Question 1

What is ACB - Adjusted Cost Base?

Accepted Answer

Your ACB is the total amount you paid to acquire an investment, including the original purchase price and any fees or commissions you paid to buy it. When you sell an asset, your capital gain or loss is calculated as the sale price minus the ACB minus the selling costs; so your ACB directly determines how much of your profit is taxable. If you bought shares of the same company at different prices over multiple purchases, your ACB is the average cost per share across all purchases combined. For assets received as a gift or inherited, the ACB is generally the fair market value on the date you received them, not what the original owner paid. Miscalculating your ACB is the most common capital gains error on Canadian tax returns and almost always results in reporting a larger gain, and paying more tax, than you actually owe.

Question 2

What is Attribution Rules?

Accepted Answer

Attribution rules are CRA rules that prevent Canadians from shifting income to lower-taxed family members by giving or lending them money or property. When you give money to a spouse or common-law partner who then invests it, the investment income is attributed back to you and taxed in your hands at your higher rate, not theirs. The same applies to loans made to a spouse at a below-market interest rate. For minor children, attribution applies to passive income like dividends and interest, but not to capital gains. The rules stop applying when the child turns 18, or when a properly structured loan charges the CRA's prescribed interest rate.

Question 3

What is Basic Personal Amount?

Accepted Answer

The basic personal amount is a non-refundable federal tax credit that every Canadian who files a return receives automatically, no application needed. In 2025, the federal basic personal amount is $16,129, which means the first $16,129 of your income is effectively tax-free at the federal level. Every province also has its own basic personal amount that applies to your provincial tax. If your total income is below the basic personal amount, you generally owe no federal income tax, though you may still owe CPP contributions on employment income. This credit is why many low-income Canadians and students end up with a refund even when taxes were withheld from their pay.

Question 4

What is Business Income?

Accepted Answer

Business income is money you earn through self-employment, freelance work, contracting, or running any business as a sole proprietor. Unlike employment income which comes on a T4, you report business income yourself on Form T2125, the Statement of Business or Professional Activities, which is filed as part of your T1 personal return. You pay income tax on your net business income, meaning gross revenue minus all eligible business expenses. You also pay both the employee and employer portions of CPP contributions on your net self-employment income, which is a significant additional cost compared to being an employee. Tracking business expenses carefully is critical because every eligible dollar reduces your taxable income at your marginal rate.

Question 5

What is Capital Gain?

Accepted Answer

A capital gain is the profit you make when you sell an asset for more than you paid for it. Canada does not tax the full gain, only the includable portion is added to your taxable income and taxed at your marginal rate. At the standard individual inclusion rate of 50 percent for gains under $250,000, half of your gain is added to your income. So if you sold stock for a $40,000 profit, only $20,000 would be added to your taxable income. Note that the inclusion rate has been subject to recent legislative proposals for gains above $250,000; verify the current rate with T.U.A or the CRA before filing.

Question 6

What is Capital Loss?

Accepted Answer

A capital loss is the loss you realize when you sell an asset for less than its adjusted cost base. Capital losses can be used to reduce capital gains; you offset gains with losses to reduce the net taxable amount. If your capital losses exceed your capital gains in a given year, you can carry the net loss back up to three previous years to recover taxes paid on gains in those years, or carry it forward indefinitely to offset future gains. Capital losses can only be applied against capital gains, they cannot reduce employment income or other types of income. Keeping track of your capital loss carry-forward amounts is important and appears on your annual Notice of Assessment.

Question 7

What is CCA - Capital Cost Allowance?

Accepted Answer

CCA is the tax deduction system the CRA uses to allow businesses to recover the cost of assets like vehicles, computers, and equipment over time rather than all at once. Each class of asset has a prescribed CRA rate; for example, computers depreciate at 55 percent per year - Class 10 - and passenger vehicles at 30 percent per year - Class 10. In the year of purchase, special rules often limit the deduction to half the normal rate. You do not have to claim the maximum CCA each year; claiming less in a profitable year and more in a lower-income year can be a useful tax planning tool. CCA is calculated on your T2125 if you are self-employed, or on your T2 corporate return if the asset is owned by a corporation.

