Tax Glossary

Clear definitions of the tax terms used throughout TaxMath. Jump to a term or scroll through the full list. For rate data, see our Tax Tables.

Basic Personal Amount: The basic personal amount (BPA) is a non-refundable tax credit in Canada that reduces federal tax for all individuals, regardless of income. It effectively creates a zero-tax band on the first portion of income—up to a specified amount that is indexed to inflation each year. For 2025, the federal BPA is approximately $15,000. Provincial and territorial governments often provide their own basic personal amounts, which work similarly at the provincial level.; Related:Standard Deduction Taxable Income Filing Status
Capital Gains Inclusion Rate: The capital gains inclusion rate is the portion of a capital gain that is included in taxable income in Canada. Historically 50%, meaning only half of a gain was taxable, the federal rate was increased to 66.67% on gains above $250,000 (for individuals) starting in 2024. The first $250,000 of annual capital gains per individual remains at a 50% inclusion rate. This directly affects how much of your investment profits are subject to income tax.; Related:Capital Gains Tax Long-Term Capital Gains Taxable Income Dividend Tax Credit
Capital Gains Tax: Capital gains tax is the tax levied on the profit from selling or exchanging an asset—such as stocks, bonds, real estate, or other investments—for more than its purchase price. The gain (sale price minus purchase price and allowable costs) is the taxable amount. Tax treatment often depends on how long the asset was held: short-term gains (one year or less) are typically taxed as ordinary income, while long-term gains may qualify for lower rates.; Related:Long-Term Capital Gains Short-Term Capital Gains Taxable Income
Corporate Tax Rate: The corporate tax rate is the rate of tax applied to a corporation's taxable profits (revenue minus allowable deductions). In the US, the federal corporate rate is a flat 21% (as of 2018), and many states impose additional corporate income taxes. Corporations are separate legal entities from their owners, so corporate profits are taxed at the entity level; when profits are distributed as dividends, shareholders may be taxed again on that income.; Related:Flat Tax Dividend Tax Credit
Dividend Tax Credit: The dividend tax credit (DTC) is a Canadian tax mechanism that reduces the tax paid on dividends received from Canadian corporations. Because corporations pay tax on their profits before distributing dividends, the DTC avoids double taxation by giving individuals a credit for taxes already paid at the corporate level. Dividends are classified as eligible (from large, public companies) or non-eligible (from small businesses), and each type has a different credit rate that affects the effective tax you pay.; Related:Corporate Tax Rate Capital Gains Tax Taxable Income
Effective Tax Rate: The effective tax rate (also called average tax rate) is your total tax liability divided by your total income, expressed as a percentage. Unlike the marginal rate, which applies only to the last dollars earned, the effective rate gives you a single number showing what portion of your income went to taxes overall. For example, if you owe $15,000 in tax on $100,000 of income, your effective tax rate is 15%.; Related:Marginal Tax Rate Taxable Income Progressive Tax
Filing Status: Filing status is a category that determines your tax rates, standard deduction, and eligibility for certain credits. In the US, common statuses include Single, Married Filing Jointly, Married Filing Separately, and Head of Household; Canada uses similar concepts such as single, married/common-law, and eligible dependant. Your status affects which tax brackets and deduction amounts apply, so choosing the correct one is important for accurate tax calculation.; Related:Standard Deduction Taxable Income Tax Bracket
Flat Tax: A flat tax is a system where a single tax rate applies to all taxable income, regardless of amount. Unlike a progressive system, everyone pays the same percentage on every dollar above the exemption threshold. Proponents argue that flat taxes are simpler and encourage work and investment; critics say they shift the tax burden from high earners to middle- and lower-income taxpayers. Some US states and Canadian provinces (e.g., Alberta) use flat or near-flat rates for certain taxes.; Related:Progressive Tax Corporate Tax Rate
Long-Term Capital Gains: Long-term capital gains are profits from the sale of assets held for more than one year. In the US, long-term gains benefit from preferential tax rates—often 0%, 15%, or 20%—instead of ordinary income rates that can exceed 37%. In Canada, only a portion of the gain (the inclusion rate) is taxable. This favorable treatment rewards long-term investing and encourages people to hold assets longer.; Related:Capital Gains Tax Short-Term Capital Gains Capital Gains Inclusion Rate
Marginal Tax Rate: The marginal tax rate is the tax rate applied to your last dollar of income—that is, the rate on the next dollar you earn. It represents the percentage of tax you would pay on an additional $1 of income, which differs from the rate on your first dollar of earnings. Marginal rates increase as income rises in a progressive tax system, so understanding your marginal rate helps you evaluate the tax impact of raises, bonuses, or extra work.; Related:Effective Tax Rate Tax Bracket Progressive Tax
Progressive Tax: A progressive tax is a system where the tax rate increases as taxable income increases—higher earners pay a larger percentage of their income in taxes than lower earners. Income tax in the US and Canada, for example, uses progressive brackets: the first dollars of income are taxed at low rates, and income in higher brackets is taxed at higher rates. The idea is to distribute the tax burden according to ability to pay.; Related:Tax Bracket Marginal Tax Rate Effective Tax Rate Flat Tax
Short-Term Capital Gains: Short-term capital gains are profits from selling assets held for one year or less (in the US) or for a shorter holding period where applicable. These gains are taxed as ordinary income at your marginal rate, meaning they are added to wages, interest, and other income and taxed at the same brackets. Because there is no preferential rate for short-term gains, they can result in a higher tax bill than long-term gains on the same dollar amount.; Related:Capital Gains Tax Long-Term Capital Gains Marginal Tax Rate
Standard Deduction: The standard deduction is a fixed amount that taxpayers can subtract from their adjusted gross income before calculating taxable income, reducing the amount of income subject to tax. Taxpayers choose either the standard deduction or itemized deductions (whichever is larger)—most filers use the standard deduction because it is simpler and often larger. The amount varies by filing status and is adjusted each year for inflation.; Related:Taxable Income Filing Status
Tax Bracket: A tax bracket is a range of income that is taxed at a specific rate. In a progressive system, income is divided into brackets, and each bracket has its own rate—only the income within that bracket is taxed at that rate, not your entire income. For instance, if the 22% bracket applies to income between $47,000 and $100,000, only the dollars in that range are taxed at 22%, while lower amounts are taxed at lower bracket rates.; Related:Marginal Tax Rate Progressive Tax Taxable Income
Taxable Income: Taxable income is the amount of income used to calculate how much tax you owe. It is generally computed by taking gross income, subtracting adjustments (e.g., retirement contributions), then subtracting either the standard deduction or itemized deductions and any applicable exemptions. Only taxable income is subject to tax brackets—deductions and exemptions reduce the base before rates are applied. Different types of income (e.g., wages vs. capital gains) may be taxed under different rules.; Related:Standard Deduction Marginal Tax Rate Tax Bracket Filing Status

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