Section 216 Election
Section 216 Election When non-residents receive rental income from rental or immovable property in Canada, the tenant or agent must withhold non-resident tax which is 25% on the…
Section 84.1
Section 84.1 of the Income Tax Act is an anti-avoidance rule aimed at surplus stripping — extracting a corporation's retained earnings as a lower-taxed capital gain rather t…
Section 85 Rollover
A section 85 rollover lets a taxpayer transfer eligible property to a taxable Canadian corporation in exchange for shares (and possibly other consideration) at a jointly elected…
Section 86 Reorganization
Section 86 of the Income Tax Act allows a tax-deferred share-for-share exchange carried out as part of a reorganization of a corporation's capital. It is most often used to …
Sham Doctrine
The sham doctrine is a common-law principle that allows a court to disregard the legal form of a transaction where the parties created documents intended to mislead others about…
Shareholder Benefit
A shareholder benefit arises under subsection 15(1) of the Income Tax Act when a corporation confers a benefit on a shareholder. The value of the benefit is included in the shar…
Shareholder Loan under Subsection 15(2)
Subsection 15(2) of the Income Tax Act generally requires a shareholder who receives a loan from the corporation to include the loan amount in income, on the basis that an open-…
Small Business Deduction
The small business deduction reduces the federal corporate tax rate on a Canadian-controlled private corporation's active business income, up to an annual limit that is curr…
Sole Proprietorship
Sole Proprietorship A Sole Proprietorship (an “SP”) is a business owned and run by a person. There are no partners and there are no shareholders. And it does not have to be regi…
Source Concept Of Tax
Source Concept Of Tax In order to be taxable, the Canadian income tax system requires income to be allocated to a “source” either contained in the Income Tax Act or recognized b…
Source Deductions
Source Deductions Operating a Canadian business means in most cases, being an agent of the CRA for the collection and withholding of certain amounts. Most businesses will end up…
Specified Foreign Property
Specified Foreign Property Foreign property reporting requirements in Canada – A Canadian tax lawyer’s guidance on T1135 obligations When a Canadian resident holds specified for…
Spousal Rollover
A tax provision that allows capital property to transfer to a surviving spouse or common-law partner — directly or through a qualifying spousal trust — at the deceased's adj…
Standard of Review
The standard of review is the degree of deference an appeal court gives to the decision under appeal. At the Federal Court of Appeal in a tax matter, the standard determines whe…
Statute-Barred Year
A statute-barred year is a tax year that has passed the normal reassessment period and cannot be reassessed by the Canada Revenue Agency unless a specific statutory exception ap…
Stop-Loss Rules
The stop-loss rules in the Income Tax Act restrict or grind a capital loss on shares in defined circumstances, generally where a loss has been generated in a way the Act treats …
Streamlined Foreign Offshore Procedures
The Streamlined Foreign Offshore Procedures are a United States Internal Revenue Service compliance program for US persons living outside the United States who failed to report …
Subparagraph 152(4)(a)(i)
Subparagraph 152(4)(a)(i) of the Income Tax Act lets the Canada Revenue Agency reassess a taxpayer after the normal reassessment period where the taxpayer made a misrepresentati…
Substantial Presence Test
The substantial presence test is the United States rule that determines whether a non-citizen is treated as a US tax resident based on days of physical presence. A person genera…
Superficial Loss
A superficial loss is a capital loss that the Income Tax Act denies because the taxpayer, or an affiliated person, acquired the same or identical property within 30 days before …
Surplus Stripping
Surplus stripping describes arrangements that seek to extract a corporation's retained earnings as a lower-taxed capital gain or a return of capital rather than as a dividen…

