Understanding Your T2 Tax Terms: A Companion Guide

Practical Explanations For Canadian Small Business Owners

Logo by Mike

By L.Kenway BComm CPB Retired
This is the year you get all your ducks in a row! Start by starting ... and keep it simple. Consistency beats perfection.

Published August 9, 2026 | Edited August 15, 2026

WHAT'S IN THIS ARTICLE 
Introduction | Choose Your Approach | Lookup Terms By Schedule | Look Up Terms By Alphabetical Glossary

Related Pages >> How To Review Your T2 Before You Sign | CPPC Notes | Corporate Minute Book | Should You Hire a Personal Services Business?  | Business Owners Need To Plan a Retirement Exit Strategy 

Businesswoman examining a document with a magnifying glassYour accountant translated your books into the tax language CRA requires.
The T2 schedules are where that translation happens.

You know your business. Your bookkeeping records captured what happened. Your accountant translated that information into the tax language CRA requires. The T2 schedules are where that translation happens ... but how do you connect your knowledge of your business with what the return is saying.

This companion guide explains the terms you may see while reviewing your corporate tax return (T2). It's meant to sit alongside Reviewing Common T2 Schedules: How To Review Your Corporate Tax Return Before Signing ... keep that article open in one window and this glossary in another.

🦆 Notice to Reader: Corporate tax isn't my specialty. This glossary reflects a framework for reviewing your own corporate return so you can ask your accountant sharper questions.  It is not a substitute for advice from your accountant. This article is written for small business owners not tax specialists.

Fair warning: I can't turn CCA into a beach read ... it is still tax after all. But wherever you jump in, I've tried to keep the explanation on the friendly side ... and tucked in a few jokes along the way, in case you end up browsing more than you meant to.


How Do You Want To Approach This Glossary? You Pick.

Already Staring At Your T2 And Want Context?

  • Start here if you want to follow along with the article ... this section is organized in the same order as the article is: your financial statements (S100 & S125), what you sold (S6, S4), your assets (S8), paying yourself dividends (S3), your tax rate (S7), your ownership (S50, S23, S11, S9), your corporation (T2 jacket, S9), your CRA filing (T2 jacket, S5).
  • The terms are grouped generally by schedule with jump links to a fuller definition.
Start With Section A >

Already Have A Specific Term You Want To Look Up?

  • Start here if you want a list of corporate tax terms organized alphabetically. Each term is defined with a note on why it matters to you and your corporation.
  • 🦆 Search Tip: Use Ctrl+F (or Cmd+F on Mac) and type a word to jump straight to it on this page.
Start With Section B >

Section A: Categorized By Schedule Topic

LOOKUP TOPICS
Your Financial Statements (S100 & S125) | What You Sold (S6, S4) | Your Assets (S8) | Paying Yourself Dividends (S3) | Your Tax Rate (S7) | The Ownership (S50, S23, S11, S9) | Your Corporation (T2 Jacket, S9) | Your CRA Filing (T2 Jacket, S5)

1. About Your Financial Statements

Why doesn't my tax return match my bookkeeping?

Your accounting profit and your taxable income are calculated under different rules. This is where the two get reconciled, so don't be surprised when the numbers don't match ... they aren't supposed to. This is also the natural starting point for reviewing your return, since Schedule 100 and Schedule 125 feed everything that follows.

Terms:

Related T2 Schedules:
Schedule 100, Schedule 125, Schedule 1, GIFI (where applicable)


2. About What You Sold

Did you dispose of property this year, and what does that trigger?

When you sell capital property, you create a gain or a loss ... and CRA taxes it differently than it taxes your regular business income. What you sold this year can also affect what you're able to claim on the assets you kept, so it's worth reviewing these terms before you review your asset disposal schedule.

Terms: 

Related T2 Schedules:
 Schedule 6, Schedule 1, Schedule 4 (where applicable)


3. About Your Assets

What did you buy and how does it get written off for tax purposes?

Instead of deducting the full cost of an asset in the year you buy it, CRA only allows you claim the capital purchase gradually. What you sold this year (see About What You Sold) can change this calculation (including triggering recapture, an advanced concept your accountant will know how to deal with) so it's worth reviewing dispositions first.

Terms: 

Related T2 Schedules:
 Schedule 8, Schedule 6, Schedule 1


4. About Paying Yourself Dividends

You paid or received dividends ... how is this reported on your tax return?

This is where your salary and dividend decisions show up on the return. If you paid yourself dividends, they have their own reporting rules depending on which dividend pool they came from. Paying yourself a dividend could trigger a refund of tax your corporation already paid on your investment income ... or, if the dividend came from another corporation, it could trigger additional tax on the way in.

