CPA PEP Taxation Elective key terms

The tax cost of a capital property, increased by purchase costs and capital additions and reduced by returns of capital. It is the benchmark used to measure a capital gain or loss on disposition.

The amount a taxpayer receives or is entitled to receive when selling or otherwise disposing of property, before deducting costs of sale. Sale expenses reduce proceeds rather than the adjusted cost base.

The excess of proceeds of disposition, net of selling costs, over the adjusted cost base of a capital property plus any outlays and expenses of disposition. Only the taxable portion is included in income.

The portion of a capital gain included in net income for a tax year, determined by the inclusion rate in effect. The remainder is not taxed under the capital gains regime.

The excess of the adjusted cost base plus outlays and expenses of disposition over proceeds of disposition on disposing of capital property. It is not deductible against ordinary income.

The deductible fraction of a capital loss, determined by the inclusion rate. It can offset taxable capital gains only, with unused amounts carried back three years or forward indefinitely.

A loss denied where the taxpayer, an affiliated person, or a controlled corporation acquires identical property within 30 days before or after the disposition and still holds it. The denied amount adjusts the cost of the substitute property.

A formula-based exemption that reduces or eliminates the capital gain on a taxpayer's designated principal residence. One property per family unit may be designated per year, with the PRE formula applied.

An election allowing a taxpayer to report only a portion of a capital gain in a year and defer the rest to a later year, typically used on a transfer to a spouse or trust. The deferred gain retains its character.

A tax-deferral rule permitting transfers of property between spouses or common-law partners at the transferor's adjusted cost base, so accrued gains are not triggered. The transferee inherits the original cost.

Income from a profession, trade, manufacture, or undertaking, including the profit from an adventure in the nature of trade. It is fully included in income and computed under general deduction rules.

Income from the ownership of property, such as interest, dividends, rent, and royalties, where the taxpayer is largely passive. It is fully included in income but generally not entitled to business-loss treatment.

The test used to distinguish a commercial source of income from a personal pursuit. A taxpayer must show a genuine intention to profit, considering factors such as training, capital, and business plan.

The grossed-up amount of a dividend received from a taxable Canadian corporation, included in income. The gross-up approximates corporate tax paid and supports the dividend tax credit mechanism.

A non-refundable credit applied against tax otherwise payable on grossed-up dividends. It approximates the corporate tax already paid and reduces double taxation of distributed corporate earnings.

The principle that income earned through a corporation and distributed to shareholders should bear approximately the same total tax as income earned directly. It relies on the dividend gross-up and dividend tax credit.

An ordinary loss from a business or property that cannot be used in the current year. It may be carried back three years and forward twenty years against other income.

The amount of allowable capital losses exceeding taxable capital gains in a year, before any carryover application. It may be carried back three years and forward indefinitely against taxable capital gains.

The discretionary tax deduction for the declining-balance cost of depreciable property used to earn income. It is claimed by class at prescribed rates and cannot create or increase a loss.

The balance remaining in a capital cost allowance class after prior claims, additions, and dispositions. Dispositions reduce the class balance rather than creating an immediate gain or loss.

The rule limiting the capital cost allowance in the year an asset is acquired to one-half of the normal claim. Certain assets, such as most computer equipment, are exempt from the restriction.

The amount by which the proceeds of disposing of depreciable property exceed the remaining undepreciated capital cost of the class. It is included in income as ordinary business income.

The excess of the undepreciated capital cost of a class over the proceeds of disposing of all remaining property in that class. It is deductible as a non-capital loss.

A dividend paid by a Canadian-controlled private corporation out of income taxed at the general corporate rate, or by a public corporation. It carries a higher gross-up and dividend tax credit than other dividends.

An account tracking refundable taxes paid by a corporation, including refundable Part I and Part IV tax. It is refunded when taxable dividends are paid to shareholders.

A notional account tracking the tax-free portion of capital gains and certain other tax-free amounts. Elective capital dividends paid from this account are received tax-free by shareholders.

A deduction reducing the corporate tax rate on the first portion of active business income of a Canadian-controlled private corporation. It is limited by taxable capital and aggregate investment income rules.

Income earned by a corporation from an active business carried on in Canada, distinguished from property income and investment income. It is the income eligible for the small business deduction.

A corporation's passive income, including interest, dividends, rents, and taxable capital gains, net of related expenses. It reduces the small business deduction limit and creates refundable tax exposure.

A taxable benefit arising when a corporation provides property or services to a shareholder or a person connected to the shareholder for inadequate consideration. It is included in the shareholder's income.

A taxable benefit for the personal use of an employer-provided automobile, computed from the cost of the vehicle and the proportion of personal kilometres driven. Operating costs may also create a benefit.

The combined taxable benefit from an employer-provided automobile, comprising the standby charge and the operating cost benefit. It is included in the employee's or shareholder's income.

A deduction for eligible costs of moving to a new residence at least 40 kilometres closer to a new work location. It is limited to income earned at the new location.

A deduction for eligible child care costs, limited to the lesser of actual expenses, an annual per-child cap, and the lower-earning spouse's earned income. Receipts must support the claim.

A defined measure of income including employment, business, and certain other amounts, used to limit deductions and contributions. It excludes most property income and taxable capital gains.

The maximum amount deductible for contributions to a registered retirement savings plan, based on 18 percent of prior-year earned income, capped annually, less pension adjustments and past service adjustments.

A registered account in which investment income and withdrawals are not taxed, funded with after-tax dollars. Contributions are not deductible and over-contributions attract a monthly penalty tax.

An arrangement that receives funds from an RRSP or similar plan and pays minimum annual amounts to the annuitant, which are fully taxable. Income earned inside the fund is sheltered until withdrawn.

A parallel tax calculation that adds back certain preferential deductions and credits to a broader base, ensuring high-income taxpayers pay a minimum amount. A credit may offset regular tax in later years.