T2 Corporation – Income Tax Guide – What's New
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- Find out if this guide is for you
- What's new
- 2023 provincial and territorial budgets, and federal updates
- Canada carbon rebate for small businesses
- Global minimum tax
- Interest deductibility limits – Purpose‑built rental housing
- Manipulation of bankrupt status
- Reporting rules for digital platform operators
- Synthetic equity arrangement
- Withholding for non-resident service providers
- Avoidance of tax debts
- Reportable and notifiable transactions penalty
- Non-compliance with information requests
- Excessive interest and financing expenses limitation (EIFEL) rules
- Non-compliant short‑term rentals
- Capital gains inclusion rate
- Accelerated capital cost allowance (CCA)
- Donation receipts
- Line 580 – Total labour requirements addition to tax
- Mutual fund corporation
- Clean technology manufacturing ITC – Polymetallic extraction and processing
- Electric vehicle supply chain ITC
- Newfoundland and Labrador – Provincial corporation tax
- Nova Scotia innovation equity tax credit
- Nova Scotia venture capital tax credit
- Nova Scotia digital media tax credit
- Nova Scotia digital animation tax credit
- Ontario computer animation and special effects (OCASE) tax credit
- Manitoba interactive digital media tax credit
- Manitoba data processing investment tax credits
- Manitoba rental housing construction incentive tax credit
- Saskatchewan – Provincial corporation tax
- British Columbia film and television tax credit
- British Columbia production services tax credit
- British Columbia mining exploration tax credit
- British Columbia training tax credit
- British Columbia interactive digital media tax credit
- British Columbia shipbuilding and ship repair industry tax credit
- British Columbia clean buildings tax credit
Find out if this guide is for you
This guide gives you basic information on how to complete the T2 Corporation Income Tax Return. This return is used to calculate federal income tax and credits. Corporations that have a permanent establishment in any province or territory other than Quebec or Alberta also use this return to report provincial and/or territorial income taxes and credits. Corporations with a permanent establishment in Quebec or Alberta must file a separate provincial return.
What's new
Canada carbon rebate for small businesses
A new refundable tax credit is available to return a portion of fuel charge proceeds collected under the federal carbon pollution pricing system to eligible Canadian-controlled private corporations (CCPCs). To be eligible for a Canada carbon rebate for a calendar year, a corporation must:
- have had no more than a total of 499 employees in all provinces in Canada in the calendar year
- for the 2019 to 2023 calendar years, file a tax return for its 2023 tax year by July 15, 2024, and
- have been a CCPC at all times in the tax year ending in 2023
The tax credit amount will be:
- the total number of persons the CCPC employed in each designated province, for each calendar year from 2019 to 2023, multiplied by
- the fuel return the minister of Finance specified for that designated province for that calendar year
The designated provinces are Newfoundland and Labrador, Prince Edward Island, Nova Scotia, New Brunswick, Ontario, Manitoba, Saskatchewan, and Alberta.
CCPCs will not have to apply for this tax credit. Once the corporation files a tax return for a tax year ending in 2023, the Canada Revenue Agency (CRA) will determine the corporation's eligibility and, generally, issue the rebate to it.
For calendar years after 2023, the Canada carbon rebate will be determined in a similar way – the CRA will automatically calculate the rebate for eligible CCPCs that filed a tax return on or before July 15 of the next calendar year.
See the details about the Canada Carbon Rebate for Small Businesses.
Global minimum tax
A new global minimum tax was introduced to ensure that large multinational enterprises (MNEs) are subject to an effective minimum tax rate of at least 15% on their profits in each jurisdiction they operate in . Large MNEs are entreprises with more than €750 million in worldwide revenues on a consolidated group basis.
The new tax applies to fiscal years starting on or after December 31, 2023. Corporations that are subject to this tax must file applicable returns separately from their T2 Corporation Income Tax Return.
Interest deductibility limits – Purpose-built rental housing
The excessive interest and financing expenses limitation (EIFEL) rules provide an exemption for interest and financing expenses incurred regarding arm's length financing for certain public private partnership infrastructure projects.
The exemption is expanded to include an elective exemption for certain arm's length interest and financing expenses used to build or acquire eligible purpose-built rental housing in Canada. An eligible purpose-built rental housing is a residential complex:
- with at least 4 private apartment units (a unit with a private kitchen, bathroom, and living areas) or 10 private rooms or suites, and
- in which at least 90% of residential units are held for long term rental
This change applies to tax years starting after September 30, 2023, for interest and financing expenses incurred before 2036.
Manipulation of bankrupt status
The exception to the debt forgiveness rules for bankrupt corporations and the loss restriction rule applicable to bankrupt corporations will be repealed.
As a result, bankrupt corporations will have to follow the general rules that apply to other corporations whose commercial debts are forgiven. This change will apply to bankruptcy proceedings that started after April 15, 2024.