Terms: 

Related T2 Schedules:
Schedule 3, Schedule 11, Schedule 53, Schedule 54 (where applicable), Schedule 1, Page 6 of the T2 jacket


5. About Your Tax Rate

Why is your income taxed differently depending on its source?

Not all your corporate income is taxed the same way. This is where your active income and passive income get sorted into various tax buckets, and where your small business deduction gets calculated, and where additions to RDTOH get determined.

🦆 Yes, that's a lot of acronyms below ... active income becomes ABI, passive income becomes AII, and so on. That's exactly why this glossary exists.

Terms:

Related T2 Schedules:

Schedule 7, Schedule 27 (where applicable), Schedule 31 (where applicable)


6. About Your Ownership

Who owns this corporation, and why does CRA ask?

If you're an owner-manager, you're probably both a shareholder and an employee of your own corporation ... and that dual role shapes how your return gets prepared. If your corporation is connected to other companies, ownership also determines how you share tax limits between them and how those related companies get treated. Either way, this is where CRA sorts out who you are to your own business.

Terms: 

Related T2 Schedules:
Schedule 50, Schedule 23, Schedule 11, Schedule 9 (where applicable)


7. About Your Corporation

What kind of company is filing this return, and why does CRA care?

Your corporation's legal structure affects how your income is taxed and which tax rules apply to you. Before anything else on your return makes sense, it helps to know what kind of corporation CRA thinks it's looking at.

Terms:

Related T2 Schedules:
Corporate information section (T2 jacket), identification pages, Schedule 9 (where applicable)


8. About Your CRA Filing

What do you actually have to file, and what ties it all together?

The T2 jacket brings together every schedule into one summary. This is where the final tax payable number is calculated. Basically, this is where it all lands.

The T2 jacket brings together every schedule into one summary. This is where the final tax payable number lands. But two schedules do real calculation work before that number is final: Schedule 13 applies the federal abatement (the discount for provincial tax room), and Schedule 21 applies the M&P deduction and sorts out federal vs. provincial/territorial tax payable.

Schedule 5 also plays a role here, allocating taxable income across provinces and territories ... but with ten provinces and three territories each running their own rates and credits, that calculation gets genuinely complex. You don't need to be able to verify the math by hand, but you should still be able to ask your accountant why the split looks the way it does and whether it matches where your business actually operates.

Terms:

Related T2 Schedules:
T2 jacket (whole return), Schedule 13, Schedule 21, Schedule 5 (where applicable)


Section B: Alphabetical Corporate Tax Glossary

🦆 Search Tip: Use Ctrl+F (or Cmd+F on Mac) and type a word to jump straight to it on this page.

Jump To >> A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A

Active Business Income (ABI)

What is it?
Income your corporation earns from actually running its business ... selling products, providing services, doing the work you're in business to do.

Why should I care?
ABI is the income type that can qualify for the lower Small Business Deduction tax rate, so it's usually the income you want more of relative to AII, tax-rate-wise. This is the number CRA is asking about when your accountant talks about your business limit.

Appears in Section A Under: About Your Tax Rate
Learn More: Schedule 7

Active Income

What is it?
The everyday term for Active Business Income (ABI) ... the phrase your accountant is more likely to actually say out loud than the formal CRA name.

Why should I care?
If you've heard 'active income' in conversation but see 'ABI' on a schedule, they're the same thing. See Active Business Income for the full picture.

Appears in Section A Under: About Your Tax Rate
Learn More: Schedule 7

Additional Refundable Tax (ART)

What is it?
A 10.67% tax added on top of your corporation's regular tax rate on its Aggregate Investment Income (AII).

Why should I care?
ART is why passive income inside a corporation gets taxed so much more heavily up front than active business income ... but it's largely refundable later through RDTOH pools when you pay dividends. It's not a permanent extra cost; it's a temporary one that unwinds when you pay yourself.

Appears in Section A Under: About Your Tax Rate
Learn More: Part I Tax Payable Calculation

Adjusting Entries or Adjusting Journal Entries (AJE)

What is it?
Corrections or updates made to your bookkeeping records before financial statements are finalized ... things like accruals (like a yearend bonus, or tax preparation fees that aren't invoiced until March), prepaid expense adjustments (like insurance), or depreciation entries (related to your capital assets).

Why should I care?
If your year-end financial statements don't match your day-to-day bookkeeping exactly, adjusting entries are usually why. Adjusting entries are made by your accountant to bring your financial statements in line with accounting standards regardless of tax. They're a separate step from the tax adjustments on Schedule 1, which is where your ASPE (Accounting Standards for Private Enterprises) compliant numbers get translated into taxable income.

Appears in Section A Under: About Your Financial Statements
Learn More: ASPE for CCPCs

Aggregate Investment Income (AII)

What is it?
Income your corporation earns from investments rather than operations ... interest, rent, portfolio dividends, and taxable capital gains.

