T2 Corporation – Income Tax Guide – Chapter 2: Page 2 of the T2 return

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Attachments

Schedules can be organized into two categories:

  • information schedules, including general information schedules and those relating to transactions with non-residents
  • calculation schedules, including schedules used to calculate net income, taxable income, deductions, taxes, and credits

We provide a complete list of the schedules at the end of this guide. The schedules are available at Forms and publications. You can also get them by calling 1-800-959-5525. To file the schedules we do not publish, such as Schedule 92, gather the requested information and label it with the schedule number in the top right-hand corner of each page.

On pages 2 and 3 of the return, we list the most common schedules you may have to attach to your return. If you respond yes to any of the questions on these pages, attach to your T2 return the schedule that applies, unless otherwise instructed.

Financial statements or General Index of Financial Information (GIFI)

Each corporation should include complete financial statement information for the tax year of the return using the General Index of Financial Information (GIFI).

Note

Certain non-resident corporations do not have to file using GIFI. For more information, see Guide RC4088, General Index of Financial Information (GIFI).

GIFI schedules include:

Note

Include any notes to the financial statements and the auditor or accountant's report, if they were prepared. You should include this information even if you are filing your return using tax preparation software. For more information, see Using tax preparation software.

When preparing the first return for a new corporation, attach all of the following documents:

  • Schedule 101, Opening Balance Sheet Information
  • copies of all relevant agreements or the full details on shares issued for anything other than cash consideration, if they apply
  • if it applies, the closing balance sheet of the proprietorship, partnership, or corporation if the new corporation acquired the assets or business, or assumed the liabilities of a former proprietorship, partnership, or corporation

Corporations that are inactive throughout the tax year and that do not have balance sheet or income statement information to report do not have to attach schedules 100125, and 141 to their T2 return. However, they will be accepted if filed.

The GIFI schedules are to be completed with information from the corporation's financial statements. These schedules are laid out with a "column A" where the appropriate GIFI code is entered, and a "column B" where the corresponding dollar amount is entered.

The GIFI is included in all tax preparation software packages certified by the CRA and in most accounting software.

For more information on the GIFI, see Guide RC4088, General Index of Financial Information (GIFI).

Information schedules and forms

The following section describes the various general information schedules and forms you may have to complete.

Schedule 9, Related and Associated Corporations

Complete Schedule 9 if the corporation is related to or associated with at least one other corporation.

References
Sections 251 and 256

When is a corporation associated?

Association is based on control. Control can be exerted either directly or indirectly in any way. A person or a group of persons can control a corporation. Keep in mind that, in this context, a person can be either an individual or a corporation.

Control includes both de jure control and de facto control. De jure control is the right of control that depends on a person owning enough shares of a corporation to give that person a majority of the voting power. De facto control, or factual control, occurs when a corporation is subject to any direct or indirect influencing that, if exercised, would result in actual control being exerted.

For tax years that begin after March 21, 2017, the determination of whether a taxpayer has any direct or indirect influence that, if exercised, would result in factual control of the corporation, shall meet both conditions:

  • take into consideration all factors that are relevant in the circumstances
  • not be limited to whether the taxpayer has a legally enforceable right or ability to make a change in the board of directors of the corporation, or the board’s power, or to exercise influence over the shareholder(s) who have that right or ability. The previous factors are not mandatory in determining factual control

In general, a corporation is associated with another corporation if it meets one of the following six conditions at any time in the tax year. Remember that controlled means directly or indirectly in any way.

Condition 1

The corporations are associated if one corporation controls the other.

Example

Corp X owns 100% of the voting shares of Corp Y, which in turn owns 51% of the voting shares of Corp Z.

Corp X is associated with Corp Y, because it exerts direct control over it.

Corp X is associated with Corp Z, because it exerts indirect control over it.

Condition 2

The corporations are associated if both corporations are controlled by the same person or group of persons.

Corporations may be associated because the same group of persons controls both corporations, but the members of this group do not act together and have no other connection to each other.

CCPCs that are associated only because of this definition of a group will NOT be considered associated when doing all the following calculations:

  • calculating the refundable investment tax credit on eligible SR&ED expenditures
  • calculating the expenditure limit
  • allocating the expenditure limit

For this exception to apply, one of the corporations must have at least one shareholder who is not common to both corporations.

The corporations will continue to be associated for all other purposes of the Income Tax Act.

Example

Bob owns 40% of the voting shares of Corp ABC and 30% of the voting shares of Corp XYZ. Ike owns 20% of the voting shares of Corp ABC and 40% of the voting shares of Corp XYZ.

