Capital Gains and Investments Glossary
Master the language of capital gains and investments with this easy-to-navigate A–Z reference
- Accelerated Investment Incentive Property (AIIP) – A CRA tax provision that allows enhanced depreciation on eligible capital assets acquired after November 20, 2018, typically increasing the first-year Capital Cost Allowance.
- Adjusted Cost Base (ACB) – The original cost of a capital asset, adjusted for reinvested dividends, capital improvements, or return-of-capital distributions; used to calculate capital gains or losses.
- Adjusted Cost Base (ACB) Adjustment – The process of updating the cost base of an investment to account for return of capital (ROC) and shared ownership changes over time.
- Asset-Use Test – A CRA requirement for LCGE eligibility that mandates a certain percentage of a corporation’s or property’s assets be used in an active business in Canada.
- Attribution Income – Income that must be reported by the original contributor of capital under attribution rules, even if someone else received the slip or owns the account.
- Attribution Rules – Canadian tax rules that assign income back to the original contributor of capital when funds are transferred between spouses or related individuals for investment purposes.
- Auto-Fill My Return – A CRA service that automatically imports tax slips into an individual’s return using their SIN, requiring manual adjustments for joint or attributed income.
- Beneficial Ownership – The true economic ownership of an asset, based on who contributed funds and who is entitled to income or losses, regardless of whose name appears on the account.
- Beneficial Ownership (Tax Slip Context) – The right to receive income and bear the risk from an investment, used to determine the proper allocation of income reported on tax slips.
- Business Assets – Property used in the operation of a business, which may be subject to capital gains rules upon cessation or transfer.
- Business Income – Earnings from commercial activities, such as frequent crypto trading or mining, fully taxable at 100% and reported using Form T2125.
- Canada Revenue Agency (CRA) – The federal agency responsible for tax collection, benefits programs, and enforcement of tax laws in Canada.
- Canadian-Controlled Private Corporation (CCPC) – A private Canadian corporation that is not controlled by non-residents or public corporations, often qualifying for LCGE if active business criteria are met.
- Capital Asset – Property such as stocks, bonds, real estate, mutual funds, cryptocurrency, and collectibles that can generate capital gains or losses when sold.
- Capital Contribution – The amount of money an individual contributes to acquire a jointly held investment, used to determine income allocation.
- Capital Contribution Agreement – A record or written agreement outlining each party’s contribution to a jointly held investment, used to support income allocation for tax purposes.
- Capital Cost Allowance (CCA) – A tax deduction that lets you depreciate the cost of income-producing capital property, such as buildings or equipment, over time at CRA-prescribed rates.
- Capital Gain – Profit realized when a capital asset is sold for more than its adjusted cost base; only 50% is taxable.
- Capital Gains Deduction – A tax deduction that allows individuals to reduce taxable income by excluding part or all of the capital gain from the sale of certain eligible properties, such as QSBC shares or farm/fishing assets.
- Capital Gains Reserve – A tax provision allowing individuals to defer reporting a portion of a capital gain when proceeds from the sale are received over multiple years.
- Capital Improvement – A major upgrade or addition to a property that adds value or extends its life; not immediately deductible and instead added to the adjusted cost base.
- Capital Loss – Loss realized when a capital asset is sold for less than its adjusted cost base; may be used to offset capital gains.
- Capital Property – Assets like cryptocurrency or partnership interests held for investment purposes, subject to capital gains tax upon disposition.
- Change in Use of Property – A situation where property use is altered (e.g., from personal to rental), triggering a deemed disposition under tax law.
- Contribution Log – A personal record documenting how much each individual contributed to a shared investment, used to support income allocation and attribution decisions.
- Co-Ownership – Shared ownership of property or investment accounts by two or more individuals, requiring proportional income reporting based on contribution.
- Co-Ownership Split – The proportional division of income and expenses based on each co-owner’s actual contribution or ownership percentage in a shared investment.
- Crypto Tax Software – Digital tools designed to help track cryptocurrency transactions, adjusted cost base (ACB), and calculate tax implications.
- Cryptocurrency – A digital or virtual currency treated as a capital asset for tax purposes when bought and sold.
- Cumulative Gains Deduction Limit – The maximum amount of capital gains that an individual can claim under the LCGE across their lifetime.
- Cumulative Net Investment Loss (CNIL) – A running balance of net investment losses that can reduce or eliminate an individual’s ability to claim the capital gains deduction.