Why should I care?
AII is taxed at a much higher rate than ABI, and too much of it can shrink your Small Business Deduction limit. If your corporation has built up cash and started investing it, this is the term that explains why your tax bill went up even though your actual business didn't grow.

Appears in Section A Under: About Your Financial Statements
Learn More: Schedule 7

Allowable Business Investment Loss (ABIL)

What is it?
A special, more flexible type of capital loss that arises from certain losses on shares or debt of a small business corporation ... for example, writing off shares in a failed small business you invested in is a common ABIL.

Why should I care?
Unlike an ordinary ACL, an ABIL can be deducted against ANY type of income, not just capital gains. That makes it considerably more valuable if you've had a small business investment go bad. It can be carried back three years, but only forward for a limited period before it converts to a regular capital loss.

Appears in Section A Under: About What You Sold
Learn More: See Difference Between ACL and ABIL

Allowable Capital Loss (ACL)

What is it?
The deductible portion (currently 50%) of a capital loss.

Why should I care?
An ACL can only be used against taxable capital gains ... it cannot reduce your business income. If you don't have capital gains to offset in the current year, an ACL carries forward or back rather than disappearing.

Appears in Section A Under: About What You Sold
Learn More: See Difference Between ACL and ABIL

Associated Corporations

What is it?
Two or more corporations connected through common ownership or control ... generally when the same person, or group of people, owns 50% or more of each corporation. Family members' shares can also count toward this depending on the situation.

Why should I care?
Associated corporations must share one SBD limit between them, not get one each. If you and a family member each own a corporation, or you have a holding company and an operating company under similar ownership, this sharing rule likely applies to you and directly affects how much of your income gets the lower tax rate.

Appears in Section A Under: About Your Ownership
Learn More: Schedule 7


You've survived the A's.

Why did the corporation's Aggregate Investment Income keep to itself? It preferred to stay passive.

B

Balance Sheet (BS)

What is it?
Shows what your corporation owns, what it owes, and the shareholders' equity at a specific date ... a snapshot, not a period of activity.

Why should I care?
This feeds directly into Schedule 100 of your T2 ... check that the numbers match your bookkeeping. If they don't, ask your accountant why before you sign.

Appears in Section A Under: About Your Financial Statements
Learn More: Schedule 100

Business Investment Loss (BIL)

What is it?
A loss you incur when you dispose of shares or debt of a small business corporation ... for example, writing off shares in your incorporated business or an uncollectible loan you made to one.

Why should I care? 
This is the full loss before any tax adjustment. Half of it becomes your Allowable Business Investment Loss (ABIL) ... the portion CRA actually lets you deduct, and unlike most capital losses, ABIL can offset any type of income, not just capital gains. If your accountant mentions a BIL, ABIL is the number that actually shows up on your return.

Appears under: What You Sold
Learn More: See Difference Between ACL and ABIL

Business Limit

What is it?
The maximum amount of active business income eligible for the lower small business tax rate in a year ... generally $500,000 federally.

Why should I care?
This is the ceiling on your tax break. It gets divided among associated corporations, and it shrinks if your corporation (or your associated group) earns too much passive income or has high taxable capital. If your accountant tells you your business limit was reduced, this is why.

Appears in Section A Under: About Your Tax Rate
Learn More: Schedule 7

Business Number (BN)

What is it?
CRA's unique identifier for your business, used across all your CRA program accounts ... corporate tax, GST/HST, payroll, and more.

Why should I care?
Your BN is how CRA connects everything your corporation files together. It's on your T2 identification page and should stay consistent across every filing.

Appears in Section A Under: About Your Corporation
Learn More: Getting Your BN

C

Canadian-Controlled Private Corporation (CCPC)

What is it?
A private corporation controlled by Canadian residents.

Why should I care?
CCPC status is the gateway to the biggest tax perks available to small business ... most importantly, the Small Business Deduction. If your corporation stops qualifying as a CCPC, your tax bill can jump significantly. This is usually the first thing worth confirming when you sit down to review your return.

Appears in Section A Under: About Your Corporation
Learn More: Schedule 7

Capital Cost Allowance (CCA)

What is it?
The tax version of depreciation. Instead of deducting the full cost of a business asset all at once, you claim it gradually over several years, following CRA's prescribed rates which is different from the accounting rates. Accounting rates are usually written off over the life of the asset while CCA rate generally take the write-off at a faster pace.

Why should I care?
CCA is optional, and claiming the maximum isn't always the smartest move. Your accountant may choose NOT to claim a full CCA amount in a given year ... a deliberate strategy, not an oversight. What you sold this year (see also Recapture) can also affect this year's CCA calculation.