Question 8

What is CCPC - Canadian Controlled Private Corporation?

Accepted Answer

A CCPC is a private corporation incorporated in Canada that is controlled by Canadian residents and is not publicly traded on a stock exchange. The CCPC designation matters enormously because CCPCs qualify for the small business deduction, which reduces the federal corporate tax rate on the first $500,000 of active business income from 15 percent down to 9 percent. Combined with provincial small business rates, most Canadian CCPCs pay a combined effective tax rate of 9 to 13 percent on qualifying income, significantly lower than personal tax rates. To maintain CCPC status, more than 50 percent of the voting shares must be held by Canadian residents. If a non-resident or public corporation acquires control, the small business deduction is lost.

Question 9

What is CPP - Canada Pension Plan?

Accepted Answer

The Canada Pension Plan is a mandatory federal pension program that funds retirement, disability, and survivor benefits for Canadians. If you are employed, you and your employer each contribute half the total CPP premium on your earnings between the basic exemption and the maximum pensionable earnings. If you are self-employed, you pay both the employee and employer portions yourself, the full amount, which is why self-employed Canadians often face a larger tax bill than they expect. Your CPP contributions appear on your T4 slip if employed, or are calculated on your T2125 if self-employed. A portion of your CPP contributions generates a non-refundable tax credit that partially offsets the cost.

Question 10

What is CRA - Canada Revenue Agency?

Accepted Answer

The CRA is the federal government agency responsible for administering tax laws in Canada, collecting taxes, and distributing government benefits. Every T1 personal return and T2 corporate return you file is processed by the CRA, which then issues a Notice of Assessment confirming the results. The CRA also administers major benefit programs including the GST/HST credit, Canada Child Benefit, and Canada Workers Benefit. When the CRA has a question about your return, it sends a review letter, and if they disagree with your filing, they issue a reassessment. T.U.A's accountants respond to CRA inquiries on behalf of clients whose returns they prepared.

Question 11

What is Deduction?

Accepted Answer

A deduction is an amount subtracted from your income before your tax is calculated, which reduces your taxable income. Because Canada uses a progressive tax system, a deduction saves you tax at your highest marginal rate; so a $10,000 RRSP deduction for someone in a 40 percent combined tax bracket saves $4,000 in tax. Common deductions include RRSP contributions, union and professional dues, childcare expenses, moving expenses, and self-employment business expenses. Deductions are different from tax credits, a deduction reduces the income you are taxed on, while a credit reduces the tax you owe after it is calculated. Most Canadians have access to more deductions than they realize, which is a key reason professional tax preparation delivers better results than self-filing.

Question 12

What is Dividend?

Accepted Answer

A dividend is a payment a corporation makes to its shareholders from its after-tax profits. Canadian dividends are divided into two categories, eligible and non-eligible, which are taxed differently. Eligible dividends are typically paid by Canadian public corporations and larger private corporations that paid the general corporate tax rate, and they receive an enhanced dividend tax credit that significantly reduces your effective personal tax rate on that income. Non-eligible dividends are generally paid by Canadian private corporations that benefited from the small business deduction, and they receive a smaller credit. Foreign dividends, from US or international stocks, are taxed as regular income with no dividend tax credit, which makes them the least tax-efficient investment income type.

Question 13

What is Dividend Tax Credit?

Accepted Answer

The dividend tax credit is a non-refundable federal tax credit designed to prevent double taxation of corporate earnings. When a corporation earns income it pays corporate tax on it, and when it distributes the remaining profit as a dividend to shareholders, those shareholders would otherwise pay personal tax on the same money a second time. The dividend tax credit compensates for the corporate tax already paid. Eligible dividends receive an enhanced credit because they come from corporations that paid the higher general corporate tax rate. Non-eligible dividends receive a smaller credit reflecting the reduced corporate rate paid under the small business deduction. The gross-up and credit mechanism means the effective personal tax rate on eligible Canadian dividends is lower than on employment income at most income levels.