As a group, Bob and Ike control both companies. Corps ABC and XYZ are associated.

Condition 3

The corporations are associated if all of the following apply:

  • each corporation is controlled by one person
  • that person is related to the person controlling the other corporation
  • one of those persons owns at least 25% of the issued shares of any class, other than shares of a specified class, of the capital stock of each corporation
Example

Billy owns 100% of the issued share capital of Corp AB. He also owns 25% of the class A shares (other than shares of a specified class) of Corp CD, whose controlling shareholder is Billy's brother.

Corps AB and CD are associated.

Condition 4

The corporations are associated if all of the following apply:

  • one corporation is controlled by one person
  • that person is related to each member of a group of persons who controls the other corporation
  • that person owns at least 25% of the issued shares of any class, other than shares of a specified class, of the capital stock of the other corporation
Example

Buddy controls Corp AY. His two daughters control Corp AZ. Buddy also owns 50% of the class A preferred shares of Corp AZ.

Corps AY and AZ are associated.

Condition 5

The corporations are associated if all of the following apply:

  • each corporation is controlled by a related group
  • each of the members of one of the related groups is related to all members of the other related group
  • one or more persons who are members of both related groups, either alone or together, own at least 25% of the issued shares of any class, other than shares of a specified class, of the capital stock of each corporation
Example

Anne and her two daughters control Corp One. Anne and her two sons control Corp Two. Anne owns 33% of the common shares in each corporation.

Corps One and Two are associated.

Condition 6

Two corporations that are not associated with each other will be considered associated under subsection 256(2) if they are associated with the same corporation (the third corporation). Special rules apply for determining the small business deduction. See Schedule 28, Election not to be Associated Through a Third Corporation for details.

Example

Corp AB owns 100% of the issued share capital of Corp CD. It also owns 25% of the class A shares (other than shares of a specified class) of Corp XY, whose controlling shareholder is Billy. Billy’s brother controls Corp AB.

Corps AB, CD, and XY are associated.

References
Section 251
Subsections 256(1), (1.1), (1.2), (2), and (5.1)
IT-64, Corporations: Association and Control

Schedule 23, Agreement Among Associated Canadian-Controlled Private Corporations to Allocate the Business Limit

All CCPCs that are associated have to file Schedule 23.

This schedule is used to both:

  • identify all the associated corporations to establish both:
    • the date the balance of tax is due (see Balance-due day)
    • the calculation of the business limit reduction
  • allocate a percentage to each of the associated corporations for the allocation of the business limit. The total of all percentages cannot be more than 100%. See the maximum business limit.

Notes

Only one of the associated or related corporations needs to file Schedule 23 for a calendar year. However, if Schedule 23 is not already on file with us when we assess any of the returns for a tax year ending in the calendar year of the agreement, we will ask for one.

If the corporation's tax year is shorter than 51 weeks, prorate the business limit allocated in column 400 of Schedule 23 based on the number of days in the tax year divided by 365.

Associated corporations with more than one tax year in a calendar year

Special rules apply to determine the business limit for associated corporations that have more than one tax year ending in the same calendar year.

For the second or later tax years that end in the same calendar year, the business limit is whichever of the following amounts is less:

  • the amount allocated to the corporation for the first tax year
  • the amount allocated to the corporation for the later tax year in question

Make sure the total of the business limits of all associated corporations for any tax years that end in the same calendar year is not more than the maximum allowable business limit for that calendar year.

If the corporation's tax year is shorter than 51 weeks, prorate the business limit as determined above, based on the number of days in the tax year divided by 365.

Example

Corp A and Corp B are associated in 2018.

Corp A's tax year runs from January 1, 2018, to June 30, 2018.

The business limit allocated to Corp A for its June 30, 2018, tax year is $100,000.

On November 1, 2018, Corp C becomes associated with Corp A and Corp B. The tax year-end for Corp C is December 31, 2018. Corp A and Corp B change their year-ends to match Corp C's year-end.

The corporations decide to allocate a $300,000 business limit to Corp C for the December 31, 2018, year-end. Because the total of their business limits cannot be more than $500,000, the corporations allocate $90,000 to Corp A and $110,000 to Corp B.

Question
What is Corp A's business limit for each of the two tax years ending in the 2018 calendar year?

Answer
Tax year ending June 30, 2018:

Because the tax year is shorter than 51 weeks, Corp A prorates the business limit for the number of days in the tax year as follows:

$100,000 × (181 days ÷ 365 days) = $49,589

Note

365 is not adjusted for a leap year.