Appears in Section A Under: About Your Assets
Learn More: Schedule 8

Capital Dividend (Tax Free Dividend)

What is it?
A special dividend that can be paid tax-free to shareholders, funded by certain tax-free amounts the corporation has earned ... like the non-taxable half of a capital gain.

Why should I care?
This is one of the few genuinely tax-free ways to get money out of your corporation ... but only up to the balance in the Capital Dividend Account, and it requires a specific election. Get this wrong and CRA can penalize the excess.

Appears in Section A Under: About Paying Yourself Dividends
Learn More: Schedule 3

Capital Dividend Account (CDA)

What is it?
A notional account tracking the tax-free amounts your corporation has accumulated ... mostly from the non-taxable half of any capital gains ... are available to pay out as a capital dividend.

Why should I care?
This is what determines how much you can pull out of the corporation completely tax-free. Ask your accountant for your current CDA balance before assuming you have room to use it. You can also look up your CDA balance in the CRA portal My Business Account.

Appears in Section A Under: About Paying Yourself Dividends
Learn More: Schedule 3

Capital Gain (CG)

What is it?
The profit from selling a capital asset .. like real estate, shares, or equipment ... for more than its tax cost (ACB).

Why should I care?
Capital gains get preferential tax treatment compared to regular business income, because only part of the gain is taxable. See Taxable Capital Gain for how much of it actually counts.

Appears in Section A Under: About What You Sold
Learn More: Schedule 6

Capital Loss (CL)

What is it?
The loss from selling a capital asset for less than its tax cost (ACB).

Why should I care?
Unlike a regular business loss, a capital loss can generally only be used to offset capital gains ... not your other income. See Allowable Capital Loss for the deductible portion, or Allowable Business Investment Loss for an important exception.

Appears in Section A Under: About What You Sold
Learn More: Schedule 6

Connected Corporation

What is it?
A corporation with a close ownership relationship to another corporation ... typically when one corporation controls the other, or owns more than 10% of it, directly or indirectly.

Why should I care?
This mainly matters when your corporation receives dividends from another corporation. Whether the payer is 'connected' changes how those dividends are taxed ... including whether Part IV tax applies.

Appears in Section A Under: About Your Ownership
Learn More: Schedule 23


D

You're into the D's

Why did the dividend refuse to leave the RDTOH account? It wasn't ready to be refundable yet.

Depreciation vs. Amortization vs. CCA

What is it?
Three related but distinct words for spreading the cost of an asset over time. Depreciation and amortization are accounting terms ... depreciation usually refers to tangible assets (equipment, buildings), amortization to intangible ones (like goodwill) ... while Capital Cost Allowance (CCA) is the tax version, using CRA's own rates and rules.

Why should I care?
Your financial statements show depreciation or amortization; your T2 shows CCA. They're rarely the same number in the same year, and that's expected ... it's exactly the kind of gap Schedule 1 exists to reconcile.

If your accountant used 'Basis of Accounting' to prepare your financial statements, it means the statements have been prepared on an income tax basis of accounting instead of ASPE. This allows your accountant to book CCA so your depreciation expense perfectly matches your tax return.

Appears in Section A Under: About Your Financial Statements
Learn More: Schedule 1

Dividend Refund

What is it?
A dividend refund is a tax mechanism for CCPCs that refunds a portion of the corporate tax previously paid on passive investment income or portfolio dividends. The government returns this money when the corporation pays out taxable dividends to its personal shareholders.

Why should I care?  
A CCPC owner-manager (and shareholders) should care about dividend refunds because they directly impact cash flow, tax efficiency, and retirement planning. It is the only way to recover the high corporate taxes paid on investment income.

Appears in Section A Under: About Paying Yourself Dividends
Learn More: Schedule 7, Schedule 3 and Part IV Tax 

Due From Shareholder

What is it?
An amount a shareholder owes back to the corporation ... money the corporation lent or advanced to them that hasn't been repaid. This account is found on the asset side of your balance sheet.

Why should I care?
CRA watches these balances closely. If a shareholder loan isn't repaid within the required time, it can be added to the shareholder's personal income. See Shareholder Loan for the fuller picture.

Appears in Section A Under: About Your Ownership
Learn More: Schedule 11, Loans To Shareholders

Due To Shareholder

What is it?
An amount the corporation owes back to a shareholder ... often money the shareholder contributed with after-tax dollars, or expenses they paid personally on the corporation's behalf. This account is found on the liability side of your balance sheet.

Why should I care?
These amounts can generally be repaid to the shareholder, without creating additional taxable income, as a return of capital ... provided there's proper documentation supporting the nature of the payment. Good records here really matter.

