Every tax term a Canadian investor needs, defined in plain English and linked to the guide that covers it in depth.
A
Adjusted cost base (ACB)
The pooled average cost of all identical units of a security you own, adjusted over time for distributions, return of capital, and corporate actions. Your capital gain is proceeds minus ACB. Learn more
Affiliated person
For the superficial loss rule, a person or entity — your spouse or common-law partner, or a corporation you control — whose purchase of an identical security can deny your loss. Learn more
Asset location
The strategy of placing investments in the account type (TFSA, RRSP, non-registered) that minimizes their tax drag — e.g. US dividends in RRSP, growth stocks in TFSA. Learn more
B
Bank of Canada rate
The daily exchange rate the CRA accepts for converting foreign-currency transactions to Canadian dollars on the date they occur. Learn more
Book value
The cost shown by your broker for a holding. Often close to your ACB but can differ due to transfers in, holdings at other brokers, or incomplete return-of-capital adjustments. Learn more
Box 42 (return of capital)
The T3 box reporting the return-of-capital portion of a distribution — not taxed when received, but subtracted from your ACB. Learn more
Business income (trading)
Income from trading that is business-like in frequency and intent, fully taxable rather than taxed as a capital gain. The characterization depends on your facts. Learn more
C
Capital gain
The profit when you dispose of capital property for more than its adjusted cost base, less outlays. Only the taxable portion is included in income. Learn more
Capital loss
The loss when proceeds are less than your ACB plus outlays. Losses offset capital gains, not ordinary income, and carry back three years or forward indefinitely. Learn more
CCPC
A Canadian-controlled private corporation. Employee stock options on a CCPC can defer the employment benefit until the shares are sold. Learn more
Charitable donation of securities
Donating publicly traded stocks directly to a registered charity. The capital gains inclusion rate drops to 0% and you receive a donation tax credit on the full FMV. Learn more
Covered call ETF
An ETF that holds stocks and sells call options for premium income. Distributions often include significant return of capital which reduces ACB, creating a deferred capital gain. Learn more
D
Deemed disposition
A tax event treated as a sale without an actual sale — for example on emigration or death — crystallizing accrued gains. Learn more
Deemed disposition on death
The rule treating the deceased as having sold all capital property at FMV immediately before death, crystallizing accrued gains on the final tax return. A spousal rollover can defer this. Learn more
Departure tax
The tax arising from the deemed disposition of most of your property when you cease to be a Canadian tax resident. Learn more
Disposition
Any event that transfers or is treated as transferring ownership of property — a sale, a crypto swap, a gift — potentially realizing a gain or loss. Learn more
Dividend gross-up
The amount by which Canadian dividends are increased on your return before the dividend tax credit is applied, approximating the corporate tax already paid. Learn more
Dividend tax credit
A credit that offsets the gross-up on eligible and non-eligible Canadian dividends, making them more tax-efficient than interest income. Learn more
DRIP
A dividend reinvestment plan that buys additional shares with your distributions. Those purchases add to your ACB at their market value. Learn more
E
Eligible dividend
A Canadian dividend paid from income taxed at the general corporate rate, carrying the most favourable gross-up and dividend tax credit. Learn more
ESPP
An employee stock purchase plan. The discount is taxed as employment income, and your cost base is the full market value at purchase. Learn more
F
FHSA
The First Home Savings Account — combines the RRSP deduction with TFSA-style tax-free withdrawal for a qualifying first home purchase. $8,000 annual limit, $40,000 lifetime. Learn more
Foreign tax credit
A credit for foreign tax withheld on income (such as US dividends), used to avoid being taxed twice on the same amount. Learn more
Foreign withholding tax
Tax withheld at source by a foreign country on dividends or interest paid to non-residents. US withholding on dividends is 15% under the treaty (25% without W-8BEN). Learn more
I
Identical property
Property that is the same in all material respects — the trigger test for pooling ACB and for the superficial loss rule. Learn more
In-kind transfer
Moving securities between accounts (e.g. to a TFSA or RRSP) without selling. Transfers to registered accounts trigger a deemed disposition at FMV; broker-to-broker moves within non-registered accounts preserve ACB. Learn more
Inclusion rate
The fraction of a capital gain that is taxable. Only the gain multiplied by this rate is added to your income. Learn more
L
Line 12700
The line of the T1 return where your net taxable capital gain from Schedule 3 is reported. Learn more
