Decode the tax terms that show up when you sell property, run a business, or deal with the CRA.
Who this is for: Anyone who's hit a wall of tax jargon — selling a cottage, incorporating, dealing with an estate, or just trying to read a letter from the Canada Revenue Agency (CRA). What you'll get: About 35 common tax terms explained in one or two plain sentences, grouped so you can find them fast.
⚖️ This is a general guide, not legal advice. It can't account for your specific situation. Use it to get oriented, then confirm the details with a licensed Ontario lawyer.
A note before you start: Treadstone Law is a law firm, not your accountant. These definitions are simplified to help you follow a conversation — they leave out exceptions and rates that change. Confirm how any term applies to you with a tax professional and the CRA.
Capital Gains & Property
Adjusted cost base (ACB) — Your tax "cost" in a property: usually what you paid, plus certain costs like capital improvements and purchase expenses. It's the number you subtract from the sale price to figure out your gain.
Capital gain / capital loss — The profit (gain) or shortfall (loss) when you sell a capital property for more or less than its adjusted cost base. Gains can be taxable; losses can sometimes offset gains.
Inclusion rate — The portion of a capital gain that actually gets added to your taxable income. As of 2026 it is one-half (50%) — the proposed increase to two-thirds was cancelled and never became law. The rate is set by tax law and can change, so confirm the current inclusion rate with the CRA rather than assuming.
Proceeds of disposition — What you receive when you sell or dispose of a property — usually the sale price, but it can be the fair market value in non-arm's-length deals or gifts.
Deemed disposition — When the tax rules treat you as having sold a property even though you didn't — for example, on death, on emigration, or when you gift it. It can trigger a capital gain without any cash changing hands.
Principal residence exemption (PRE) — A rule that can shelter the gain on the sale of your home from tax. Generally only one property per family can be designated as the principal residence for any given year.
Change in use — When a property switches from personal use to income-earning (or vice versa) — say, your home becomes a rental. The tax rules can treat this as a deemed disposition at fair market value.
Recapture — When you sell a depreciable asset (like a rental building) for more than its depreciated tax value, the previously claimed depreciation can be "recaptured" and added back to your income.
Capital Cost Allowance (CCA) — The tax version of depreciation: a deduction that lets a business or rental owner write off the cost of a building, equipment, or vehicle over time.
Fair market value (FMV) — The price a property would fetch between a willing buyer and a willing seller, both informed and acting freely. The CRA often uses FMV in gifts, transfers to family, and deemed dispositions.
Arm's length — A relationship between parties acting independently in their own interests. Family members and people you control are generally not at arm's length, which can change how a transaction is taxed.
Business & Corporate
Active business income — Income a corporation earns from actually running a business (as opposed to passive investment income). It's often taxed more favourably for small corporations.
Small business deduction (SBD) — A reduction in the corporate tax rate on a limited amount of active business income earned by a Canadian-controlled private corporation. The amount and rate are set by law — confirm current figures with the CRA.
Integration — The tax-system goal that income earned and paid out through a corporation should end up taxed at roughly the same total rate as if you'd earned it personally — so incorporating doesn't create a permanent tax windfall (or penalty).
Eligible dividend / non-eligible dividend — Two categories of dividends a corporation can pay, taxed differently in your hands. "Eligible" dividends generally come from income taxed at higher corporate rates and carry a larger credit; "non-eligible" dividends come from income that got the small business rate.
Tax on split income (TOSI) — Rules designed to stop higher-income individuals from shifting income to lower-income family members through a private corporation. When TOSI applies, that income is taxed at the top rate, wiping out the benefit.
Lifetime capital gains exemption (LCGE) — A cumulative lifetime exemption that can shelter capital gains on the sale of qualifying small business corporation shares (and certain farm or fishing property) up to a set limit — you can use it across more than one sale until the limit is used up. The limit changes — verify the current amount with the CRA.
Returns & the CRA
Terminal return — The final tax return filed for someone who has died, covering income up to the date of death. A deemed disposition of their property usually happens on this return.