Shareholder loans to your corporation are not reported on Schedule 11 because the funds were contributed with 'after-tax' dollars.

🦆 Tip: To ensure you don't lose any input tax credits, always submit a formal expense report with all receipts attached before reimbursing an expenses paid from your personal funds. 

Appears in Section A Under: About Your Ownership

E

Eligible Dividend

What is it?
A dividend generally paid from income already taxed at the higher corporate rate.

Why should I care?
Individuals pay less personal tax on eligible dividends than on non-eligible ones ... so the label on your dividend slip actually affects your personal tax bill, not just your corporation's. Whether you can pay one depends on your GRIP balance.

Appears in Section A Under: About Paying Yourself Dividends
Learn More: Schedule 3

Eligible RDTOH (ERDTOH)

What is it?
A special tax 'savings pool' your corporation builds up when it receives dividends from other companies you invest in.

Why should I care?
It matters because the government uses this pool to prevent your corporate money from being taxed twice. When your corporation earns investment income or receives dividends, it has to pay a temporary, extra corporate tax upfront. The government holds this extra tax in a 'notional account' (the RDTOH pool). The government wants passive wealth distributed out to shareholders rather than sitting in a corporation forever.

Appears in Section A Under: About Paying Yourself Dividends
Learn More: Schedule 3, Schedule 7

F

Federal Abatement

What is it?
A 10% tax reduction designed to give Canadian provinces and territories room to levy their own corporate taxes without creating an excessive overall tax burden on businesses.

Why should I care?
For a CCPC, the federal abatement is a foundational piece of the tax calculation for 3 reasons: 

  1. It is the starting point for the SBD.
  2. It prevents double taxation.
  3. It matters for income allocation as it applies only to income inside Canada.

Appears in Section A Under: About Your Tax Rate
Learn More: Part 1 Tax

Federal Tax Payable (FIT)

What is it?
What your corporation actually owes in federal income tax after all deductions and credits are applied. Part I Tax is the specific division of the Act covering corporate income tax on profits.

The Relationship With Part 1 Tax: For most businesses, FIT and Net Part I Tax are the exact same thing. FIT only includes other 'Parts' if the corporation owes specialized taxes, like Part IV tax on investment dividends.

Why should I care?
This is the number you're really watching. Taxable income is the starting point of the calculation; federal Part I tax payable is the final answer after the federal abatement, small business deduction, and other reductions are applied.

Appears in Section A Under: About Your Tax Rate
Learn More: Part 1 Tax

G

General Index of Financial Information (GIFI)

What is it?
The standardized coding system CRA uses to convert your financial statements into a structured electronic format for Schedules 100 and 125.

Why should I care?
You don't need to memorize the codes, but knowing GIFI exists explains why your financial statements get 'translated' (mapped) into a different-looking format inside your T2. Nothing is being changed ... just recoded so CRA's systems can read it.

Appears in Section A Under: About Your Financial Statements
Learn More: Order To Review

General Rate Income Pool (GRIP)

What is it?
A notional account tracking income that was taxed at the general corporate rate ... not the small business rate ... which determines how much your corporation can pay out as an eligible dividend.

Why should I care?
If you want to pay yourself an eligible dividend (lower personal tax rate for you), your corporation needs a GRIP balance to support it. GRIP is calculated on its own dedicated schedule, Schedule 53, filed when you pay an eligible dividend or your GRIP balance changes. A full article on GRIP, along with ERDTOH and NERDTOH, is coming ... this entry covers the basics for now.

Appears in Section A Under: About Paying Yourself Dividends
Learn More: Schedule 3, Schedule 7

General Rate Reduction (GRR)

What is it?
A 13% federal tax rate reduction that applies to active business income that isn't already eligible for the Small Business Deduction.

Why should I care?
Once your ABI exceeds your business limit, the portion above that limit doesn't just get taxed at the full rate. The general rate reduction still brings it down. This is part of why the jump in tax rate above your business limit isn't as steep as it might look at first glance.

Appears in Section A Under: About Your Tax Rate
Learn More: Part 1 Tax

I

Income Statement (IS)

What is it?
Shows your corporation's revenue (what you sold), expenses (money spent to run your business), and profit (the gain you made after subtracting expenses from revenue) for the year. Revenue - Expenses = Profit

Why should I care?
This feeds directly into Schedule 125 of your T2. Check that the numbers match your bookkeeping before you sign.

Appears in Section A Under: About Your Financial Statements
Learn More: Order To Review

Instalments

What is it?
Periodic advance payments of estimated corporate tax, required if your corporation's tax payable exceeds a CRA threshold.

Why should I care?
If your corporation is profitable, you may owe tax throughout the year, not just when you file. Missing mandatory instalments triggers interest charges even if your final return shows no balance owing. CRA doesn't wait for reminders to start the clock.

