Introduction to Tax Planning Glossary 

Adjusted Cost Base (ACB) – The original purchase price of an investment, adjusted for expenses and reinvestments, used to calculate capital gains or losses.

Annual Tax Review – A yearly assessment of your tax situation to identify planning opportunities such as realizing gains, harvesting losses, or making contributions before deadlines.

Asset Location – Placing investments in accounts (registered or non-registered) based on their tax characteristics.

Attribution Rules – Tax rules that prevent income shifting by attributing income from gifts or transfers back to the original taxpayer, particularly between spouses or to minors.

Average Tax Rate – Total tax paid divided by total income; distinct from the marginal tax rate, which applies to the next dollar earned.

Basic Personal Amount – A non-refundable tax credit available to all individuals, reducing taxable income.

Beneficiary Designations – Instructions on who should receive the assets of an account or policy upon the holder’s death; critical for estate and tax planning.

Canada Child Benefit (CCB) – A tax-free monthly payment to eligible families to help with the cost of raising children under 18.

Canada Revenue Agency (CRA) – The federal agency responsible for tax collection, benefits programs, and enforcement of tax laws in Canada.

Capital Gains – Profit from selling an asset for more than its purchase price; only 50% is taxable.

Capital Gains Planning – Strategically managing the timing and size of capital gains to reduce tax impact.

Caregiver Credit – A non-refundable tax credit available to individuals who support a dependent with a physical or mental impairment.

Charitable Donations – Contributions made to registered charities that may qualify for federal and provincial tax credits.

Charitable Giving – Donating to registered charities, which may reduce taxable income or provide tax credits.

Childcare Deductions – Tax deductions available for eligible child care expenses, which reduce taxable income.

Clawbacks – Reductions in government benefits, such as OAS, due to income exceeding certain thresholds.

Climate Action Incentive – A refundable tax credit provided to residents of provinces with a federal carbon tax.

Collaboration with Your Accountant – Coordinated efforts between financial planners and tax professionals to ensure cohesive, strategic tax planning.

Compliance – Following government tax rules and requirements; a key goal of tax filing.

Dividend Income – Earnings from shares of stock; taxed favorably in Canada with a dividend tax credit.

Dividend Tax Credit – A non-refundable tax credit that reduces the taxes payable on eligible dividends from Canadian corporations.

Donating Appreciated Securities – A tax-efficient giving strategy where individuals gift investments with accrued gains directly to a charity to avoid capital gains tax and still receive a donation receipt.

Drawdown Strategy – A planned approach to withdrawing funds from various income sources in retirement to optimize taxes.

Estate Planning – Preparing asset distribution after death to minimize taxes and legal issues.

Filed Return – The completed and submitted documentation of a tax year’s income and deductions, forming the basis for future planning.

Flow-Through Shares – Investments that allow certain tax deductions to "flow through" from a corporation to the investor, often used in resource sectors.

Gift Tax (Myth in Canada) – While Canada does not have a formal gift tax, gifts of appreciated assets can still trigger capital gains tax.

Home Buyers’ Plan (HBP) – A government program allowing first-time homebuyers to withdraw from their RRSPs tax-free to purchase a home.

Income Bracket – A range of income taxed at a specific rate; higher brackets correspond to higher marginal tax rates.

Income Deferral – Shifting income to a future year to avoid high tax brackets in the current year.

Income Smoothing – Spreading income over multiple years to reduce spikes in taxable income and avoid higher marginal rates.

Income Splitting – Shifting income to a lower-income spouse to reduce overall tax.

Income Types – Categories of income such as interest, dividends, capital gains, and registered account withdrawals, each with distinct tax treatment.

Interest Income – Earnings from fixed-income investments (e.g., GICs, bonds) that are fully taxable at the marginal rate.

Investment Loan Interest – Interest paid on loans used to earn investment income, which may be deductible for tax purposes.

Joint Filing (Myth in Canada) – A misunderstood concept; in Canada, spouses file separately even though some credits and benefits are based on combined income.

