GLOSSARY

Canadian Financial, Real Estate and Mortgage Glossary

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Tax Deduction


Synonyms:Revenue Canada, offset, tax adjustment, tax advantage, tax aid
Filed Under: financial-banking, taxation
Tags: banking, taxes
 

Definition of tax deduction

tax deduction
1. An allowable (by government) expense that can be subtracted from income before calculating income tax.

Related Terms and Acronyms:

  • circuit breaker   A tax credit that reduces property taxes for the elderly and permanently disabled. The credit is dependent on the amount of income earned which means the more you make, the lower the credit.
  • constructive receipt   The idea in which a taxpayer does not actually have to take possession of money for it to be taxable. An example of this is when savings account interest is reinvested rather than sent to the account holder as a separate payment. In this case, the account holder constructively received the interest because the earnings were credited to his account and could have been taken out at the owner's discretion. As such, the earnings are taxable.
  • filing extension   An additional amount of time to file your return. A filing extension, however, does not give you more time to pay your taxes.
  • marital deduction   For estate tax and gift tax purposes, a deduction that allows you to transfer assets to your spouse tax-free.
  • meals and entertainment (M&E)   Deductible expenses in your business such as the cost of taking a client to a restaurant (meals) or a sporting event (entertainment). However, these expenses are only partially deductible (50 % in Canada).
  • non-refundable credit   Tax credits reduce your tax liability dollar-for-dollar. Non-refundable credits can get your tax bill down to zero.
  • Notice of Assessment (NOA)   A form the federal government issues when personal taxes are complete. A notice of assessment shows a breakdown of the given years income along with the balance owing or refund.
      ➥  Canada Revenue Agency's T451 tax form.
  • Registered Education Savings Plan (RESP)   An investment vehicle used for a child's post-secondary education.
      ➥  RESPs are offered by most financial institutions in Canada.
  • short tax year   A tax period less than 12 months long, resulting from a business start-up or the transition to a tax year ending on a different date.
  • tax credit (TC)   Tax credits are used to reduce the amount of the tax owed. Tax credits are more valuable than deductions because they directly reduce the amount of tax owed, rather than reducing the amount of income that is taxed.

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