Appears under: Your CRA Filing


L

Halfway there ... the L's.

Why did the loss get carried forward twenty years? It was in no rush ... non-capital losses can afford to wait.

Low Rate Income Pool (LRIP)

What is it?
The counterpart to GRIP ... tracks income taxed at the lower small business rate, which generally must be paid out as non-eligible dividends.

Why should I care?
This is part of why most owner-manager dividends end up as non-eligible rather than eligible ... most CCPC income sits in LRIP, not GRIP. LRIP is calculated on Schedule 54. A full article on this account is coming ... this entry covers the basics for now.

Appears in Section A Under: About Paying Yourself Dividends
Learn More: Schedule 3, Schedule 7

M

M&P Deduction

What is it? 
A Manufacturing and Processing (M&P) tax reduction  /credit available to a CCPC. It provides a 13% tax reduction on qualifying active business profits earned from eligible manufacturing and processing activities in Canada.

Why should I care? 
It directly increases the cash flow available to reinvest in or extract from the company.

Appears in Section A Under: About Your Tax Rate
Learn More: Schedule 27

N

Net Capital Losses (Net CL)

What is it?
Losses from selling capital property that exceed your capital gains in a year.

Why should I care?
These can only offset capital gains ... never regular income ... but they carry forward indefinitely. A loss today can still save you tax many years from now, so don't assume an old capital loss is worthless just because it's been sitting unused.

Appears in Section A Under: About What You Sold
Learn More: Schedule 4, Schedule 6

Net Income for Accounting Purposes

What is it?
The profit shown on your financial statements, before any tax adjustments.

Why should I care?
This is your starting point, but it is not what you're taxed on ... some things your bookkeeper counted as an expense (like meals, or accounting depreciation) aren't fully deductible for tax purposes. See Net Income for Tax Purposes for what happens next.

Appears in Section A Under: About Your Financial Statements
Learn More: Schedule 1

Net Income for Tax Purposes

What is it?
Your accounting profit after CRA's required add-backs and deductions.

Why should I care?
This is the number that actually matters for calculating your tax. If it doesn't match your financial statement profit, that's normal ... it's often different. Schedule 1 does the 'book to tax' conversion.

Appears in Section A Under: About Your Financial Statements
Learn More: Schedule 1

Non-Capital Losses (NCL)

What is it?
Losses from operating your business, certain property losses, and Allowable Business Investment Losses (ABIL).

Why should I care?
These can be carried back three years or carried forward to reduce taxable income in other years. This is a genuine tax-planning tool, not just a bad-news number on the page.

Appears in Section A Under: About What You Sold
Learn More: Schedule 4, Schedule 6

Non-Eligible Dividend

What is it?
A dividend paid from income that was taxed at the lower small business rate.

Why should I care?
This is the more common type for owner-managers paying themselves from active business income, and it carries a higher personal tax rate than an eligible dividend. Worth knowing before you assume all dividends are taxed the same to you personally.

Appears in Section A Under: About Paying Yourself Dividends
Learn More: Schedule 3, Schedule 7

Non-Eligible RDTOH (NERDTOH)

What is it?
The portion of Refundable Dividend Tax on Hand (RDTOH) generally built up from the refundable tax on your corporation's investment income (AII).

Why should I care?
This is usually the pool small business owners interact with most, since it's tied to the passive income most CCPCs actually earn. A full comparison of RDTOH, ERDTOH, and NERDTOH is coming in a future article ... this entry covers the basics for now.

Appears in Section A Under: About Paying Yourself Dividends
Learn More: Schedule 3, Schedule 7

O

Owner-Manager

What is it?
Someone who both owns shares in the corporation and works in it ... probably you.

Why should I care?
This dual role is why your compensation choices (see Salary vs. Dividend) matter so much, and why Schedule 50 and Schedule 11 both ask about your relationship to the company. You also need to be aware of your corporation's structure as Personal Services Businesses (PSB) are have different tax rules than a regular CCPC.

Appears in Section A Under: About Paying Yourself Dividends, About Your Ownership
Learn More: Schedule 3, Schedule 7, Schedule 11, Order To Review, Loans To Shareholders, Personal Services Business

P

Part I Tax

What is it?
The main federal income tax that most Canadian corporations pay, calculated starting on the T2 jacket.

Why should I care?
This is the starting number before all your deductions — federal abatement, Small Business Deduction, general rate reduction — bring your actual bill down to Federal Tax Payable. Not to be confused with Part IV Tax, which is a separate tax that only applies to certain dividends received.

Appears in Section A Under: About Your Tax Rate
Learn More: Part 1 Tax

Part IV Tax

What is it?
A separate federal tax on certain dividends your corporation receives from other corporations ... most often dividends from public companies or unconnected corporations.