Reporting rules for digital platform operators
New reporting requirements have been introduced for the 2024 calendar year for platform operators in select segments of the digital economy. Part XX of the Law came into force January 1, 2024. Starting in January 2025, reporting platform operators have to file an information return on sellers using their platform to generate revenue in select segments of the platform economy.
Synthetic equity arrangement
A corporation can generally deduct the amount of any dividends received on a share of a corporation resident in Canada. However, this is subject to certain limitations. One of these limitations is an anti avoidance rule that denies the dividend received deduction in respect of synthetic equity arrangements (SEA).
This anti-avoidance rule will be simplified by removing the tax-indifferent investor exception (including the exchange traded exception). Corporations will therefore be unable to claim the deduction for dividends received on a share there is a SEA for, without any exceptions. This will apply to dividends received after December 31, 2024.
Withholding for non-resident service providers
Currently, a person who pays a fee, commission or other amount to a non-resident for services provided in Canada is required to withhold 15% of the payment and remit it to the CRA. Effective on royal assent, the CRA will be able to waive this withholding requirement over a specific period under certain conditions. See the details about the Services rendered in Canada (withholding amount).
Avoidance of tax debts
A new supplementary rule was announced to strengthen the existing tax debt anti‑avoidance rule that is intended to prevent taxpayers from avoiding their tax liabilities by transferring their assets to non-arm's length persons for insufficient consideration. The new supplementary rule will:
- make the transferee jointly and severally, or solidarily, liable with the transferor for the transferor's tax debts
- address plannings involving another person (a planner) to circumvent the existing tax debt avoidance ???OR ANTI-AVOIDANCE)???? rules
In addition , the existing penalty is extended to tax debt avoidance planning that is subject to the supplementary rule. The penalty is equal to the lesser of:
- 50% of the tax that is attempted to be avoided
- $100,000 plus any amount the person, or a related person, is entitled to receive or obtain regarding the planning activity
To further enhance the effectiveness of the tax debt anti-avoidance rule, taxpayers who participate in tax debt avoidance planning will be jointly and severally, or solidarily, liable for the full amount of the avoided tax debt. This amount includes any portion the planner retained as a fee . These measures apply to transactions or series of transactions that occur after April 15, 2024. See the details about the Misrepresentation in tax matters by a third party.
Reportable and notifiable transactions penalty
The general penalty provision for failure to file an information return is removed for reportable or notifiable transactions, as there are specific penalty provisions under the mandatory disclosure rules (MDR) that apply. This is deemed to have come into force on June 22, 2023, which is the coming into force date of the specific penalty provisions under the MDR. See the details about the Penalties.
Non-compliance with information requests
Effective on royal assent, the information gathering provisions are amended by:
- creating a new notice of non-compliance
- providing the possibility to require that any required information or document be provided under oath
- adding a penalty when the CRA issues a compliance order or a notice of non-compliance
- expanding the rules to stop the reassessment limitation clock
See the details about the Requirements for information and compliance orders.
Excessive interest and financing expenses limitation (EIFEL) rules
New EIFEL rules put a cap on the net amount of interest and financing expenses (interest and financing expenses minus interest and financing revenues) that can be deducted. For tax years starting on or after January 1, 2024, the cap is generally equal to 30% of adjusted taxable income. As a transition measure, a ratio of 40% applies to tax years starting on or after October 1, 2023, and before January 1, 2024. See the details and Schedule 130.
Non-compliant short term rentals
Effective January 1, 2024, any deduction from income from non-compliant short-term rentals is disallowed. See Schedule 1, Net Income (Loss) for Income Tax Purposes. Also, when completing Schedule 8, capital cost allowance deductions are not permitted.
Capital gains inclusion rate
For capital gains realized by a corporation after June 24, 2024, the inclusion rate is increased to two thirds. See Part 9 – Taxable capital gains and total capital losses and Part 2 – Capital losses.
Accelerated capital cost allowance (CCA)
An accelerated CCA rate of 10% under class 1 will apply to new eligible purpose-built rental housing projects that begin construction after April 15, 2024, and before 2031, and are available for use before 2036. Investments eligible for this measure will continue to benefit from the accelerated investment incentive (AII), which currently suspends the half-year rule, providing a CCA deduction at the full rate for eligible property that becomes available for use before 2028.
Immediate expensing (a 100% first-year deduction) will apply to new additions of property to CCA classes 44, 46, and 50, if the property is acquired after April 15, 2024, and becomes available for use before 2027. Property that becomes available for use in 2027 will continue to benefit from the AII.
See the details about the Purpose-built rental housing – Class 1 and the Productivity-enhancing assets – Classes 44, 46, and 50.
Donation receipts
Effective on registration of the amended Regulation, charities will be allowed to issue donation receipts electronically, if:
- they contain all required information
- they are issued in a secure and non-editable format
- the charity maintains an electronic copy of the receipts
See the details at Line 311 – Charitable donations.