Clearance certificate — A document the CRA issues to confirm a deceased person's (or a corporation's) taxes are paid. An estate trustee often wants one before distributing assets, to avoid personal liability.
Notice of Assessment (NOA) — The CRA's official summary after it processes your return: what it agrees you owe or are owed, and any changes it made. Keep these — they're useful records.
Notice of Objection — The formal way to dispute an assessment you disagree with. There's a deadline to file one, so confirm the current time limit with the CRA and don't let it lapse.
HST / GST — The Harmonized Sales Tax (in Ontario) and Goods and Services Tax: consumption taxes added to most goods and services. Businesses over a certain size must register, collect, and remit it.
Withholding tax — Tax held back at the source and sent to the CRA before you receive money — common on payments to non-residents and on certain withdrawals. The rate depends on the payment type and any tax treaty.
Status & Other
RRSP (Registered Retirement Savings Plan) — A registered account where contributions are generally deductible and growth is tax-deferred; you pay tax when you withdraw, ideally in retirement at a lower rate.
TFSA (Tax-Free Savings Account) — A registered account where contributions aren't deductible but growth and withdrawals are generally tax-free. Annual contribution room is set each year — check your current room with the CRA.
RRIF (Registered Retirement Income Fund) — What an RRSP typically converts into when you retire: it pays you a minimum amount each year, which is taxable as income.
Underused Housing Tax (UHT) — A federal annual tax aimed at certain vacant or underused residential property, often affecting non-resident or non-Canadian owners — with filing duties that can apply even when no tax is owed. Confirm whether it applies to you with the CRA.
Non-Resident Speculation Tax (NRST) — An Ontario tax on certain purchases of Ontario residential property by foreign buyers. The rate and rules change, so verify the current details with the Province of Ontario.
Non-resident — Someone who is not a resident of Canada for tax purposes; generally taxed only on certain Canadian-source income rather than worldwide income.
Deemed resident — Someone treated as a Canadian resident for tax purposes because of specific rules (for example, spending 183 or more days in Canada in a year and not being a resident of a treaty country), even if their ties are limited.
Terms you'll hear together
These tend to travel in packs — knowing one helps you decode the rest:
- Selling property? You'll hear adjusted cost base, proceeds of disposition, capital gain, inclusion rate, and maybe principal residence exemption.
- Settling an estate? Expect deemed disposition, terminal return, fair market value, and clearance certificate.
- Running a corporation? Watch for active business income, small business deduction, integration, eligible vs. non-eligible dividend, and TOSI.
- Cross-border? You'll meet non-resident, deemed resident, withholding tax, and possibly UHT or NRST.
Reminder: Definitions are deliberately simple here. The exceptions are where tax gets expensive — confirm the specifics with a professional.
Mini-FAQ
Why do so many of these involve "fair market value"? Because the CRA can't rely on a sale price when there isn't a real arm's-length sale — gifts, transfers to family, death, and emigration all use FMV instead.
Which terms cost people the most when misunderstood? Change in use, deemed disposition, and the principal residence exemption surprise people most often, because they can create a tax bill with no money changing hands.
How Treadstone Law can help
Tax language gets dense fast — and the words usually show up right when something important is happening: a sale, an estate, an incorporation, a move. Treadstone Law can translate the legal side, flag where tax meets the law, and coordinate with your accountant so nothing slips.
- Flat, transparent fees — no jargon in the pricing, either.
- Online intake — start from anywhere in Ontario.
- Talk to a real person — call 1-844-900-1070.
Learn more on our Tax page, see Pricing, or Start a File Online.
This is not legal advice
This guide is general information, not legal advice. Reading it does not create a lawyer-client relationship. Ontario laws, tax rates, and government programs change, and how the law applies depends on your specific facts. For advice about your situation, speak with a licensed Ontario lawyer. Treadstone Law is licensed by the Law Society of Ontario — reach us at 1-844-900-1070 or start a file online.