Why should I care?
Part IV tax exists to stop corporations from using inter-corporate dividends to defer tax indefinitely. If your corporation received dividends and Part IV tax applies, it shows up on Schedule 3 and flows to line 712 of the T2 jacket ... and it usually builds RDTOH balance you can recover later. Not to be confused with Part I Tax, the main corporate income tax.

Appears in Section A Under: About Paying Yourself Dividends
Learn More: Schedule 3, Schedule 7

Passive Income

What is it?
The everyday term for Aggregate Investment Income (AII). This is the phrase your accountant is more likely to actually say out loud than the formal CRA name.

Why should I care?
If you've heard 'passive income' in conversation but see 'AII' on a schedule, they're the same thing. See Aggregate Investment Income for the full picture.

Appears in Section A Under: About Your Tax Rate
Learn More: Part 1 Tax, Schedule 7

Personal Services Business (PSB)

What is it?
A corporation that, in CRA's eyes, looks less like a genuine business and more like an employee providing services through a corporation.

Why should I care?
A PSB loses access to the Small Business Deduction entirely and can't deduct most regular business expenses ... a real trap for incorporated consultants or contractors who work mainly for one client, under that client's direction, using that client's tools. If this might describe your situation, it's worth a direct conversation with your accountant, since the tax consequences are significant.

Appears in Section A Under: About Your Tax Rate, About Your Ownership, About Your Corporation
Learn More: Personal Services Business


R

You're deep into the R's

Why did the corporation keep its Recapture quiet? It didn't want to talk about its past ... CCA claims tend to catch up with you.

Recapture

What is it?
An amount added back to your income when you sell a depreciable asset for more than its remaining tax value (undepreciated capital cost), effectively reversing some of the CCA you claimed in earlier years.

Why should I care?
If you sell equipment, a vehicle, or a building for more than its tax value, recapture can create an unexpected income inclusion. This is one of the more common surprises for business owners who didn't realize CCA claimed in good years gets 'clawed back' when the asset is eventually sold. This is why reviewing what you sold (Schedule 6) matters before reviewing your CCA claim (Schedule 8).

Appears in Section A Under: About What You Sold, About Your Assets
Learn More: Schedule 6, Schedule 8

Refundable Dividend Tax on Hand (RDTOH)

What is it?
A notional tax account that tracks refundable tax your corporation paid on investment income, refunded to you when the corporation pays out taxable dividends.

Why should I care?
This is the mechanism that keeps investment income from being taxed twice as hard inside a corporation versus earning it personally. You only get the refund if you actually pay dividends. RDTOH is now split into two pools, Eligible RDTOH (ERDTOH) and Non-Eligible RDTOH (NERDTOH). A deeper dive on how these work together is coming in a future article ... this entry covers the basics for now.

Appears in Section A Under: About Paying Yourself Dividends
Learn More: Schedule 3, Schedule 7

S

Salary vs. Dividend

What is it?
The core compensation decision for an owner-manager: (1) pay yourself through payroll (salary),  (2) through dividends, or (3) some mix of both. Salary is subject to source deductions but builds RRSP room. Dividends have no source deductions and build no RRSP room, but depending on your situation, they can mean less combined corporate and personal tax overall. You always want your accountant to help with this calculation.

Why should I care?
There's no single right answer. It depends on your personal cash needs, your corporation's income mix, whether you want RRSP contribution room, and your province. What matters most is that this is a genuine planning decision, not just an afterthought at year-end. You always want your accountant to run this calculation for you every year. They know things that affect it (your other income, provincial tax rates, RDTOH balances, upcoming cash needs) that you likely don't have full visibility into.

Appears in Section A Under: About Paying Yourself Dividends
Learn More: Why You Got A T4 And/Or A T5 Slip From Your Own Company

Section 112 Deduction

What is it?
The rule that lets your corporation deduct dividends it received from other Canadian corporations, so that income isn't taxed twice as it moves between companies.

Why should I care?
Without this deduction, dividend income would get taxed once in the paying corporation and again in your corporatio ... on top of whatever tax hits it a third time when it eventually reaches you personally. The Section 112 deduction is what keeps that from happening, and it's why the dividends your corporation receives from other companies show up on Schedule 3 as something CRA needs to track, not something CRA taxes twice. It's also part of what determines whether Part IV tax applies instead.

Appears in Section A Under: About Paying Yourself Dividends
Learn More: Schedule 3

Shareholder

What is it?
A person or entity that owns shares in the corporation.

Why should I care?
Being a shareholder is a distinct role from being a manager or employee of the corporation, even if it's the same person wearing both hats (see Owner-Manager). CRA cares about the distinction because it affects how payments to you are taxed, and it's why Schedule 50 asks for shareholder details separately from payroll information.

