Tax Terminology and Acronyms

Posted Wednesday, July 21st, 2010. Filed Under Financial Empowerment

In part of the process of understanding your finances it is imperative that you understand the terminology. Fancy names can be broken down to the most simple so that everyone understands. Being aware allows you to make better financial decisions that serve your needs. This way you are in full control of your future! Thank you Jay & Joan!

Tax Terminology and Acronyms
Terminology (general definitions):

Adjusted Cost Base (ACB)
In simplistic terms, adjusted cost base refers to the capital cost of depreciable property and, for property other than depreciable property, the cost to the taxpayer of the property with specified adjustments.

Allowable Business Investment Loss (ABIL)
Allowable business investment loss is a special rule to allow 50% of capital losses on shares or debt in a small business corporation to be offset against income when calculating taxable income.

Alternative Minimum Tax
A structure that provides for the recalculation of an alternative amount of tax based on the removal of certain tax preferences when compared with the regular tax calculation.

Canadian-Controlled Private Corporation (CCPC)
Canadian-controlled private corporation is a private corporation that is not controlled directly or indirectly by a public corporation, by non-residents of Canada, or by some combination of both.

Capital Dividend Account
A notional account available to private corporations to integrate corporate and personal income tax on the receipt of items such as the tax-free portion of capital gains and the proceeds of life insurance policies.

Cumulative Net Investment Loss (CNIL)
Cumulative net investment loss is the excess of investment expenses over investment income cumulatively since 1987 that reduces the amount of the lifetime $500,000 capital gain exemption.

Depreciable Property
Property owned by the taxpayer that is entitled to apply capital cost allowance.

Exempt
The item is not subject to income tax. An example of income that is exempt from income tax is a life insurance benefit payment or money that is inherited. In these examples, the initial funds are tax-exempt, but investment earnings on the funds are not.

Fully Taxable
The item is subject to regular full income tax. An example of this is employment earnings or interest income.
General Anti-Avoidance Rules (GAAR)
General anti-avoidance rules give the CRA broad powers to challenge technically correct transactions that violate the spirit and intention of a section of the Act or are abusive of the Act read as a whole.

Income Tax Instalment Payments
Under specific circumstances, a taxpayer may be obliged to make successive payments directly to the government for an income tax liability that is created during an ongoing taxation year.

Inter Vivos Trust
A trust that is settled by a living person.

Kiddie Tax
An income-splitting tax imposed to discourage income splitting with children.

Listed Personal Property
A sub-set of personal-use property.

Mutual Funds
A mutual fund is a pool of investment capital that has been used to purchase a basket of investment vehicles, most often equities or debt instruments. Investors may purchase an unlimited number of units (in mutual funds structured as trusts) or share (in mutual funds structured as corporations) in these investment pools, hence, the term mutual fund. The more units/shares of a mutual fund that are purchased, the lower the value of each unit/share. In general, mutual funds allow investors to purchase ownership in a diversified portfolio of investments for relatively small amounts of cash.

Personal-Use Property
Property that is used primarily for personal-use or enjoyment by the taxpayer or by a person related to the taxpayer.

Prescribed
Set or established by regulation as in prescribed interest rate.
Prescribed Interest Rate
The Act prescribes several interest rates to be applied in different situations. Items such as late taxes, tax refunds or taxable benefits attract interest and the prescribed rates dictate the amount.

Qualified Small Business Corporation (QSBC)
Qualified small business corporation are shares eligible for the $500,000 lifetime capital gains exemption.

Recapture of Depreciation
The recapture of capital cost allowance previously claimed as a deduction from income and brought back into income because of disposition.

Segregated Funds
An individual variable insurance contract, better known as a segregated fund, is an investment contract, considered insurance by law, where a specified group of assets outside the company’s general reserves supports the contract’s policy reserves. Segregated fund policies have values that vary according to the market value of their specific group of assets. Assets of segregated funds are not part of the general reserves of the insurer, so no laws prevent them from investing all their assets in equities. Depending on its contract, a segregated fund may allocate the assets to a fund of treasury bills, common shares, bonds and debentures, real estate or mortgages, like a mutual fund.
Sheltered
The item is subject to tax, but at a point in the future. An example of this is the earnings that grow within an RRSP or RRIF.

Small Business Corporation (SBC)
A CCPC of which all or substantially all of the assets, on fair market value basis, are used principally in an active business, carried on primarily in Canada.

Testamentary Debts
Refers to amounts payable as a consequence of death and includes income or profits, taxes of the deceased for the year of death or previous years, and any death taxes payable as a consequence of death.

Acronyms
ABIL Allowable Business Investment Loss
ACB Adjusted Cost Base
Act Canadian Income Tax Act
AMT Alternative Minimum Tax
CCA Capital Cost Allowance
CCPC Canadian-Controlled Private Corporation
CRA Canada Revenue Agency
CDA Capital Dividend Account
CEC Cumulative Eligible Capital
CNIL Cumulative Net Investment Loss
fair market value Fair Market Value
GAAR General Anti-Avoidance Rules
ITA Income Tax Act
ITR Income Tax Regulation
LSVCC Labour-Sponsored Venture Capital Corporation
MTR Marginal Tax Rate
QSBC Qualified Small Business Corporation
RDTOH Refundable Dividend Tax on Hand
V-Day Valuation Day
SBC Small Business Corporation
TONI Tax on Income
UCC Undepreciated Capital Cost

Jay F. Llave & Joan Morrow

Creative Planning Financial Group

(416) 487-5210

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