Government of Nova Scotia gov.ns.ca
gov.ns.ca Government of Nova Scotia Nova Scotia, Canada
Lands and Forestry

Topics

Module 10: Introduction to Woodlot - Income Tax and Estate Planning

GLOSSARY

Accrual Accounting - accounting method that includes accounts receivable in revenues accounts payable in expenses. the cost of inventory on hand at the end of a fiscal year is removed from expenses and reported as an asset.

Adjusted Cost Base - The cost of a capital property for income tax purposes. Most commonly, the actual purchase price of a property.

Alternative Minimum Tax - A refundable tax that is levied when a taxpayer has excessive tax shelters or preferences.Arm's Length: Having separate economic interests.

Attribution Rules - Complex rules in the Income Tax Act that are designed to prevent income splitting. That is, they prevent you from having your income taxed in another person's hands.

Beneficiary - A person who is entitled to receive income and/or capital from a trust.

Canadian controlled private corporation - A corporation that is not controlled by persons not resident in Canada, and whose shares are publicly traded

Capital Cost Allowance - A way of deducting the cost of a capital item over time

Capital Gain (Loss) - The excess (or deficiency) of the proceeds of disposition of a capital property over its adjusted cost base and any costs of disposition.

Capital Property - Property which, if disposed of, would produce a capital gain or loss. Generally, property that is not inventory.

Cash Basis Accounting - accounting method where you only use revenues actually received and expenses actually paid in the year to determine income. The cost of inventory on hand at the end of the year is generally included in expense.

Clawback - A term used to mean the repayment of social benefits such as Employment Insurance and Old Age Security. This repayment occurs when a taxpayer's net income exceeds certain limits.

Commercial Woodlot - a woodlot operated by a taxpayer as a business with a reasonable expectation of profit

Crystallization - A transaction that triggers a capital gain, which can be sheltered from tax by the capital gains exemption. Generally done with the shares of a corporation, it builds the capital gains deduction into the adjusted cost base of the property. This complex manoeuvre is best handled with professional tax advice.

Depreciable Property - Capital property, such as a building or equipment, which has a limited life. Depreciable property is written-off, for tax purposes, over a number of years.

Disposition - Disposing of property, either by selling or giving it away.

Estate Freeze - A transaction that creates two separate interests in an appreciating asset. One interest equals the current value of the asset but becomes a fixed amount. The second interest has little current value but will increase in value as the asset increases in value.

Executor - The legal representative of a deceased person. The person who manages the estate of a deceased person.

Fair Market Value - The value, in terms of money, that an asset would bring in an open and unrestricted market. The price for which something could be expected to sell.

Farm Property - Property used in the business of farming. Also includes an interest in a family farm partnership and shares of a family farm corporation.

Fiscal Year - A 12 month period over which annual accounts and taxes are calculated.

Intestate - Without a will.

Inventory - Property that is held for sale.

Joint Tenancy - A method of ownership where two or more persons each own an undivided interest in a property and have a right of survivorship. That is, on the death of one joint tenant, the property will pass to the other(s).

Mandatory Inventory Adjustment - When using the cash method of accounting, the cost of all items purchased for sale are deducted, even if they are unsold at the end of the year.

Marginal Tax Rate - The tax rate charged on the last dollar of income.

Matrimonial Property Act - A Nova Scotia statute that governs the distribution of matrimonial property if a marriage breaks down.

Median Rule - A method of calculating the adjusted cost base of a property owned on V-Day. The adjusted cost base is the middle amount among the cost, the V-Day value, and the proceeds of disposition.

Non-commercial woodlot - a woodlot not operated as a business with a reasonable expectation of profit.

Prescribed - specifically determined by the tax rules

Proceeds of Disposition - The value, for tax purposes, of consideration (payment) received for the disposition of a capital property. There are a number of provisions in the Income Tax Act that deem (or assume) proceeds to be a certain amount, typically either fair market value or the adjusted cost base.

Qualified Farm Property - Property used by a taxpayer or their family in the business of farming, as well as an interest in a family farm partnership or share of a family farm corporation. This kind of property must have been held for at least two years.

Qualified Small Business Corporation Shares - Shares of a small business corporation that have been held for at least two years.

Real Property - land and buildings, real estate.

Recaptured Depreciation - An amount included in income when too much depreciation has been deducted on a given class of property. This occurs when an asset is sold for more that the undepreciated capital cost.

Rollover - A transaction that, for tax purposes, is deemed to take place at the vendor's tax cost. Rollovers defer tax, but do not eliminate it.

Settlor - The person who creates a trust by transferring property to a trustee under the terms of a trust agreement.

Small Business Corporation - A Canadian controlled private corporation, all or substantially all of the assets of which are primarily used in an active business carried on in Canada.

Spouse Trust - A trust where, during the spouse's lifetime, only the spouse of the deceased person may receive any income or capital from the trust.

Sundry Income - miscellaneous or "other" income, usually incidental to the main source of revenue.

Taxable Capital Gain - One-half of a capital gain acquired after October 18, 2000; two-thirds between February 27 and October 17, 2000; and three-quarters before February 27, 2000.

Terminal Loss - any remaining balance after all assets in a class have been disposed of.

Trustee - A person who holds property for another person.
Undepreciated Capital Cost: The remaining cost of depreciable property that has not yet been deducted.

Valuation Day (V-Day) - December 31, 1971 (December 22, 1971 for publicly traded securities). The day before capital gains first became taxable in Canada. Capital gains accrued up until that date are not taxed.