Life-Cycle Adjustments – Revisions to your financial and tax plan that correspond with significant changes in your life circumstances or income.

Marginal Tax Rate – The rate of tax applied to the next dollar of income earned; used for evaluating the benefit of deductions and timing of income.

Medical Expenses – Eligible healthcare-related costs that can be claimed as a non-refundable tax credit when they exceed a certain percentage of income.

Minimum Distributions – Mandatory withdrawals from accounts like RRIFs beginning at a specific age (e.g., 72), which are fully taxable.

Non-Registered Account – A taxable investment account where income (interest, dividends, capital gains) is reported and taxed annually.

OAS Clawback (Old Age Security Clawback) – Reduction of OAS payments when income exceeds a threshold.

Pension Income Splitting – A strategy where one spouse allocates a portion of their eligible pension income to the other for tax purposes.

Portfolio Tax Design – The intentional structuring of investments and accounts to minimize taxes and support long-term financial goals.

Principal Residence Exemption – A tax rule allowing homeowners to sell their primary residence without paying capital gains tax.

Progressive Income Tax – A system where tax rates increase as income increases; used federally and provincially in Canada.

Registered Funds (Inheritance Context) – Tax-deferred accounts like RRSPs or RRIFs that must often be collapsed upon inheritance.

RESP (Registered Education Savings Plan) – A tax-deferred account to save for a child’s education with government grants.

RRIF (Registered Retirement Income Fund) – A conversion of RRSPs for retirement income; withdrawals are taxable.

RRSP (Registered Retirement Savings Plan) – A tax-deferred retirement account; contributions reduce taxable income.

Severance Package – A lump-sum payment received when employment ends, which may have tax implications depending on structure.

Spousal Amount – A non-refundable tax credit for supporting a spouse with a low income.

Spousal RRSP – A retirement savings account where one spouse contributes and the other owns the account, used for income splitting in retirement.

Support Payments – Payments made after divorce or separation that may be tax-deductible or taxable, depending on type and agreement.

Tax Credits – Amounts that reduce the tax you owe, such as the basic personal amount or climate action incentive.

Tax Deferral – See “Tax-Deferred Account.”

Tax-Deferred Account – Accounts where taxes on income are postponed until withdrawal (e.g., RRSP).

Tax Drag – The negative impact of taxes on investment returns or portfolio performance.

Tax-Efficient Giving – Charitable donation strategies that reduce tax liability, such as giving appreciated securities or timing donations strategically.

Tax-Efficient Investing – Structuring investments to minimize tax, by holding certain income types in suitable account types.

Tax Filing – The administrative process of submitting income, deductions, and credits to the CRA after the end of a tax year.

Tax Instalments – Prepaid tax payments required for individuals who do not have sufficient tax withheld at source (e.g., self-employed individuals).

Tax Planning – Strategically organizing finances to minimize taxes over time.

Tax Return – The form or set of forms used to report income, deductions, and credits to the CRA for a specific tax year.

Tax Slips – Official documents (e.g., T4, T5, T3) issued for reporting various types of income to the CRA.

Tax Tools – Programs or mechanisms in the tax system (e.g., RRSPs, TFSAs, RESP, credits) designed to help reduce tax burden when used strategically.

Tax-Free Growth – Investment earnings that are never taxed (e.g., in a TFSA).

Tax-Loss Harvesting – Selling investments at a loss to offset capital gains.

Taxable Investments – Investments held in non-registered accounts that generate income subject to annual taxation.

Tax Year – The 12-month period used for calculating annual income taxes, typically the calendar year in Canada.

TFSA (Tax-Free Savings Account) – An account where investment growth and withdrawals are tax-free.

Trusts – Legal arrangements where assets are held by one party for the benefit of another, often used for estate and tax planning.

Year-End Tax Planning – Strategic financial actions taken before the end of the calendar year to optimize one’s tax situation.

Yearly Tax Overview – A personal summary of important annual tax information such as income, contribution limits, and brackets, used for planning purposes.