8 Canadian tax & accounting terms starting with N
Plain-language definitions, each with the CRA rule it comes from and the filings it affects.
Net Book Value
Net book value is an asset's original cost minus its accumulated depreciation, the amount at which it is carried on the balance sheet.
In practice: A vehicle bought for $40,000 with $25,000 of accumulated depreciation has a net book value of $15,000. If sold for $18,000, the books show a $3,000 gain over NBV.
Net Income
Net income is a business's profit after all expenses, the bottom line remaining once revenue is reduced by cost of sales, overhead, interest and tax.
In practice: A company earns $400,000 in revenue and incurs $360,000 in total expenses. Its net income is $40,000. After tax adjustments on the T2, its taxable income may differ from this accounting figure.
Net Pay
Net pay is the amount an employee actually receives after income tax, CPP, EI and any other deductions are subtracted from their gross pay, their take-home pay.
In practice: From $5,000 of gross pay, $700 income tax, $250 CPP and $80 EI are withheld, leaving $3,970 of net pay deposited to the employee, while the withheld $1,030 plus the employer share is remitted to the CRA.
Non-Capital Loss
A non-capital loss is a business or property loss that can be carried back three years or forward twenty to offset income in other years and recover or reduce tax.
In practice: A start-up loses $50,000 in year one, then earns $80,000 in year two. The prior loss is carried forward to reduce year-two taxable income to $30,000, cutting that year's tax bill substantially.
Non-Eligible Dividend
A non-eligible dividend is a dividend paid from corporate income taxed at the small business rate, carrying a smaller gross-up and dividend tax credit than an eligible dividend.
In practice: An owner draws $50,000 in dividends from her CCPC's small-business-rate income. These are non-eligible dividends, grossed up by a smaller factor and carrying a smaller credit than eligible dividends would.
Notice of Assessment (NOA)
A Notice of Assessment is the CRA's official summary of your filed tax return, confirming the tax, refund or balance owing and any changes the CRA made.
In practice: You file expecting a $1,500 refund, but the NOA shows $900 because the CRA disallowed a claim. The notice explains the adjustment, and you have 90 days to object if you believe the claim was valid.
Notice of Objection
A Notice of Objection is the formal way to dispute a CRA assessment or reassessment, filed within 90 days to have the matter reviewed by the independent Appeals Division.
In practice: The CRA reassesses your corporation and denies a $30,000 expense. You file a Notice of Objection within 90 days, attaching the invoices and explaining the business purpose, and Appeals reverses the reassessment.
Notice to Reader (NTR)
A Notice to Reader, now called a compilation engagement, is financial statements assembled by an accountant from information you provide, with no assurance offered.
In practice: A small corporation needs statements to file its T2 and support a modest line of credit. A Notice to Reader compilation is prepared, giving properly formatted statements at the lowest cost, since no audit or review is required.
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