T2 Corporation – Income Tax Guide – Chapter 3: Page 3 of the T2 return

From: Canada Revenue Agency

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Attachments

See Chapter 2 to complete this section.

Additional information

Provide all the information we request in the "Additional information" area of your return.

Line 270 – Did the corporation use the International Financial Reporting Standards (IFRS) when it prepared its financial statements?

If the corporation used the International Financial Reporting Standards (IFRS) to prepare its financial statements, answer yes to this question.

The use of the IFRS is mandatory for all publicly accountable enterprises. This includes corporations that have calculated their financial statements in accordance with the IFRS but have not complied with all aspects of the IFRS. A corporation that has issued, or is in a process of issuing, publicly-traded debt or equity instruments or who holds assets in a fiduciary capacity for a broad group of outsiders is generally considered to be a publicly accountable enterprise.

For the first year when IFRS is adopted, corporations are required to maintain additional documentation to support amounts filed on the General Index of Financial Information (GIFI) and tax returns. For more information on IFRS books and records and other IFRS topics, go to International Financial Reporting Standards (IFRS).

Line 280 – Is the corporation inactive?

Even if a corporation is inactive, which means it has not operated during the tax year, it has to file a return.

Note

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.

Lines 284 to 289 – Specify the principal products mined, manufactured, sold, constructed, or services provided, giving the approximate percentage of the total revenue that each product or service represents

If you file electronically, enter the proper North American Industry Classification System (NAICS) code before completing lines 284 to 289. If you do not select the business activity, you will have problems and errors when you prepare the T2 return to be transmitted electronically or printed in bar-code format.

Break down the business activity into the following categories:

  • the principal products mined, manufactured, sold, or constructed
  • the services provided

Also, give the approximate percentage of the corporation's total revenue that each product or service represents.

Line 291 – Did the corporation immigrate to Canada during the tax year?

Tick the yes or no box.

Line 292 – Did the corporation emigrate from Canada during the tax year?

Tick the yes or no box.

Line 293 – Do you want to be considered as a quarterly instalment remitter, if you are eligible?

A small-CCPC is eligible to make quarterly instalment payments if it meets certain conditions. To determine if you are eligible, see Guide T7B-Corp, Corporation Instalment Guide.

Line 294 – If the corporation was eligible to remit instalments on a quarterly basis for part of the tax year, provide the date the corporation ceased to be eligible.

Indicate the date that the corporation ceased to be eligible to remit instalments on a quarterly basis.

Line 295 – If the corporation's major business activity is construction, did you have any subcontractors during the tax year?

Tick the yes or no box.

Major business activity

All individuals, partnerships, and corporations whose principal business activity is construction have to report payments made to subcontractors. For these purposes, construction is defined as erecting, installing, altering, modifying, repairing, improving, demolishing, dismantling, or removing any structure or part, including but not limited to buildings, roads, and bridges.

Who is a subcontractor?

A subcontractor is an individual, partnership, or corporation that provides construction services.

For more information, go to Contract Payment Reporting System (CPRS).

Calculating net income or loss

There are several schedules you may have to use to calculate the net income or loss for income tax purposes. This section explains each of those schedules.

Note

If your corporation is a member of a partnership, schedules 1, 6, and 7 are affected by the rules in section 34.2 and the amounts reported on Schedule 73 (as applicable). See Partnerships – Limiting deferral of corporation tax.

Schedule 1, Net Income (Loss) for Income Tax Purposes

Generally, the net income (loss) reported on your financial statements will not be the same as the net income (loss) required for tax purposes. This is because certain income and expenses reported on your financial statements may not be used in the calculation of net income (loss) for tax purposes.

For example, you do not deduct charitable donations when determining net income for tax purposes, as you would to arrive at net income on your financial statement.

Note

Charitable donations are deducted (afterward) from net income for tax purposes to arrive at taxable income.

Use Schedule 1 to reconcile the net income (loss) reported on your financial statements and the net income (loss) required for tax purposes.

Enter net income or loss after income tax and extraordinary items at amount A, page 1 of Schedule 1. Add the taxable items and the non-allowable expenses listed on lines 101 to 199 and subtract from this the non-taxable items and eligible expenses listed on lines 401 to 499.

Additions and deductions identified on lines 101 to 132 and 401 to 418 of Schedule 1 are the most common additions and subtractions. For other additions and deductions, see pages 3 and 4.

Some expenses deducted on your income statement are not allowable for income tax purposes and are not identified on Schedule 1. In this case, use columns 605 and 295, and line 296, "Other additions", on page 3.

Also, certain items included in income that are not taxable are not identified on this schedule. In such cases, complete columns 705 and 395, and line 396, "Other deductions", on page 4.

Notes

Only complete lines 203 and 302 if you are converting from an accrual basis to a cash basis. Otherwise, these lines should be left blank.

The deductible portion of expenses you incurred for food, beverages, and entertainment is only 50% of whichever is less: the expenditure actually incurred or the amount that would be reasonable in the circumstances.

Eighty percent of expenses for food and beverages consumed by a long-haul truck driver during an eligible travel period are deductible. For more information, see Guide T4002, Self-Employed Business, Professional, Commission, Farming, and Fishing Income or go to Other employment expenses and select "Transportation employees".

A full deduction is allowed for meals provided to an employee at a temporary construction work camp, if certain conditions are met. For more information on this subject, see Guide T4130, Employer's Guide – Taxable Benefits and Allowances or go to Payroll.