T

T1134 Foreign Affiliate Information Return
Form T1134 is the information return that Canadian residents and corporations must file annually for each foreign affiliate. A foreign affiliate is generally a non-resident corp…
T1135 Foreign Income Verification Statement
Form T1135, the Foreign Income Verification Statement, must be filed annually by Canadian residents whose specified foreign property cost more than $100,000 at any time in the y…
Tariff Costs
Tariff costs are the fixed schedule of amounts a court may award to a successful party for each step in litigation — filing, discovery, preparation, and hearing days. At the Tax…
Tax Court General Procedure
Tax Court General Procedure For a corporation, unless it has received permission of the court to allow an officer to represent it, there is no choice but to engage a lawyer as i…
Tax Court Informal Procedure
Tax Court Informal Procedure There is no fee to file an appeal under the informal procedure and there is also no need for a corporation to have a lawyer as a representative. Man…
Tax Court of Canada
Tax Court of Canada If a taxpayer finds that they have not resolved their issue after having gone through the appeals process, the only way forward is to appeal to the Tax Court…
Tax Credits
Tax Credits Tax credits are amounts that directly offset tax payable, while tax deductions are amounts which are used to offset and reduce a taxpayer’s income. To understand how…
Tax Deductions
Tax Deductions Considering deductions in more detail, their basis is s. 9(1) of the Income Tax Act, with exclusions provided elsewhere in the Act. Section 9(1) defines profit wh…
Tax Deferral
Things Most Often Audited Low-Hanging Fruit for the Auditor There are a variety of areas most often targeted by auditors because they are low-hanging fruit. The auditor doesn’t …
Tax Evasion
Tax evasion is the offence of wilfully evading or attempting to evade the payment of tax, or wilfully making false or deceptive statements on a return, contrary to subsection 23…
Tax Lien
Tax Lien Placing Liens on Property Many taxpayers will tell you that while they were in collections the CRA placed a lien on their properties. This is commonplace. Where the col…
Tax Remission Order
A remission order is a discretionary cancellation of a tax debt granted by the federal government, generally as a last resort where it would be seriously unfair to require payme…
Tax Residence Determination in Canada
Tax Residence Determination in Canada The basis for Canadian taxation The Canadian income tax system is based on residence status. Under subsection 2(1) of the Income Tax Act , …
Tax Returns
Tax Returns The Canadian tax filing system is dependent on individual self-assessment. In regard to income, taxpayers are expected to provide truthful and accurate information s…
Tax on Split Income
The tax on split income (TOSI) applies the highest marginal personal tax rate to certain income — primarily dividends, capital gains, and similar passive returns — received by a…
Tax on Split Income (TOSI)
The tax on split income (TOSI) is a set of rules in the Income Tax Act, expanded in 2018, that applies the top marginal personal tax rate to certain income — most commonly priva…
Taxable Benefit
A taxable benefit is the value of a benefit an employee receives because of their employment, which paragraph 6(1)(a) of the Income Tax Act requires the employee to include in i…
Taxable Benefits
Taxable Benefits A taxable benefit is essentially something that you receive from your corporation, which is not cash, but which has a cash value to you. For example, if your co…
Taxable Canadian Property
Taxable Canadian property (TCP) is the category of property whose disposition by a non-resident of Canada can be subject to Canadian tax. The main types include real or immovabl…
Taxpayer Bill of Rights
Taxpayer Bill of Rights A good place to start learning about one’s rights is the Taxpayer Bill of Rights. While this “Taxpayer Bill of Rights” is not a true legal “Bill”, many o…
Taxpayer Relief
Taxpayer relief refers to the discretion the Canada Revenue Agency has, under subsection 220(3.1) of the Income Tax Act and parallel provisions, to cancel or waive interest and …
Taxpayer Relief Provisions
The taxpayer-relief provisions, found in subsection 220(3.1) of the Income Tax Act, give the Canada Revenue Agency discretion to cancel or waive penalties and interest — though …
Taxpayer Relief Request (RC4288)
A taxpayer relief request, made on Form RC4288, asks the Minister of National Revenue to use the discretion in subsection 220(3.1) of the Income Tax Act to cancel or waive penal…
Taxpayer’s Ombudsman
Taxpayer’s Ombudsman The Taxpayer’s Ombudsman is an independent official, who advocates for taxpayers and assists with complaints. The Ombudsman’s office will not be able to hel…
Terminal Loss
A terminal loss occurs when the last property in a capital cost allowance class is disposed of for less than the undepreciated capital cost remaining in that class. The shortfal…
Things Most Often Audited
Things Most Often Audited Low-Hanging Fruit for the Auditor There are a variety of areas most often targeted by auditors because they are low-hanging fruit. The auditor doesn’t …
Third-Party Penalty
The third-party civil penalties in section 163.2 of the Income Tax Act apply to advisers and others who participate in or culpably ignore false statements that a taxpayer uses f…
Treaty Tie-Breaker Rules
Treaty tie-breaker rules are the provisions in a tax treaty that assign a single country of residence to a person who would otherwise be a resident of both countries under their…
Trust Amounts
Trust amounts are taxes a business collects or withholds on the government's behalf and holds in trust for the Canada Revenue Agency — principally GST/HST collected from cus…
Trust Tax Debt
Trust Tax Debt Trust Debts Compared to Income Tax Debts When dealing with the collections agent, remember the distinction between trust debts and regular debts – taxpayers are t…
Twenty-One-Year Rule
The twenty-one-year rule, under subsection 104(4) of the Income Tax Act, deems most trusts to dispose of their capital property at fair market value every twenty-one years. The …

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UAE Tax Residency Certificate (TRC)
A UAE Tax Residency Certificate is a document issued by the UAE Ministry of Finance that confirms an individual's or entity's tax residence in the UAE for a specified 12…
Unanimous Shareholders' Agreement (USA)
A unanimous shareholders' agreement (USA) is a contract among all of a corporation's shareholders that governs how they will deal with one another and with the corporati…
Undepreciated Capital Cost
Undepreciated capital cost (UCC) is the remaining, unclaimed depreciable balance of a capital cost allowance class. It equals the original capital cost of the property in the cl…
Unreported Income
Unreported income is income a taxpayer earned but did not include on a filed return — cash sales, side-business revenue, rental or investment income, foreign income, or capital …

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Viva Voce Evidence
Viva voce evidence is oral testimony — live evidence given by a witness under oath, in the witness box, subject to cross-examination. In a Tax Court of Canada appeal it compleme…
Voluntary Disclosures Program
Voluntary Disclosures Program The Voluntary Disclosures Program falls under taxpayer relief provisions. A Voluntary Disclosures Program (“VDP”) application is an application whe…
Voting and Non-Voting Shares (Pharmacy Ownership)
A distinction central to pharmacy ownership and estate planning. Voting shares carry control of corporate decisions and, in most provinces, may be held only by licensed pharmaci…

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Wage Garnishee
Voluntary Disclosures Program Garnisheeing Wages One of the more feared powers of CRA collectors is their ability to garnishee wages. If an individual taxpayer who is a sole pro…
Wilful Blindness
Wilful blindness is a state of mind in which a person suspects a fact, has the means to confirm it, and deliberately chooses not to inquire so as to avoid confirming what they s…

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Zero-Rated vs Exempt Supplies
Under the GST/HST framework, the difference between a zero-rated supply and an exempt supply lies in both the rate charged and the supplier's ability to recover tax on input…

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“Unnamed Persons” Search: An Enhanced Ability For The CRA To Identify Taxpayers To Audit.
“Unnamed Persons” Search: An Enhanced Ability For The CRA To Identify Taxpayers To Audit. by Alex Kerslake Taxpayers are often aware of the common triggers for a Canada Revenue …

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