Tax year ending December 31, 2018:

Because the tax year is shorter than 51 weeks, Corp A prorates the business limit for the number of days in the tax year. Corp A uses the $90,000 business limit allocated in this tax year, because it is less than the $100,000 business limit allocated in its first tax year ending in 2018.

Corp A prorates the business limit as follows:

$90,000 × (184 days ÷ 365 days) = $45,370

Note

365 is not adjusted for a leap year.

Reference
Subsection 125(5)

Schedule 49, Agreement Among Associated Canadian-Controlled Private Corporations to Allocate the Expenditure Limit

All CCPCs that are associated and have scientific research and experimental development (SR&ED) expenditures have to file Schedule 49. These corporations use this form to:

  • identify all the associated corporations, and
  • allocate the expenditure limit for the 35% ITC rate on qualifying SR&ED expenditures

For more details about the ITC, see Line 652.

Note

Only one of the associated or related corporations needs to file Schedule 49 for a calendar year. However, if Schedule 49 is not already on file with us when we assess any of the returns for a tax year ending in the calendar year of the agreement, we will ask for one.

Associated corporations with more than one tax year in a calendar year

Special rules apply to determine the expenditure limit for associated corporations that have more than one tax year ending in the same calendar year. Prorate the expenditure limit for each tax year ending in the calendar year based on the number of days in the tax year divided by 365.

Be sure that the amount you prorate for each of the tax years is equal to the amount allocated to the corporation for the first tax year ending in the calendar year.

References
Subsections 127(10.3) and 127(10.6)

Schedule 28, Election not to be Associated Through a Third Corporation

File Schedule 28 if a CCPC that is associated with two other corporations elects under subsection 256(2) for the two other corporations not to be associated with each other for the purposes of the small business deduction..

Note

Two corporations (Corps A and B) that are not associated with each other are considered associated under subsection 256(2) if they are associated with the same corporation (the third corporation).

When the CCPC (the third corporation) makes this election, its business limit for the small business deduction is considered to be zero.

Investment income received from either of the two other corporations’ active business will be ineligible for the small business deduction as it will not be treated as active business income.

Corps A and B remain associated with the CCPC. They must include the taxable capital limit of the CCPC when calculating the small business deduction.

The CCPC has to file a new election for each applicable tax year.

Reference
Subsection 256(2)

Schedule 19, Non-Resident Shareholder Information

Complete Schedule 19 if a non-resident shareholder owned a voting share of any class of the corporation's capital stock at any time during the tax year. Do not include non-voting shares.

Schedule 11, Transactions with Shareholders, Officers, or Employees

Complete Schedule 11 if the corporation had transactions with shareholders, officers, or employees.

Do not include transactions the corporation carried out in the ordinary course of business, or any transactions listed on Form T106, Information Return of Non-Arm's Length Transactions with Non-Residents. See Form T106 for details.

If the corporation is involved in a transfer of property under section 85, make sure to file either Form T2057, Election on Disposition of Property by a Taxpayer to a Taxable Canadian Corporation, or Form T2058, Election on Disposition of Property by a Partnership to a Taxable Canadian Corporation. File Form T2058 when property is transferred from a partnership. File Form T2057 in all other cases.

Schedule 44, Non-Arm's Length Transactions

Complete Schedule 44 if all or substantially all of the assets of a non-arm's length corporation are transferred to or received by you in the tax year and subsections 85(1)85(2) or 142.7(3) applied to any of the transactions.

Generally, we consider all or substantially all to be at least 90%. You have to evaluate all assets at cost or fair market value.

When this kind of non-arm's length transaction takes place, the instalment requirements of the transferee corporation have to take into account those of the transferor corporation.

Reference
Regulation 5301(8)

Schedule 14, Miscellaneous Payments to Residents

Complete Schedule 14 if you made any of the following payments to residents of Canada:

  • royalties for which you have not filed a T5 slip, Statement of Investment Income
  • research and development fees
  • management fees
  • technical assistance feesFootnote 1
  • similar payments

List only the payments that were more than $100.

Schedule 15, Deferred Income Plans

Complete Schedule 15 if you deducted from your income payments you made to deferred income plans, such as:

References
Subsections 146(1) and 147.5(10)
Paragraphs 20(1)(q) and 147.5(3)(b)
IC13-1, Pooled registered pension plans (PRPP)

Form T5004, Claim for Tax Shelter Loss or Deduction

If you are claiming a loss or deduction from an interest in a tax shelter, file Form T5004 with your return.