Question 14

What is EFILE?

Accepted Answer

EFILE is the CRA's professional electronic filing system used by registered tax preparers and accountants to file returns on behalf of their clients. Unlike NETFILE which is for individuals filing their own returns, EFILE requires professional registration with the CRA and is only available to tax professionals who have met the CRA's eligibility requirements. T.U.A uses the EFILE system to submit every client return. EFILE provides faster processing and more reliable acceptance confirmation than paper filing. Because EFILE preparers are registered and accountable to the CRA, it is also a more secure channel than consumer NETFILE software.

Question 15

What is Employment Income?

Accepted Answer

Employment income is money you receive from an employer in exchange for services provided as an employee. It is reported on a T4 slip that your employer is legally required to issue by the last day of February each year. Employment income is subject to three deductions at source; income tax, Canada Pension Plan contributions, and Employment Insurance premiums; all of which appear on your T4. Your T1 return reconciles the tax withheld during the year against the tax you actually owe based on your total income and deductions, resulting in either a refund - you overpaid - or a balance owing - you underpaid. Common employment deductions include union dues, professional membership fees, and home office expenses if your employer requires you to work from home.

Question 16

What is GST/HST - Goods and Services Tax / Harmonized Sales Tax?

Accepted Answer

GST is the federal government's 5 percent consumption tax on most goods and services sold in Canada. Several provinces have harmonized their provincial sales tax with the federal GST to create the Harmonized Sales Tax - HST - with combined rates ranging from 13 percent in Ontario to 15 percent in Nova Scotia, New Brunswick, PEI, and Newfoundland. Quebec, British Columbia, Manitoba, and Saskatchewan administer their own provincial sales tax separately from the federal GST. Businesses that are registered for GST/HST collect it from customers and remit the net amount; after claiming input tax credits; to the CRA. Registration is required once total business revenue exceeds $30,000 in any four consecutive calendar quarters.

Question 17

What is GST/HST Credit?

Accepted Answer

The GST/HST credit is a quarterly, tax-free benefit payment from the federal government to lower and middle-income Canadians to offset the GST or HST they pay on everyday purchases. Eligibility and the amount you receive are based on your income and family situation as reported on your annual T1 return; which is why filing every year even with low income is important. Payments are issued in January, April, July, and October. A single Canadian with no children received approximately $496 in GST/HST credit payments for the 2024 benefit year, with higher amounts for families. Newcomers to Canada should file their first return as soon as possible to activate eligibility for this benefit.

Question 18

What is Inclusion Rate?

Accepted Answer

The inclusion rate is the percentage of a capital gain that gets included in your taxable income. At the standard 50 percent inclusion rate for individuals on gains up to $250,000, you only add half of your capital gain to your income; meaning capital gains are taxed more favourably than regular income. On a $60,000 capital gain, $30,000 is added to your income and taxed at your marginal rate. The inclusion rate has been subject to recent legislative proposals regarding gains above $250,000; verify the current applicable rate with T.U.A or the CRA before filing a return that includes capital gains. The inclusion rate also applies to capital losses, so you can only deduct half of a capital loss against capital gains.

Question 19

What is ITC - Input Tax Credit?

Accepted Answer

An input tax credit is the mechanism that allows GST/HST-registered businesses to recover the GST or HST they paid on business expenses and purchases. If you paid $1,300 on a business expense in Ontario - which includes 13 percent HST - you can claim the $150 HST portion back as an ITC on your GST/HST return. This means registered businesses only remit the net difference between tax collected on sales and tax paid on purchases to the CRA; not the full amount collected. Claiming all eligible ITCs is the most important step in minimizing your GST/HST remittance, and missed ITCs directly increase your net tax payable. Proper documentation is required, you need receipts or invoices showing the GST/HST amount, the supplier's registration number, and the date.

