17 Canadian tax & accounting terms starting with T
Plain-language definitions, each with the CRA rule it comes from and the filings it affects.
T1 Return
The T1 is the personal income tax return every Canadian individual files annually to report income, claim credits and deductions, and settle tax with the CRA.
In practice: An employee with a T4, some investment income and RRSP contributions files a T1 by April 30, reporting the income, claiming the RRSP deduction, and receiving a refund of over-withheld tax.
T2 Return
The T2 is the corporate income tax return every incorporated business in Canada must file annually, even if it had no activity.
In practice: A corporation with a December 31 year-end must file its T2 by June 30. Its tax balance, however, was due earlier, by the end of February or March depending on its small-business status.
T2125 Statement
The T2125 is the form self-employed individuals use to report business or professional income and expenses as part of their personal T1 return.
In practice: A freelance consultant reports $90,000 of revenue on the T2125, deducts $20,000 of expenses including a home-office claim, and reports the $70,000 net income on her T1, taxed at her personal rate.
T3 Slip
A T3 slip reports income allocated to a beneficiary from a trust or estate, so the beneficiary can report it on their personal tax return.
In practice: A family trust allocates $20,000 of dividend income to a beneficiary. The trust issues a T3 showing the dividends, and the beneficiary reports them on their personal return with the dividend tax credit.
T3 Trust Return
The T3 is the income tax return a trust or estate files annually, due 90 days after its tax year-end, reporting income earned and allocations to beneficiaries.
In practice: A family trust with a December 31 year-end must file its T3 by March 31, reporting the year's income and issuing T3 slips for the amounts allocated to each beneficiary.
T4 Slip
A T4 is the slip an employer issues each employee summarising their employment income and the income tax, CPP and EI withheld during the calendar year.
In practice: By the end of February, an employer issues each employee a T4 showing the year's gross pay and the income tax, CPP and EI withheld, and files copies with the CRA. Employees enter these figures on their T1.
T4A Slip
A T4A is a tax slip reporting income other than regular employment wages, such as fees paid to contractors, pension income, or certain scholarships and benefits.
In practice: A business pays a freelance designer $15,000 for a project. Because she is a genuine contractor, not an employee, it reports the fees on a T4A with no CPP or EI withheld, due by the end of February.
T5 Slip
A T5 is a tax slip reporting investment income, such as dividends, interest and certain foreign income, paid to an individual during the year.
In practice: An owner pays herself $40,000 in dividends from her corporation. The company issues a T5 reporting the dividend, split by type, which she uses to report the grossed-up amount and claim the dividend tax credit on her T1.
T5013 Partnership Return
The T5013 is the information return certain partnerships file to report their income and allocate each partner's share, which partners then report on their own returns.
In practice: A three-partner professional practice earns $300,000. It files a T5013 and issues each partner a slip for their $100,000 share, which each partner reports on their personal return.
Tax on Split Income (TOSI)
TOSI rules apply the top marginal tax rate to certain income, mainly dividends, paid to family members who are not genuinely involved in the business, curbing income splitting.
In practice: A business owner pays $40,000 in dividends to an adult child who does no work in the company. Under TOSI, that dividend is taxed at the top marginal rate rather than the child's lower rate, removing the intended saving.
Taxable Benefit
A taxable benefit is a non-cash perk an employer provides that the CRA treats as employment income, added to the employee's pay and reported on their T4.
In practice: An employer gives an employee personal use of a company car. The standby charge and operating benefit, say $6,000 for the year, are added to the employee's T4 income and taxed as if they were extra salary.
Taxable Income
Taxable income is the amount of income actually subject to tax after all deductions, the figure your tax rate is applied to, which differs from both gross income and accounting profit.
In practice: A corporation reports $100,000 accounting profit. After adding back $3,000 of non-deductible meals and swapping $12,000 book depreciation for $15,000 CCA, its taxable income is $90,000, the amount actually taxed.
Taxable Supply
A taxable supply is a good or service subject to GST/HST (at the standard rate or zero-rated), on which the supplier can claim input tax credits.
In practice: A consultant's services are standard-rated taxable supplies, so she charges HST and claims input tax credits on her costs. An exporter's zero-rated sales are also taxable supplies, charged at 0% but still credit-eligible.
Term Loan
A term loan is a lump sum borrowed and repaid over a fixed schedule of payments, typically used to finance long-term assets or major investments.
In practice: A company borrows $100,000 over five years to buy machinery, repaying about $1,900 a month. The interest is deductible; the principal portion reduces the loan balance and is not an expense.
Terminal Loss
A terminal loss is a deduction available when a CCA class is emptied of all assets but still has an undepreciated balance, meaning the assets depreciated faster than CCA allowed.
In practice: A class holds one asset with $6,000 of UCC. You sell it for $4,000, emptying the class. The remaining $2,000 is a terminal loss, deductible in full against your income that year.
TFSA
A Tax-Free Savings Account lets Canadians invest within an annual contribution limit and earn investment income and growth completely tax-free, even on withdrawal.
In practice: You contribute $7,000 to your TFSA and it grows to $9,000 through investments. You can withdraw the full $9,000 completely tax-free, and the $9,000 of room is restored to you the following calendar year.
Trial Balance
A trial balance is a report listing the ending balance of every account in the general ledger, used to check that total debits equal total credits before preparing statements.
In practice: Before year-end statements are prepared, the accountant runs a trial balance. Total debits of $250,000 equal total credits of $250,000, confirming the ledger is internally balanced and ready to roll into the financial statements.
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