The promoter has to prepare Form T5003, Statement of Tax Shelter Information, and send copies to each investor. Attach copy 2 of Form T5003 to your return.

Use the following guidelines to complete your T2 return and schedules:

  • for a gift, use line 311, 313, 314, or 315 of the return, whichever applies
  • for a limited partnership loss (see Part 7 – Limited partnership losses), use lines 600 to 620 of Schedule 4, and line 222 of Schedule 1
  • for a business investment loss, use lines 900 to 950 of Schedule 6, and
  • for any other losses or deductions, use lines 395, 396, and 705 of Schedule 1

Reference
IC89-4, Tax Shelter Reporting

Information slip T5013, Statement of Partnership Income

If you are a member of a partnership, attach to your return a list of all the partnership account numbers assigned to the partnerships of which you are a member.

Corporate partners that receive a T5013 information slip do not have to file it with their return. They should keep it in case we ask for it later.

Notes

Each partnership has to file a T5013 FIN, Partnership Financial Return and T5013 SUM, Information Slips Summary, for each fiscal period. However, some partnerships are exempt from this requirement. For more information, see Guide T4068, Guide for the Partnership Information Return.

Except where an election is filed under subsection 249.1(4), for the tax year that includes the first day of the first fiscal period of a business, partnerships with at least one member who is an individual, a professional corporation, or another affected partnership have to have a December 31 fiscal period end.

Certain partnerships in a multi-tier partnership structure also have to have a December 31 fiscal period end unless a valid multi-tier alignment election was made to align to a common fiscal period. The eligible period to make this one‑time election has ended.

Schedule 22, Non-Resident Discretionary Trust

Complete Schedule 22 if the corporation, a foreign affiliate the corporation controls, or any other corporation or trust that did not deal at arm's length with the corporation had a beneficial interest in a non-resident discretionary trust anytime during the tax year (without reference to section 94).

Schedule 25, Investment in Foreign Affiliates

Complete Schedule 25 if the corporation is resident in Canada and holds shares in one or more foreign affiliates, as defined in subsection 95(1).

Schedule 29, Payments to Non-Residents

Complete Schedule 29 if the corporation paid or credited any of the following amounts to non-residents:

  1. royalties
  2. rents
  3. management fees/commissions
  4. technical assistance feesFootnote 2
  5. research and development fees
  6. interest
  7. dividends
  8. film acting payments for either:
    • a motion picture film
    • a film or videotape for use in connection with television
  9. other services

If the total amount paid or credited to a payee is less than $100, you do not have to complete this schedule with the information for that payee.

A corporation that makes payments or credits amounts to non-residents under Regulations 202(1) and/ or 105(1) of the Income Tax Regulations has to file the applicable information return.

Thin capitalization rules: Disallowed interest treated as a dividend  Interest disallowed as a deduction under the thin capitalization rules (including amounts paid, credited, or payable to a non resident by the corporation or by a partnership that the corporation is directly or indirectly a member of) will be deemed to be a dividend paid to the non-resident. As a result, the corporation has to remit Part XIII tax using the rate that applies to dividend payments.

The corporation may designate, on or before its filing due date for the tax year, which amounts paid or credited in the tax year as interest to a particular specified non-resident are to be deemed dividends. The designation may be included with the notes to the financial statements.

References
Subsections 18(4), 214(16) and 214(17)
Regulations 105(1) and 202(1)

Form T106, Information Return of Non-Arm's Length Transactions With Non-Residents

Form T106 is an annual information return on which you report the corporation's activities with certain non-resident persons under section 233.1.

File Form T106 if all of the following apply:

  • at any time in the tax year, you were either a resident in Canada or a non-resident that carried on business (other than as a member of a partnership) in Canada
  • you entered into reportable transactions with a non-resident person with whom you were not dealing at arm's length at any time in the year and partnerships of which the non-resident person is a member
  • the total reportable transactions are more than CAN $1,000,000

Form T106 consists of the T106 Summary and the T106 slips. File a separate T106 slip for each non-resident.

On Form T106, report all transactions between you and the non-resident, including those transactions concerning:

  • tangible property
  • rents
  • royalties and intangible property
  • services
  • advances, loans, or other accounts receivable or payable to or from a non-resident (beginning and ending balances including gross increases and decreases)

File Form T106 within six months of the end of the reporting corporation's tax year. Send it to the following address:

Winnipeg Tax Centre
Data Assessment and Evaluation Programs
Validation and Verification Section
Foreign Reporting Returns
66 Stapon Road
Winnipeg MB  R3C 3M2

Note

If you file Form T106 late, the corporation will be subject to penalties. When the filing deadline falls on a Saturday, Sunday, or or a public holiday recognized by the CRA, we will consider the return filed on time if it is sent on the first business day after the filing deadline. For more information, go to Important dates for corporations.