Question 20

What is Marginal Tax Rate?

Accepted Answer

Your marginal tax rate is the rate that applies to the next dollar of income you earn, or equivalently, the rate at which a deduction will save you tax. Canada uses a progressive tax system, meaning different portions of your income are taxed at different rates. In 2025, federal rates range from 15 percent on the first $57,375 of income up to 33 percent on income above $253,414. Your provincial tax is added on top. A person earning $90,000 in Ontario does not pay 26 percent on all $90,000, they pay 15 percent on the first bracket, 20.5 percent on the next, and so on. Your marginal rate is what determines the value of an RRSP contribution or any other deduction: a $5,000 RRSP contribution saves you $5,000 multiplied by your marginal rate.

Question 21

What is Moving Expenses?

Accepted Answer

Moving expenses incurred when relocating more than 40 kilometres closer to a new job, new business location, or educational institution may be deductible on your T1 return. For students who move to attend school, the deduction can only be claimed against income earned at the new location; including scholarships and grants. For workers, the deduction is claimed against employment or self-employment income earned after the move. Eligible expenses include transportation and storage of household goods, travel costs for the family, temporary accommodation up to 15 days, costs to cancel a lease, and certain costs to sell your old home. Keep all receipts and documentation as the CRA commonly requests support for this deduction.

Question 22

What is NETFILE?

Accepted Answer

NETFILE is the CRA's online filing system that allows individual Canadians to submit their own T1 personal tax return electronically without using a tax professional. To use NETFILE, you need CRA-certified tax software; the CRA maintains a list of approved software on its website, including both paid and free options. NETFILE accepts returns for the current tax year and up to ten prior years. Once you submit through NETFILE, the CRA sends an electronic confirmation number that serves as proof of submission. NETFILE is not available for returns that require paper documents, very complex situations, or returns for deceased persons; those must be filed on paper or through a professional using EFILE.

Question 23

What is NOA - Notice of Assessment?

Accepted Answer

The Notice of Assessment is the official CRA document you receive after your tax return has been processed, confirming how the CRA has assessed your filing. It shows your total assessed income, the tax you owe or refund you are receiving, your RRSP contribution room for the following year, and any carry-forward amounts such as capital losses or unused tuition credits. If the CRA agrees with your return, the NOA matches what you filed. If they made adjustments, the NOA will show the changes and the reasons. You should keep every NOA because it is the definitive record of your RRSP room, loss carry-forwards, and assessed tax for that year. If T.U.A filed your return, they will provide you with a copy of your NOA.

Question 24

What is Principal Residence Exemption?

Accepted Answer

The principal residence exemption eliminates or reduces the capital gains tax you would otherwise owe when you sell a home that qualifies as your principal residence. A property qualifies as your principal residence for a year if you or your family ordinarily inhabited it during that year; a summer cottage can qualify if you actually lived in it. If the property was your principal residence for every year you owned it, the entire capital gain is exempt. The exemption is not automatic, you must designate the property and report the sale on your T1 return even if the gain is fully exempt. If you owned more than one property, rented part of your home, or used your home for business, the calculation becomes more complex and partial taxation may apply.

Question 25

What is RRSP - Registered Retirement Savings Plan?

Accepted Answer

An RRSP is a government-registered savings account that allows Canadians to defer income tax on contributions and investment growth until retirement. Contributions are deductible from income in the year they are made; reducing your tax bill now; while investments inside the RRSP grow completely tax-free. When you eventually withdraw the money in retirement, it is taxed as income at that time, ideally when you are in a lower tax bracket than your working years. Your annual RRSP contribution room is 18 percent of your prior year's earned income, up to the annual maximum - $32,490 for 2025. Unused contribution room carries forward indefinitely, so Canadians who did not contribute in earlier years can catch up. RRSP contributions must be made by March 1 to be deductible against the prior year's income.

Question 26

What is Refundable Tax Credit?

