Canadian tax glossary: plain-English definitions

Tax language sounds harder than it is. Here are the terms you’ll meet most often, in short sentences, each with a link to the page that explains it properly.

The glossary is for the moment a word stops you. You’re reading a CRA letter and it says notice of assessment, or a friend mentions their marginal rate, or a form asks for your taxable income and you aren’t sure how that differs from your salary. Most of these words describe simple ideas wrapped in formal wording, and once you’ve seen them explained plainly a few times, the forms start to read normally.

The entries are short on purpose, usually two sentences. Where a term deserves more than that, the link takes you to a calculator, an article or a guide that goes into it with examples. A few pairs are worth learning first, because people mix them up all the time: deduction and credit, marginal rate and average rate, GST/HST and PST. Get those straight and a lot of tax talk becomes easy to follow.

Think of this page as a pocket dictionary rather than a lesson. If you’d like the whole picture, the guides take a topic from the beginning. We don’t give advice on your own return, so for that, ask a qualified preparer.

Most read right now

• Tax credits in Canada

  A credit cuts your bill by 14% federally, while a deduction saves your top rate.

• Personal tax deductions in Canada

  Deductions cut income before tax is worked out; a $5,000 RRSP deduction saves $1,482 on $80,000 of pay in Ontario.

• Taxable income formula

  From total income to line 26000, with a $70,000 Ontario example.

• Tax assessment: how to read your notice of assessment

  Where to find it, what to check and the 90 days you have to dispute it.

• T4 Canada: what each box means

  Pay in box 14, tax withheld in box 22, and what to do if the slip is late or wrong.

Which terms come up most?

• Basic personal amount

  The amount of income you can earn before federal income tax applies, claimed as a credit. Each province has its own.

• Capital gain

  The profit when you sell an investment or property for more than it cost. Half of it is added to your income.

• CPP

  The Canada Pension Plan. You pay in while you work and receive a pension later. Quebec has its own plan, the QPP.

• Deduction

  An amount that lowers your taxable income, such as an RRSP contribution. It is different from a credit.

• Credit

  An amount that lowers the tax you owe, not your income. Most credits in Canada are worth a fixed percentage of the amount claimed.

• EI

  Employment Insurance. Workers pay premiums and may receive benefits if they lose a job or take leave.

• FHSA

  The First Home Savings Account. You deduct your contributions and withdraw the money tax-free to buy a first home.

• GST/HST

  The federal 5% goods and services tax, and the harmonized tax some provinces collect together with it.

• Instalments

  Payments of tax you make during the year when nothing, or too little, is taken off at the source.

• Marginal tax rate

  The rate on your next dollar of income. It is higher than your average rate.

• Notice of assessment

  The CRA letter that tells you what it made of your return, with your RRSP room and any balance.

• PST

  A provincial sales tax charged separately from the GST in some provinces.

• RRSP

  A Registered Retirement Savings Plan. Contributions are deductible and the growth is not taxed until you withdraw.

• T4

  The slip your employer sends you showing your pay and what was taken off.

• Taxable income

  Your income after deductions. Tax brackets apply to this figure.

• TFSA

  A Tax-Free Savings Account. Contributions are not deductible, but the growth and the withdrawals are tax-free.

• Withholding

  Tax your employer or payer takes off before you receive the money and sends to the CRA.

Still confused?

Don’t worry, you aren’t alone, since even the CRA’s own pages use a different word for the same thing from time to time, and a term you read in a news story may mean something slightly different once it reaches a form.

Ask.

You’ll feel better once you’ve read one guide from start to finish, so we’d suggest you start with how Canadian taxes work, and keep the tax calendar handy. The limits and rates page has the figures behind terms like basic personal amount and RRSP limit, and the checklists show which slips and receipts you’ll need. We don’t give advice on your own return, so for that, ask a qualified preparer.