13 Canadian tax & accounting terms starting with S
Plain-language definitions, each with the CRA rule it comes from and the filings it affects.
Salary
Salary is regular employment income paid to an employee or owner-manager, deductible to the corporation and creating RRSP room and CPP entitlement for the recipient.
In practice: An owner pays herself a $100,000 salary. The company deducts it, reducing corporate tax, and she gains RRSP room of 18% of that earned income, while the salary is subject to normal payroll withholdings.
Share Capital
Share capital is the money a corporation raises by issuing shares to its owners, forming part of shareholders' equity on the balance sheet.
In practice: When a founder subscribes for shares by paying $100,000 into the company, that $100,000 is recorded as share capital in equity, distinct from any profits the company later retains as retained earnings.
Shareholder Agreement
A shareholder agreement is a contract among a corporation's owners setting out how the company is run, how shares can be transferred, and how disputes and exits are handled.
In practice: Two co-founders sign a shareholder agreement with a buy-sell clause funded by life insurance, so that if one dies, the survivor can buy the deceased's shares from the estate at an agreed valuation without a dispute.
Shareholder Loan
A shareholder loan tracks money moving between an owner and their corporation; borrowing from the company must generally be repaid within a year or it becomes taxable income.
In practice: You borrow $20,000 from your corporation. If you do not repay it by the end of the company's next fiscal year, the entire $20,000 is added to your personal income and taxed at your marginal rate.
Small Business Corporation
A small business corporation is a CCPC that uses all or substantially all of its assets in an active business in Canada, a status required to access the lifetime capital gains exemption.
In practice: Before selling, a business owner moves $300,000 of surplus investments out of the operating company into a holdco, so that 90%-plus of the opco's assets are used in the active business and its shares qualify for the LCGE.
Small Business Deduction (SBD)
The small business deduction lowers the federal corporate tax rate to 9% on the first $500,000 of active business income earned by a Canadian-controlled private corporation.
In practice: A CCPC earning $500,000 of active business income pays roughly $60,000 combined at the small business rate, versus a general-rate figure that would be tens of thousands higher, a direct saving from the SBD.
Sole Proprietorship
A sole proprietorship is an unincorporated business owned by one person, where the business and owner are the same legal entity and income is taxed on the owner's personal return.
In practice: A freelance designer operating as a sole proprietor reports $70,000 of net business income on form T2125 with her personal return, paying tax at her personal marginal rate with no separate corporate filing.
Solvency
Solvency is a business's ability to meet all of its long-term financial obligations, indicating whether its assets exceed its liabilities over the long run.
In practice: A company with $500,000 in assets and $300,000 in liabilities is solvent, with $200,000 of positive equity. If liabilities grew to exceed assets, it would be technically insolvent even if it still had cash on hand.
Source Deductions
Source deductions are the income tax, CPP and EI amounts an employer withholds from employees' pay and remits to the CRA on their behalf.
In practice: From an employee's $4,000 salary you withhold income tax, CPP and EI totalling, say, $1,000, and pay them $3,000. You then remit the $1,000 plus your employer CPP and EI share to the CRA by the 15th of the next month.
Statement of Cash Flows
The statement of cash flows is one of the three core financial statements, showing how cash moved through a business by operating, investing and financing activities.
In practice: A company reports $50,000 profit but its cash fell. The cash flow statement shows why: $80,000 went into new equipment (investing) and receivables grew, tying up cash that the profit figure alone did not reveal.
Statutory Holiday Pay
Statutory holiday pay is the wages employers must pay eligible employees for public holidays, set by provincial employment standards and calculated from recent earnings.
In practice: An eligible employee does not work on a statutory holiday but still receives statutory holiday pay based on their average recent daily earnings, as required by their province's employment standards, with normal deductions applied.
Straight-Line Depreciation
Straight-line depreciation spreads an asset's cost evenly over its useful life, charging the same depreciation expense each period.
In practice: A $22,000 asset with a $2,000 residual value and a 10-year life depreciates by ($22,000 − $2,000) ÷ 10 = $2,000 each year, the same amount every period until fully depreciated.
Superficial Loss
A superficial loss is a capital loss the CRA disallows because you or an affiliated person repurchased the same or identical property within 30 days before or after the sale.
In practice: You sell a stock for a $5,000 loss on December 20 and rebuy it on December 28. The loss is superficial and denied, but the $5,000 is added to the ACB of the repurchased shares for use on a future sale.
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