Accepted Answer

A refundable tax credit reduces your tax owing and, unlike a non-refundable credit, can generate a refund even if it brings your tax below zero. The Canada Child Benefit, the GST/HST credit, and the Canada Workers Benefit are all examples of refundable benefits. If you owe $500 in tax and have a $1,200 refundable credit, you receive $700 back; the credit effectively pays you money rather than just reducing tax. Many low-income Canadians, students, and families receive net payments from the government rather than owing tax because refundable credits exceed their tax owing. These credits are only triggered by filing a return, which is why filing every year, even with zero income, is always worthwhile.

Question 27

What is SIN - Social Insurance Number?

Accepted Answer

Your Social Insurance Number is a nine-digit number issued by the Government of Canada that serves as your identifier for tax purposes, government programs, and employment. Every T-slip you receive - T4, T5, T2202, and others - includes your SIN, and the CRA uses it to link your slips to your filed return. You need a SIN to file a tax return, to work legally in Canada, and to open an RRSP or TFSA. Apply for a SIN at a Service Canada location with valid identification. Keep your SIN private, it is used in identity theft because it connects to your financial and government records. If you lose your card, you do not need a replacement, the SIN itself is permanent and does not change.

Question 28

What is Small Business Deduction?

Accepted Answer

The small business deduction is one of the most significant tax advantages available to Canadian incorporated businesses. It reduces the federal corporate income tax rate on the first $500,000 of active business income for qualifying Canadian Controlled Private Corporations from the general rate of 15 percent down to 9 percent. Combined with reduced provincial small business rates, most qualifying corporations pay a combined effective tax rate of 9 to 13 percent on eligible income, compared to personal marginal rates that can exceed 50 percent at higher income levels. Only active business income qualifies, passive investment income earned inside the corporation does not benefit from the small business deduction and is taxed at much higher corporate rates. The $500,000 threshold is shared among associated corporations, so related companies cannot each claim a full $500,000 limit.

Question 29

What is T1?

Accepted Answer

The T1 General is Canada's personal income tax return; the annual form that every individual taxpayer files with the CRA to report all income, claim deductions and credits, and determine whether they owe additional tax or are entitled to a refund. It covers all personal income sources: employment, self-employment, investment, rental, pension, and foreign income. The T1 is not a form you complete manually; it is generated by tax software or by a tax professional based on your income documents and situation. The deadline to file a T1 is April 30 for most Canadians, and June 15 for self-employed individuals and their spouses - though any balance owing is still due April 30. T.U.A prepares and files your T1 return after you upload your documents.

Question 30

What is T2?

Accepted Answer

The T2 is the corporate income tax return that every Canadian corporation must file with the CRA each year. Unlike the T1 personal return which covers one individual, the T2 covers the financial activities of a corporation, its income, deductions, tax credits, and the resulting tax owing. Every corporation must file a T2 regardless of whether it earned any income during the year; even dormant corporations with zero activity have a filing obligation. The T2 is due six months after the corporation's fiscal year end, with any tax balance owing due two months after fiscal year end. A T2 filing typically includes between 5 and 15 supplemental schedules covering areas like capital cost allowance, shareholder transactions, and tax credits.

Question 31

What is T2125 - Statement of Business or Professional Activities?

Accepted Answer

Form T2125 is the CRA form where self-employed Canadians report their business income and expenses as part of their T1 personal return. You report your gross business revenue, then deduct all eligible business expenses; advertising, vehicle costs, home office, equipment, professional fees; to arrive at your net business profit. That net income is then transferred to your T1 where it is added to any other income you earned and taxed at your marginal rate. If you have multiple businesses or professional activities, you file a separate T2125 for each one. Self-employed Canadians also calculate their CPP contributions on the T2125 based on net self-employment income, since there is no employer to contribute half on their behalf.

Question 32

What is T4?

