GLOSSARY

Canadian Financial, Real Estate and Mortgage Glossary

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Tax Deferral


Synonyms:tax aid, tax deferment, tax postponement
Filed Under: financial-banking, taxation
Tags: banking, taxes
 

Definition of tax deferral

tax deferral
1. A method used to postpone current year taxes to a later year. This is typically done by recognizing income or a gain at a later time. It is important to remember that using tax deferral only delays tax liability, it does not eliminate it.

Related Terms and Acronyms:

  • alternative minimum tax (AMT)   This tax primarily affects high-income taxpayers who shelter some of their income from tax through certain tax preference items or deductions. It is often referred to in tax publications as AMT and, if your income meets the limit, you have to recalculate your tax due based on the separate alternative minimum tax rates and tables.
      ➥  Form T691.
  • exchange   A trade of property for other property or services. Like-kind property exchanges are a popular tax-deferral strategy.
  • recognized gain or loss   The amount of gain or loss reported for income tax purposes. You may be able to defer recognizing gain or loss on certain property exchanges, such as like-kind exchanges.
  • 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 deferred annuity (TDA)   A type of annuity where taxes are deferred until the annuitant decides to withdraw money from the annuity.
      ➥  More commonly known as a Tax Sheltered Annuity (TSA).
  • underpayment penalty   A penalty for not paying enough total estimated tax and withholding. You can avoid underpayment penalties by paying a percentage amount of last year's tax due or of the current year's expected tax due. You may pay the taxes in combined estimated and withholding tax payments.

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