8 Canadian tax & accounting terms starting with E
Plain-language definitions, each with the CRA rule it comes from and the filings it affects.
EBITDA
EBITDA is earnings before interest, taxes, depreciation and amortization, a measure of a business's core operating profitability.
In practice: A business with $500,000 net income, $80,000 interest, $120,000 tax, and $100,000 depreciation and amortization has EBITDA of $800,000. A buyer valuing it at 4x EBITDA would offer around $3. 2 million before adjustments.
Eligible Dividend
An eligible dividend is a dividend paid from corporate income that was taxed at the general rate, carrying a higher gross-up and a larger dividend tax credit for the shareholder.
In practice: A corporation earned income above the small business limit, taxed at the general rate, and built up GRIP. It designates a $20,000 dividend as eligible, giving the owner a lower personal tax rate than a non-eligible dividend would.
Employer Health Tax (EHT)
The Employer Health Tax is a provincial payroll tax in provinces like Ontario and BC, levied on an employer's total payroll above an exemption threshold.
In practice: An Ontario company with $1. 5 million in payroll pays EHT on the amount above its roughly $1 million exemption, so on about $500,000, at the applicable rate, regardless of whether it turned a profit.
Employment Insurance (EI)
Employment Insurance is a federal program funded by employee and employer premiums that provides temporary income to eligible workers who lose their jobs or take certain leaves.
In practice: An employee has EI premiums withheld up to the yearly maximum; the employer contributes 1. 4 times that amount. If the employee is later laid off, they may claim EI regular benefits based on their insurable hours.
Equity
Equity is the owners' residual stake in a business, what would be left for the owners after all assets are used to pay off all liabilities.
In practice: A company has $200,000 in assets and $120,000 in liabilities, so equity is $80,000. That $80,000 is the shareholders' stake, split between the capital they originally invested and the profits the business has retained.
Estate Freeze
An estate freeze is a tax-planning strategy that locks in the current value of your business or assets for you, passing future growth to the next generation to limit future tax.
In practice: A business owner worth $2 million freezes at that value, taking $2 million in fixed preferred shares. Future growth, say the next $3 million, accrues to a family trust for the children, keeping that growth out of the owner's taxable estate.
Exempt Supply
An exempt supply is a good or service on which no GST/HST is charged and for which the supplier cannot claim input tax credits, unlike a zero-rated supply.
In practice: A residential landlord's rent is an exempt supply: no HST is charged to tenants, but the landlord cannot recover the HST paid on maintenance and repairs, so that tax becomes a real cost of doing business.
Expense
An expense is a cost incurred to earn business income, deducted against revenue to arrive at profit, and generally deductible for tax if reasonable.
In practice: You spend $200 on office supplies and $200 on a client lunch. The supplies are fully deductible. The lunch is limited to 50%, so only $100 reduces your taxable income.
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