10 Canadian tax & accounting terms starting with D
Plain-language definitions, each with the CRA rule it comes from and the filings it affects.
Debt-to-Equity Ratio
The debt-to-equity ratio compares a business's total debt to its shareholders' equity, measuring how much it relies on borrowing versus owner financing.
In practice: A company with $300,000 of debt and $200,000 of equity has a debt-to-equity ratio of 1. 5, meaning it uses $1. 50 of borrowing for every $1 of owner financing.
Deemed Disposition
A deemed disposition is when tax law treats you as having sold a property at fair market value even though no actual sale occurred, triggering a capital gain or loss.
In practice: On death, a person is deemed to have sold their investment portfolio at fair market value. The accrued $200,000 gain is taxed on the final T1 return, even though the heirs have not actually sold anything.
Deferred Revenue
Deferred revenue is money received from a customer for goods or services you have not yet delivered, recorded as a liability until you earn it.
In practice: A client pays $12,000 upfront for a year of monthly service. You record $12,000 as deferred revenue and recognise $1,000 as earned revenue each month as you perform the work, moving it from liability to income.
Deferred Tax
Deferred tax is an accounting item reflecting timing differences between when income or expenses are recognised for accounting versus for tax, creating future tax assets or liabilities.
In practice: A company claims more CCA than book depreciation early on, so it pays less tax now than its accounting profit suggests. The gap is recorded as a deferred tax liability, reflecting tax expected to be paid in later years.
Departure Tax
Departure tax is the tax on the accrued gains of your property when you cease to be a Canadian resident, based on a deemed disposition at fair market value.
In practice: You leave Canada permanently holding a stock portfolio with $150,000 of accrued gains. You are deemed to have sold it at fair market value on departure, and the resulting capital gain is taxed on your final Canadian return.
Depreciation
Depreciation is the accounting method of spreading the cost of a tangible asset over its useful life, reflecting wear, age and obsolescence.
In practice: A $30,000 machine with a 10-year useful life is depreciated at $3,000 a year on the financial statements. For tax, the same machine is deducted through its CCA class at the prescribed rate, producing a different annual amount.
Director
A director is a person elected by shareholders to oversee a corporation's management and affairs, carrying legal duties and, in some cases, personal liability.
In practice: A corporation fails to remit $30,000 of payroll source deductions before running into trouble. The CRA can pursue the directors personally for that amount, because unremitted trust funds pierce the usual corporate liability shield.
Dividend
A dividend is a distribution of a corporation's after-tax profits to its shareholders, taxed at preferential personal rates through the dividend tax credit.
In practice: Your corporation pays $50,000 in dividends to you from its after-tax retained earnings. You report the grossed-up amount on your personal return and claim the dividend tax credit, resulting in less personal tax than the same $50,000 taken as salary.
Dividend Tax Credit
The dividend tax credit reduces the personal tax on dividends from Canadian corporations, recognising that the company already paid corporate tax on the underlying profits.
In practice: You receive a $10,000 eligible dividend. You report a grossed-up amount of $13,800, then claim the dividend tax credit, which reduces the tax so that your effective rate on the dividend is well below your rate on salary.
Double-Entry Bookkeeping
Double-entry bookkeeping records every transaction in at least two accounts, a debit and an equal credit, so the books always stay in balance.
In practice: You take out a $10,000 loan. Cash (an asset) increases by $10,000 as a debit, and the loan payable (a liability) increases by $10,000 as a credit. Two entries, equal and opposite, and the balance sheet still balances.
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