Accepted Answer

A T4 is the slip your employer issues to show how much employment income you received and how much was deducted during the year. It must be provided to you by the last day of February for the prior tax year. Your T4 shows your total employment income in Box 14, income tax deducted in Box 22, CPP contributions in Box 16, and EI premiums in Box 18. If you worked for more than one employer during the year, you receive a separate T4 from each. Your T4 does not tell you whether you owe more tax or get a refund; that is determined by filing your T1 which accounts for all your income and deductions together. The CRA also receives a copy of every T4 from your employer, so they can verify that you have reported all employment income.

Question 33

What is T5?

Accepted Answer

A T5 is a slip issued by financial institutions; banks, brokerages, and other investment firms; reporting investment income you received during the year. Box 13 shows eligible dividends from Canadian corporations, Box 11 shows non-eligible dividends, and Box 12 shows interest income. T5 slips must be issued by the end of February for the prior year. If you held Canadian stocks, bonds, GICs, or savings accounts, you likely have one or more T5 slips. The CRA also receives copies of your T5 slips from the institutions, so failing to report T5 income is easily detected. Your brokerage may also issue a T3 slip for income from mutual funds or ETFs held in non-registered accounts.

Question 34

What is T776 - Statement of Real Estate Rentals?

Accepted Answer

Form T776 is the CRA form where you report rental income and expenses for each rental property you own, filed as part of your T1 personal return. You report gross rental income received during the year and then deduct all eligible expenses; mortgage interest - not principal - property taxes, insurance, maintenance, property management fees, and utilities paid on tenants' behalf; to calculate net rental income. If you have two rental properties, you file a separate T776 for each. Net rental income is added to your other income on the T1 and taxed at your marginal rate. A net rental loss can generally be used to reduce other income, subject to certain restrictions around capital cost allowance. The T776 is one of the forms most commonly filed incorrectly by Canadians who self-prepare their returns.

Question 35

What is TFSA - Tax-Free Savings Account?

Accepted Answer

A TFSA is a registered Canadian savings account where all investment income; interest, dividends, capital gains; is completely tax-free, both while it grows and when you withdraw it. There is no tax deduction for contributing to a TFSA - unlike an RRSP - but withdrawals are entirely tax-free no matter how much the account has grown. Every Canadian resident aged 18 or older accumulates TFSA contribution room each year; the annual limit was $7,000 in 2024. Unused room carries forward indefinitely, so a Canadian who has never opened a TFSA since eligibility may have accumulated over $95,000 in total contribution room. TFSA withdrawals add back to your contribution room in the following year, so you can re-contribute any amount you withdraw.

Question 36

What is TP-1?

Accepted Answer

The TP-1 is Quebec's provincial personal income tax return, filed separately from the federal T1 return with Revenu Québec rather than the CRA. Quebec is the only Canadian province that administers its own personal income tax system independently; all other provinces use the federal return for provincial tax as well. Quebec residents file two complete returns every year: the federal T1 with the CRA and the TP-1 with Revenu Québec. The two returns have similar but not identical rules, credits, and deductions; some Quebec-specific deductions and credits apply only on the TP-1. T.U.A files both the T1 and TP-1 for Quebec clients as part of its standard filing service.

Question 37

What is VDP - Voluntary Disclosures Program?

Accepted Answer

The Voluntary Disclosures Program is a CRA initiative that allows taxpayers to come forward and correct errors or omissions in their prior tax filings before the CRA discovers them. The key benefit is penalty relief; if your VDP application is accepted, the CRA typically waives the late-filing penalties and gross negligence penalties that would otherwise apply. Interest on the unpaid tax is generally not waived under the general VDP track. To qualify, you must apply before the CRA has started any audit, investigation, or enforcement action on the same issue; once the CRA contacts you first, access to the VDP is lost. There are two tracks: the general program for most disclosures, and the limited program for major disclosures where the CRA considers gross negligence may be involved. T.U.A can advise on whether your situation qualifies and help you prepare the application.

Canadian Tax Terms Explained in Plain English

A

B

C

D

E

G

I

M

N

P

R

S

T

V

Now That You Know the Terms, Let T.U.A Handle the Return