- Deemed Disposition – A tax rule where the CRA treats property as sold at fair market value, even if no actual sale occurred, often due to emigration, death, or gifting.
- Departure Tax – The tax levied on unrealized capital gains when a person ceases to be a resident of Canada and is deemed to have disposed of certain assets.
- Depreciation Recapture – Income that must be reported when a depreciated property is sold for more than its remaining undepreciated value.
- Digital Asset – A non-physical asset such as cryptocurrency, which may trigger tax obligations upon disposition.
- Disposition – The act of selling, transferring, or otherwise disposing of a capital asset.
- Disposition (Cryptocurrency context) – Any transaction involving crypto that results in its sale, trade, use, or gift, requiring tax reporting.
- Fair Market Value – The price a willing buyer would pay a willing seller in an open market; used to calculate gains in deemed dispositions.
- Family Farming or Fishing Corporation – A corporation primarily engaged in farming or fishing activities, whose shares may qualify for the LCGE under specific CRA rules.
- Family Trust Distribution – Income paid from a trust to beneficiaries, which may be subject to attribution rules or require manual adjustments on tax returns.
- Fiat Currency – Traditional government-issued currency like the Canadian dollar (CAD), used as a reference point in cryptocurrency transactions.
- Flow-Through Shares – Tax-advantaged investment vehicles that allocate deductions and credits to investors; may result in deemed dispositions.
- Form T2125 – A tax form (Statement of Business Activities) used to report business income, including from commercial cryptocurrency activity.
- Form T657 – A CRA form used to calculate and claim the lifetime capital gains deduction, track previous claims, and ensure the deduction applies to eligible property.
- Gifting Property – Transferring ownership of capital property without payment, considered a deemed disposition for tax purposes.
- Holding Period Test – A requirement that eligible property must be owned by the individual or a related person for at least 24 months before the sale to qualify for the LCGE.
- Income Allocation Memo – A short document kept with tax records explaining how income from a joint slip was split and why, in case of future CRA review.
- Income Splitting – The practice of dividing income among family members to reduce overall tax liability, which is restricted by attribution rules in Canada.
- Income Tax Act (Canada) – The federal legislation that governs tax rules in Canada, including provisions for the Lifetime Capital Gains Exemption.
- Indexing (Exemption Limit) – The annual adjustment of the LCGE limit for QSBC shares based on inflation, which increases the available exemption over time.
- Inherited Eligible Property – Assets transferred through an estate that may qualify for the capital gains deduction if they meet CRA eligibility requirements.
- Installment Sale – A sale agreement where the buyer pays the seller in portions over time, potentially qualifying for a capital gains reserve.
- Investment Management Fees – Costs paid for professional advice or portfolio services related to earning investment income, potentially deductible for tax purposes.
- Joint Investment Income – Earnings such as interest, dividends, or capital gains from assets held jointly by more than one person.
- Joint Return (Shared Tax Filing Context) – A scenario where couples or family members divide and report income on separate tax returns in accordance with actual contributions and CRA rules.
- Lifetime Capital Gains Deduction (LCGD) – The total allowable amount an individual can deduct from capital gains over their lifetime for qualifying dispositions, indexed annually.
- Mining (Cryptocurrency) – The process of verifying blockchain transactions in exchange for cryptocurrency rewards; income is taxable if business-like.
- Mortgage Interest (Investment Property) – The interest portion of loan payments on a rental or investment property that is deductible, excluding the principal amount.
- Mutual Funds – Investment vehicles composed of pooled funds that may generate capital gains or losses when units are sold or redeemed.
- Operating Expense (Rental/Investment) – A recurring cost necessary to maintain and operate an income-generating property, such as utilities, maintenance, or property taxes.
- Ownership Contribution Ratio – The proportion of funds each individual contributed toward a jointly held asset, which determines how income should be reported.
- Parent-Child Account – A joint investment account held between a parent and minor child; the parent generally reports all income unless the child contributes capital.
- Partnership – A flow-through business structure where partners report their share of income or loss directly on their individual tax returns.
- Partnership Expense Allocation – The method of dividing partnership-related costs and deductions among partners based on their income share or capital interest.
- Partnership Interest – Ownership stake in a partnership, subject to capital gains rules when sold, withdrawn, or upon dissolution.
