Introduction

Corporate tax for incorporated professionals involves a specific vocabulary that is neither intuitive nor consistently explained. The terms below are the ones that appear most often in planning conversations, CRA correspondence, and financial statements — defined in plain language without the technical cross-references.

The 30 Terms

1. Active Business Income (ABI)

Income earned from carrying on an active business — professional fees, project revenues, product sales. Eligible for the Small Business Deduction. Contrast with passive income.

2. Adjusted Aggregate Investment Income (AAII)

The measure of a CCPC's passive investment income for purposes of calculating the SBD reduction. Exceeding $50,000 of AAII begins to reduce the SBD; at $150,000, the SBD is eliminated.

3. Associated Corporations

Two or more corporations that are linked through common ownership or control. Associated corporations share the $500,000 Small Business Deduction limit between them.

4. Capital Dividend Account (CDA)

A notional account that tracks the non-taxable portion of capital gains, life insurance proceeds, and other amounts received by the corporation. The CDA balance can be distributed to shareholders as a capital dividend — tax-free to the recipient.

5. Capital Gains Exemption (LCGE)

The Lifetime Capital Gains Exemption — approximately $1.25 million (2026, indexed) — that shelters capital gains on the disposition of Qualifying Small Business Corporation shares from personal income tax.

6. Canadian-Controlled Private Corporation (CCPC)

A corporation that is incorporated in Canada, not controlled by non-residents, not controlled by public corporations, and not publicly listed. CCPC status is the gateway to the SBD, refundable SR&ED credit, and LCGE.

7. Capital Cost Allowance (CCA)

The prescribed schedule of depreciation for capital assets inside a corporation — analogous to amortisation in accounting, but calculated at rates set by the Income Tax Act.

8. Deemed Dividend

A distribution from a corporation that is treated as a dividend for tax purposes even if not formally declared as one — arising in certain share redemptions, wind-ups, or excess surplus stripping transactions.

9. Eligible Dividend

A dividend paid from corporate income taxed at the general (non-SBD) rate, eligible for the enhanced dividend tax credit in the recipient's hands. Top Ontario personal rate approximately 39.34%.

10. General Rate Income Pool (GRIP)

A notional account that tracks after-tax income from the general corporate rate — the source from which eligible dividends can be paid.

11. Holding Company (Holdco)

A corporation whose primary purpose is to hold shares of another corporation (the operating company) or investment assets. Used to separate investment wealth from the operating business.

12. Immediate Expensing

A provision allowing CCPCs to deduct the full cost of eligible depreciable property in the year of acquisition, rather than following the standard CCA schedule.

13. Integration

The principle that the total tax on income earned through a corporation — corporate tax plus personal tax on distributions — should approximate the personal tax that would have been paid if the income were earned directly. In practice, integration is imperfect.

14. Input Tax Credit (ITC)

The credit a registrant can claim for HST paid on goods and services used in commercial activities. ITCs offset HST collected, reducing the net remittance to the CRA.

15. Non-Eligible Dividend

A dividend paid from corporate income taxed at the small business rate. Subject to a lower gross-up and smaller dividend tax credit. Top Ontario personal rate approximately 47.74%.

16. Non-Capital Loss

A business or employment loss that exceeds income in a given year. Can be carried back three years or forward twenty years against taxable income.

17. Paid-Up Capital (PUC)

The amount originally invested in the corporation through share subscriptions. Can be returned to shareholders without tax — it reduces the ACB of shares but is not income.

18. Passive Income

Income earned from investments inside the corporation — interest, dividends from portfolio investments, rental income, capital gains. Taxed at approximately 50.17% (Ontario) inside a CCPC.

19. Personal Services Business (PSB)

A corporation that provides services to a single client where the incorporated individual would be considered an employee if not for the corporation. PSBs are denied most deductions and the Small Business Deduction.

20. Prescribed Interest Rate

The rate set quarterly by the CRA, used to calculate interest on late payments, overdue instalments, and certain low-interest loans between a corporation and a shareholder. Currently 9% annually (2026).

21. Professional Corporation

A corporation established by a regulated professional (physician, dentist, lawyer, architect) to carry on their professional practice. Subject to specific regulatory requirements from the relevant governing body.

22. Qualifying Small Business Corporation (QSBC) Shares

Shares of a CCPC that meet specific conditions (active business assets, 24-month holding period, Canadian corporation) required to access the LCGE on a disposition.

23. Refundable Dividend Tax on Hand (RDTOH)

A notional account that accumulates refundable corporate tax paid on passive income. The CRA refunds $38.33 of RDTOH for every $100 of taxable dividends paid to shareholders.

24. Section 85 Rollover

A tax-deferred transfer of property to a corporation at the transferor's cost — used to incorporate a sole proprietorship without triggering a deemed disposition at fair market value.

25. Shareholder Benefit

A benefit conferred on a shareholder by the corporation — directly or indirectly — that is included in the shareholder's personal income under section 15(1). Common examples: personal expenses paid by the corporation, below-market loans.

26. Shareholder Loan

Money borrowed by a shareholder from their corporation, or owed by the corporation to the shareholder. Must be repaid within one year of the fiscal year end in which it arose to avoid personal income inclusion under section 15(2).

27. Small Business Deduction (SBD)

The federal and provincial tax deduction that reduces the corporate tax rate from the general rate (~26.5%) to the small business rate (~12.2%) on the first $500,000 of active business income for CCPCs.

28. Split Income (TOSI)

Tax On Split Income — a rule that taxes certain income allocated to family members (through dividends, trust distributions, or partnership income) at the top marginal rate, regardless of the recipient's actual income level.

29. Terminal Return

The final personal T1 return filed for a deceased taxpayer, covering income from January 1 of the year of death through the date of death. The deemed disposition of all capital property at fair market value is reported on this return.

30. Voluntary Disclosures Program (VDP)

A CRA program that allows taxpayers to correct previously unreported income, errors, or omissions before the CRA identifies them through audit or matching. Successfully accepted VDP applications receive penalty relief and partial interest relief.

Using This Glossary

These thirty terms form the vocabulary of most planning conversations between an incorporated professional and their CPA. A professional who understands these terms is equipped to participate in those conversations meaningfully — asking better questions and making more informed decisions.

Rotaru CPA explains these concepts in context for every incorporated client. Book a consultation to begin or deepen the planning relationship.