References
Sections 233.1 and 251
Subsections 162(7) and 162(10)

Foreign property

Foreign affiliates

For tax years of a foreign affiliate that begin after February 26, 2018, new rules are introduced in response to “tracking arrangements” undertaken by Canadian corporations to avoid the investment business rules and the controlled foreign affiliate status, to ensure that the foreign accrual property income earned by the foreign affiliate is taxed on an accrual basis. Also, the reassessment period is extended by three years for income arising in connection with a foreign affiliate of a corporation.

A corporation resident in Canada, of which a non-resident corporation is a foreign affiliate at any time in the year, must file Form T1134, Information Return Relating to Controlled and Not-Controlled Foreign Affiliates, within 15 months after the end of its tax year. A separate supplement has to be filed for each foreign affiliate.

Form T1134 contains more information about filing.

Beneficiaries of non-resident trusts

A corporation may have received, in the year, funds or property from, or been indebted to, a non-resident trust in which it had a beneficial interest. If so, you have to complete and file Form T1142, Information Return in Respect of Distributions from and Indebtedness to a Non-Resident Trust.

A separate form has to be filed for each non-resident trust. Form T1142 contains more information about filing.

Transfers to non-resident trusts

A corporation may have transferred or loaned funds or property to a non-resident trust. If so, you may have to complete and file Form T1141, Information Return in Respect of Contributions to Non-Resident Trusts, Arrangements or Entities.

A separate form has to be filed for each non-resident trust. Form T1141 contains more information about filing.

Ownership of foreign property

If, at any time in the year, the corporation owned or held specified foreign property where the total cost of all such property was more than CAN$100,000, you have to complete and file Form T1135, Foreign Income Verification Statement. If the total cost of all such property is less than CAN$250,000 throughout the year, the corporation may use the simplified reporting method included in Form T1135.

Note

Specified foreign property does not include, for example:

  • foreign investments held in Canadian mutual funds
  • property you used or held exclusively in the course of carrying on your active business, and
  • a share of the capital stock or indebtedness of a foreign affiliate

For more information on the property you are required to report, see Form T1135 or go to page Foreign Income Verification Statement.

Note

You can Efile Form T1135 for the 2014 and following tax years. 

Non-resident trusts (NRTs) and offshore investment fund property (OIFP)

NRTs with a resident contributor or a resident beneficiary are deemed to be resident in Canada throughout the year for many purposes under the Act including determining the liability of the trust for tax under Part I. As deemed resident trusts, they will also have the obligation to withhold and remit Part XIII tax on amounts paid to non-residents. However, the deemed resident trusts themselves will not be liable under Part XIII.

Also, the resident contributor and/or resident beneficiary are deemed to be jointly, severally, and solidarily liable for the trust’s Canadian tax liability and reporting obligations. This means that a corporation that is a resident contributor or resident beneficiary to a trust is jointly, severally and solidarily liable for the Canadian tax liability and reporting obligation of that trust.

Corporations with an interest in an OIFP may have to include an amount in their income as determined under the Act.

For more information about NRTs and OIFP, including the specific definitions of resident contributor, resident beneficiary, and offshore investment fund property, call us at one of the telephone numbers provided under For more information.

References
Section 94.1
Subsections 94(3) and 94(4)

Penalties

There are substantial penalties for not completing and filing Forms T1134, T1135, T1141, and T1142 by the due date, and for knowingly or under circumstances amounting to gross negligence making false statements or omissions in any of the information returns.

References
Sections 233.1 to 233.6
Subsections 162(7), 162(10), 162(10.1), and 163(2.4)

Schedule 50, Shareholder Information

Complete Schedule 50 if you are a private corporation and if any shareholder holds 10% or more of your common and/or preferred shares. Give a maximum of the 10 top shareholders and the requested information.

Line 172 – Has the corporation made payments to, or received amounts from, a retirement compensation arrangement in the year?

To answer this question, tick the yes or no box. No schedule or form is required.

Line 180 – Schedule 88, Internet Business Activities

Complete Schedule 88 if your corporation earns income from one or more Internet webpages or websites. See the schedule for more information.

Calculation schedules

You may also have to use various calculation schedules to complete the rest of your return. We list these schedules on page 2 of the return. You will find details about each of these schedules in the following chapters.

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