- Personal-Use Property – Items like vehicles, antiques, or jewelry used for personal purposes and subject to capital gain/loss rules if valued over $1,000.
- Principal Residence – A taxpayer’s primary home; capital gains on its sale are generally exempt from taxation.
- Proceeds of Disposition – The amount received or deemed received when a capital asset is sold or disposed of, used in calculating gains or losses.
- Proceeds of Disposition (Partnership context) – The value received when disposing of a partnership interest, used to calculate capital gain or loss.
- Property Management Fees – Charges paid to third parties or firms for overseeing and managing a rental property, deductible as an investment expense.
- Qualified Disposition – A sale or transfer of property that meets all criteria to be eligible for the LCGE, including ownership, use, and holding period conditions.
- Qualified Farm Property – Land or assets used in a farming business that may qualify for the lifetime capital gains deduction.
- Qualified Fishing Property – Property such as vessels and equipment used in a fishing business, eligible for the capital gains deduction.
- Qualified Small Business Corporation (QSBC) Shares – Shares in a Canadian-controlled private corporation actively engaged in business activities, qualifying for the capital gains deduction if specific criteria are met.
- Qualified Use Test – A CRA requirement that eligible property (e.g., QSBC shares) must meet certain conditions related to use and ownership to qualify for the capital gains deduction.
- Reinvested Distributions – Earnings from investments automatically reinvested into the same security, which increase the adjusted cost base.
- Remaining Lifetime Limit – The unused portion of an individual’s lifetime capital gains deduction, which declines as deductions are claimed and is tracked using Form T657.
- Reserve Reduction – The annual decrease in the amount of deferred capital gain, which increases taxable income as installments are received.
- Resident of Canada – An individual who meets CRA residency criteria and is eligible to claim the LCGE on qualifying property.
- Return of Capital (ROC) – A distribution from a trust or fund that is not taxable income but reduces the adjusted cost base (ACB) of the investment.
- Revenu Québec – Quebec’s provincial tax authority responsible for administering income tax and benefit programs in the province.
- Rollover Provisions – Tax rules that allow deferral of capital gains in specific transfers, such as to a spouse or corporation, avoiding immediate tax.
- Safe Deposit Box Fees – Previously deductible costs for storing investment documents, now disallowed for most individuals under current CRA rules.
- Schedule 3 – A federal tax form used to report capital gains and losses on a personal income tax return (T1).
- Schedule G (TP-1.D.G) – A Quebec tax form used to report capital gains and losses for Quebec residents, linking to the TP-1 return.
- Spousal Account – An investment account held jointly by spouses, where attribution rules may apply based on who contributed the investment capital.
- Spousal Trust – A trust that receives property from a deceased spouse without triggering capital gains at the time of transfer.
- Staking (Cryptocurrency) – Locking up cryptocurrency in a blockchain network to support operations and earn rewards; may be treated as business income.
- Statement of Business Activities – Another name for Form T2125, used to declare business income and related expenses on personal tax returns.
- Statement of Investment Income (T5) – A tax slip issued for interest or dividend income earned from bank accounts, GICs, bonds, or corporate shares.
- Statement of Partnership Income (T5013) – A tax slip reporting income, losses, capital gains, and tax credits from a partnership investment.
- Statement of Trust Income Allocations and Designations (T3) – A tax slip reporting income from mutual funds, ETFs, or trusts, including capital gains and return of capital.
- Stock Options – Contracts that give the right to buy or sell shares at a set price; may result in capital gains or losses when exercised or disposed.
- Structured Transfer – A formal arrangement (such as a trust) that may affect whether capital gains are attributed back to the original contributor under attribution rules.
- T-Slip – A summary of income such as interest or dividends issued by financial institutions; may be issued in one name for jointly held investments, requiring adjustment on tax returns.
- TP-1 Return – The Quebec personal income tax return filed by residents of Quebec in addition to the federal T1 return.
- Tax Slip Splitting – The act of dividing income reported on a T3, T5, or T5013 slip between co-owners based on their ownership share, not the recipient of the slip.
- Taxable Capital Gain – The portion of a capital gain that is subject to tax; typically 50% of the net capital gain.
- Trust Transfer – Moving property into a trust, which can result in a deemed disposition unless specific rollover conditions apply.
- Virtual Currency – A digital representation of value used as a medium of exchange or investment, such as Bitcoin or Ethereum.