Appears in Section A Under: About Your Ownership 
Learn More: Order To Review


Into the middle of the S's now

Why did the Shareholder Loan make everyone nervous? Because if it wasn't repaid in time, it stopped being a loan and started being income.

Shareholder Loan

What is it?
Money owed between a shareholder and the corporation. Either the corporation owes the shareholder (see Due To Shareholder) or the shareholder owes the corporation (see Due From Shareholder).

Why should I care?
If a shareholder borrows from the corporation and doesn't repay it within the required time, the outstanding amount can be added to their personal income ... a real, and sometimes expensive, trap. Good documentation matters here more than almost anywhere else on the return.

Appears in Section A Under: About Your Ownership 
Learn More: Shareholder Loans

Small Business Deduction (SBD)

What is it?
A tax break that lets a qualifying CCPC pay a lower corporate tax rate on active business income, up to the business limit.

Why should I care?
This is the single biggest lever in your corporate tax bill. Understanding what shrinks it (passive income, associated corporations, high taxable capital) helps you understand why your effective tax rate changes year to year, even when your business itself hasn't changed much.

Appears in Section A Under: About Your Tax Rate
Learn More: Part 1 Tax, Schedule 7

Specified Investment Business (SIB)

What is it?
A corporation whose main purpose is earning investment income such as from rent, interest, or dividends rather than running an active business. A holding company is a common example of a SIB. This tax classification can happen when a company sells its active operations upon the owners' retirement and holds the proceeds or assets.

Why should I care?
A SIB usually can't claim the Small Business Deduction, even if it's a CCPC. If your corporation holds a rental property or an investment portfolio and doesn't have enough employees, ask your accountant whether this label applies to you. It changes your tax rate significantly.

Appears in Section A Under: About Your Corporation, About Your Ownership
Learn More: Schedule 7

Substantive CCPC (S-CCPC)

What is it?
A corporation that technically isn't a CCPC anymore often because of a change in ownership or control. The CRA still treats it like a CCPC for certain rules, because Canadians effectively control it.

Why should I care?
This rule exists to stop corporations from dodging CCPC tax rules through a paper reorganization. If your ownership structure is unusual or has changed recently, ask your accountant whether this applies to you. It can affect how your investment income is taxed.

Appears in Section A Under: About Your Corporation
Learn More: Schedule 7, Line 290 on Schedule 200 (the T2 jacket)


T

Almost there ... the T's

Why did the T2 Jacket carry everything? Somebody had to pull it all together."

T2 Corporation Income Tax Return

What is it?
The annual federal income tax return almost every Canadian corporation must file, regardless of whether it owes tax or was even active during the year.

Why should I care?
'No activity' doesn't mean 'no filing obligation'. Even a dormant corporation generally needs to file. Missing this requirement can create problems even when there's no tax owing.

Appears in Section A Under: About Your Corporation
Learn More: T2 Corporation Tax Notes


T2 Jacket

What is it?
The main form of the T2 return that pulls together all the supporting schedules and calculates your final tax payable.

Why should I care?
This is the summary page. If you only have time to review one thing before signing, the jacket is where all the schedule totals should reconcile.

Appears in Section A Under: About Your CRA Filing

Tax Year-End

What is it?
The last day of your corporation's fiscal year, which determines your filing and payment deadlines.

Why should I care?
Unlike individuals, corporations don't have to use December 31st as their year-end. You may have chosen a different year-end when you incorporated, or your accountant may have recommended one for tax-planning reasons. Knowing your year-end tells you when your return and any balance owing are actually due.

Appears in Section A Under: About Your Corporation
Learn More: T2 Corporation Tax Notes

Taxable Capital Gain (TCG)

What is it?
The portion of a capital gain actually included in your taxable income. The rate at the time of writing (2026) is 50%.

Why should I care?
This is the number that actually shows up on your tax bill, not the full gain. See the worked example in the T2 article for how this flows from Schedule 6 into Schedule 1.

Appears in Section A Under: About What You Sold
Learn More: Schedule 6

Taxable Income

What is it?
Net income for tax purposes, after further deductions, like loss carryforwards or charitable donations, are applied. This should not be confused with net income on your Income Statement.

Why should I care?
This is the actual number your tax rate gets applied to, one more step past net income for tax purposes. It's the final input into the Part I tax calculation. For clarity, Income Statements follow accounting standards like ASPE in Canada. Tax returns follow statutory laws like the ITA (Income Tax Act).

Appears in Section A Under: About Your Tax Rate
Learn More: Part I Tax Payable Calculation

You made it to the end.

Why did the T2 Jacket throw a party? Every schedule finally showed up.

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