M
Marginal tax rate
The rate applied to your next dollar of income. In Canada, combined federal + provincial marginal rates range from about 20% to over 54% depending on income and province. Learn more
N
Non-eligible dividend
A Canadian dividend, typically from small-business income, with a smaller gross-up and dividend tax credit than an eligible dividend. Learn more
Non-registered account
A taxable investment account (not a TFSA, RRSP, or other registered plan) where dispositions must be reported and ACB tracked. Learn more
Norbit’s Gambit
A technique for converting Canadian dollars to US dollars cheaply using DLR/DLR.U (or another interlisted security) instead of paying the broker’s 1.5–2% FX spread. The small capital gain or loss must be reported. Learn more
O
Outlays and expenses
Costs of disposing of property, such as brokerage commissions, that reduce your capital gain. Learn more
P
Phantom distribution
A reinvested distribution paid without cash. It is taxable in the year declared and increases your ACB so you are not taxed on it twice. Learn more
Pooling (average cost)
The CRA-required method of combining all identical property into one pool and averaging the cost to get a per-unit ACB. Learn more
Proceeds of disposition
The amount you receive on a disposition, in Canadian dollars, before subtracting your ACB and outlays. Learn more
R
Readvanceable mortgage
A mortgage product (like Manulife One or Scotia STEP) that re-advances the principal paid down as a line of credit, enabling the Smith Manoeuvre without refinancing. Learn more
Return of capital (ROC)
A non-taxable distribution of your own invested capital that reduces your ACB, deferring tax until you sell. Learn more
RRSP
A registered retirement savings plan. Gains inside are tax-deferred; withdrawals are taxed as income. Internal trades aren’t reported. Learn more
RSU
A restricted stock unit. The share value at vesting is employment income and becomes your cost base; later movement is a capital gain. Learn more
S
Schedule 3
The CRA form where capital dispositions are reported, grouped by property type, producing the net taxable gain for line 12700. Learn more
Section 85.1 rollover
An automatic tax-deferred exchange when a Canadian public corporation acquires shares of another by issuing its own shares. Your old ACB transfers to the new shares with no immediate gain. Learn more
Section 86.1
An election allowing eligible foreign spin-offs to be received on a tax-deferred basis instead of as a taxable dividend. Learn more
Settlement date
The date a trade officially completes. A loss sale must settle within the tax year to count for that year. Learn more
Smith Manoeuvre
A strategy that converts non-deductible mortgage interest into tax-deductible investment loan interest by using a readvanceable mortgage to invest as principal is paid down. Learn more
Spin-off
A corporate action distributing shares of a subsidiary to shareholders, requiring you to allocate your ACB across the two securities. Learn more
Stock option benefit
The employment benefit on exercising an employee option — market value minus strike price — generally taxed in the year of exercise for public companies. Learn more
Stock option deduction
A deduction that can tax the option benefit at a rate similar to a capital gain when conditions are met, subject to annual limits. Learn more
Stock split
A change in share count that leaves your total ACB unchanged but rescales the per-share cost base. Learn more
Substitute ETF
A similar-but-not-identical ETF used to replace a sold position during tax-loss harvesting, avoiding the superficial loss rule while maintaining market exposure. Learn more
Superficial loss
A denied capital loss arising when you or an affiliated person buys the identical property within 30 days before or after a loss sale and still holds it. Learn more
T
T1135
The Foreign Income Verification Statement that must be filed if the total cost of your specified foreign property exceeds $100,000 CAD at any time in the year. Learn more
T3 slip
A slip reporting trust, ETF, and mutual fund distributions, split into components such as capital gains (box 21) and return of capital (box 42). Learn more
T5008 slip
A slip reporting securities dispositions. Proceeds are usually reliable, but the cost figure is often incomplete or blank. Learn more
Tax-loss harvesting
Deliberately selling securities at a loss to offset realized capital gains, then replacing with a similar (but not identical) investment to maintain portfolio exposure. Learn more
Taxable capital gain
The portion of a capital gain actually added to income — the gain multiplied by the inclusion rate. Learn more
TFSA
A tax-free savings account. Gains inside are never taxed, but losses cannot be claimed and active trading can draw CRA scrutiny. Learn more
W
Wash sale (US)
The US rule against claiming a loss while repurchasing a substantially identical security. Canada’s equivalent is the superficial loss rule. Learn more
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