Line 580 – Total labour requirements addition to tax
For clean economy investment tax credits (ITCs) other than the clean technology manufacturing ITC, there are consequences for not complying with the labour requirements if you have attested and elected to meet the labour requirements and claimed the credit at the regular rate. See the details at Line 580 – Total labour requirements addition to tax.
Mutual fund corporation
For tax years starting after 2024, a corporation will not qualify as a mutual fund corporation if specified persons together own more than 10% of its shares by value and it is controlled by or for the benefit of a corporate group. Exceptions will apply to ensure that the measure does not adversely affect mutual fund corporations that are widely held pooled investment vehicles. See the details at Line 788 – Federal capital gains refund.
Clean technology manufacturing ITC – Polymetallic extraction and processing
Because producing qualifying materials may occur during polymetallic projects (projects that produce multiple metals), several adjustments were made to the credit. One of these includes changing the test to a "primarily" test (with 50% rather than 90%) for property used in qualifying mineral activities expected to produce qualifying materials at mine or well sites. See the details about the Clean technology manufacturing ITC.
Electric vehicle supply chain ITC
Budget 2024 proposes a new 10% electric vehicle (EV) supply chain investment tax credit that would apply on the cost of buildings used in key segments of the EV supply chain for businesses that invest in Canada across three supply chain segments:
- electric vehicle assembly
- electric vehicle battery production
- cathode active material production
See the details.
Newfoundland and Labrador – Provincial corporation tax
Effective January 1, 2024, the lower rate of income tax is decreased from 3% to 2.5%. See Newfoundland and Labrador.
Nova Scotia innovation equity tax credit
The credit, which was set to end February 29, 2024, has been extended five years to March 1, 2029. See Nova Scotia innovation equity tax credit.
Nova Scotia venture capital tax credit
The credit, which was set to end March 31, 2024, has been extended five years to March 30, 2029. See Nova Scotia venture capital tax credit.
Nova Scotia digital media tax credit
The credit, which was set to end December 31, 2025, has been extended five years to December 31, 2030. See Nova Scotia digital media tax credit.
Nova Scotia digital animation tax credit
The credit, which was set to end December 31, 2025, has been extended five years to December 31, 2030. See Nova Scotia digital animation tax credit.
Ontario computer animation and special effects (OCASE) tax credit
For film or television productions for which no specified labour costs were incurred before March 26, 2024, an eligible production no longer has to qualify for either the Ontario film and television tax credit or the Ontario production services tax credit to claim the OCASE credit. Instead, the corporation has to incur a minimum of $25,000 in Ontario labour expenditures for each film or television production it is claiming the OCASE credit for. See Ontario computer animation and special effects (OCASE) tax credit.
Manitoba interactive digital media tax credit
Expenses for eligible projects are to be claimed in the tax year in which they were incurred. The requirement that a corporation claim the credit on or before its filing due date for the tax year is eliminated. Some qualified corporations, in certain circumstances, will be exempt from having to apply for a certificate of eligibility (pre-approval) before project work begins. See Manitoba interactive digital media tax credit.
Manitoba data processing investment tax credits
These credits are eliminated for the 2025 and later tax years. See Manitoba data processing investment tax credits.
Manitoba rental housing construction incentive tax credit
Effective for the 2024 tax year, a new refundable tax credit is announced that will provide:
- $8,500 for the construction of new market rate rental units
- $13,500 for units classified and maintained as affordable units for a period of at least 10 years
Construction must start on or after January 1, 2024. See Manitoba rental housing construction incentive tax credit.
Saskatchewan – Provincial corporation tax
The lower tax rate of income tax of 1% has been extended until June 30, 2025. It was previously set to return to 2% on July 1, 2024. See Saskatchewan.
British Columbia film and television tax credit
Animated productions that begin key animation on or after June 1, 2024, are no longer eligible for the regional and distant location regional tax credits. See British Columbia film and television tax credit.
British Columbia production services tax credit
Animated productions that begin key animation on or after June 1, 2024, are no longer eligible for the regional production services and distant location production services tax credits. See British Columbia production services tax credit.
British Columbia mining exploration tax credit
Effective February 23, 2024, mining exploration expenses for oil and gas are excluded from the mining exploration tax credit. See British Columbia mining exploration tax credit.
British Columbia training tax credit
The credit, which was set to end December 31, 2024, is extended three years to December 31, 2027. See British Columbia training tax credit.
British Columbia interactive digital media tax credit
Effective September 1, 2024, products that enable gambling with currency will not qualify as interactive digital media products. See British Columbia interactive digital media tax credit.
British Columbia shipbuilding and ship repair industry tax credit
The credit, which was set to end December 31, 2024, is extended two years to December 31, 2026. See British Columbia shipbuilding and ship repair industry tax credit.
British Columbia clean buildings tax credit
The retrofit certification deadline is extended by six months from March 31, 2027, to September 30, 2027. See British Columbia clean buildings tax credit.
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