Taxable capital gains or allowable capital losses allocated by a partnership to a corporate partner are not included on line 129 of Schedule 1 of the corporate partner. Instead, the corporate partner’s share of the partnership’s capital gain or loss should be reported on Schedule 6 of the corporate partner.

Schedule 6, Summary of Dispositions of Capital Property

You have to complete Schedule 6 if you disposed of capital property during the tax year and incurred any capital losses or realized any capital gains. You also have to complete this schedule if you claim an allowable business investment loss.

References
Section 54
IT‑170, Sale of Property - When Included in Income Computation
IT‑448, Dispositions - Changes in Terms of Securities
IT‑460, Dispositions - Absence of Consideration
S3-F4-C1, General Discussion of Capital Cost Allowance

Designation under paragraph 111(4)(e)

Answer yes or no to the question on line 050, page 1 of Schedule 6.

You can make a designation under paragraph 111(4)(e) if a person or group of persons has acquired control of the corporation. If you make the designation, capital properties will be considered as having been disposed of immediately before that person or group of persons acquired control of the corporation.

Completing Schedule 6

To help you complete Schedule 6, we have provided the following explanations that briefly set out the type of information we need in each column and each part of the schedule.

Date of acquisition

In this column, give the date you acquired the property.

Proceeds of disposition

In this column, indicate the proceeds of disposition. The proceeds of disposition are usually the selling price of the property. However, they can also include compensation the corporation received for property that was destroyed, expropriated, stolen, or damaged.

For a gift or a deemed disposition, the proceeds of disposition are usually the fair market value of the property when its owner or use changes.

References
Section 54
IT‑259, Exchange of Property

Adjusted cost base

In this column, indicate the cost of the property you used to calculate any capital gain or loss. This amount is called the adjusted cost base (ACB). The ACB is the original cost of the property that has been adjusted to reflect certain transactions or occurrences that took place after acquiring the property.

The cost of a capital property may be the actual cost, a deemed cost, or the valuation-day value of the property. The nature of the property and the circumstances under which you acquired it determine which cost of the capital property you should use.

References
Subsections 53(1) and 53(2)

The cost of property acquired after 1971 is usually the actual cost of acquiring it, including the purchase price plus any related costs, such as commissions, legal fees, and other reasonable expenses. It also includes the cost of additions and improvements to the property. It does not include current expenses, such as maintenance and repair costs.

Special rules apply when determining the cost of capital property owned on December 31, 1971. According to these rules, tax is not assessed and losses are not allowed for any gain or loss that arose before that date.

When deductions from the cost base of a property (other than a partnership interest) reduce the balance to a negative amount at any time in the tax year, you are considered to have realized a capital gain equal to the amount of the negative balance, and the ACB becomes nil.

You cannot use later additions to the ACB to reduce previous gains on the property that resulted from a negative balance. You can only consider these additions when you determine future gains or losses.

Reference
Subsection 40(3)

Paragraphs 53(1)(e) and 53(2)(c) outline the rules for determining the ACB of a partnership interest.

You have to reduce the ACB of a partnership interest by the amount of any share purchase tax credit, and one-half of any scientific research and experimental development tax credit the partnership allocated to the corporation.

Note

Interests in a partnership that a limited partner or an inactive partner holds are subject to the negative ACB rule.

Outlays and expenses

In this column, enter the amount of outlays and expenses you deducted when calculating a gain or loss. You can deduct most cash outlays the corporation used to put a property into saleable condition when you calculate a gain or loss. You can also deduct expenses incurred when disposing of the property. These expenses include certain fixing-up costs, finder's fees, commissions, surveyor's fees, transfer taxes, and other reasonable expenses incurred to dispose of the property.

Gain (or loss)

In the last column, enter the amount of the gain or loss as instructed.

A capital gain results when the proceeds of disposition of a capital property are more than the ACB and any related outlays or expenses. A capital loss occurs when the proceeds of disposition are less than the ACB and the related outlays and expenses. However, if depreciable property is disposed of, it will result in a terminal loss, not a capital loss. See Column 6 – Undepreciated capital cost for more details about terminal losses.

In certain cases, when you dispose of a building and the land on which it stands, and the building is disposed of for less than its undepreciated capital cost, you may have to reduce the gain on the sale of the land by the terminal loss on the sale of the building.

References
Subsection 13(21.1)

Categories of capital property

There are six categories of capital property you may have disposed of during the tax year. The categories are:

  • shares
  • real estate
  • bonds
  • other properties
  • personal-use property
  • listed personal property

The first six parts of Schedule 6 reflect these six categories of capital property.

Part 1 – Shares

In this part, list the shares disposed of during the tax year. Give the number of shares, the name of the corporation in which the shares were held, and the class of the shares.

Usually, disposing of a share of the capital stock of a corporation will result in a taxable capital gain or an allowable capital loss. However, if the corporation that is disposing of the share is in the business of trading shares, the resulting gain or loss is considered business income or loss.

If a share is converted because of a merger or an amalgamation, subsection 248(1) deems a disposition to have occurred.

Under paragraph 112(3)(b), a corporation (the shareholder) must reduce the losses from the disposition of shares held as capital property by certain dividends received for those shares. This is called a stop-loss rule. Generally, this rule does not apply when the shareholder owns less than 5% of the shares and has held these shares for over a year.

On line 160, enter the total adjustment for such losses identified in Part 1.

Reference
IT‑328, Losses on Shares on Which Dividends Have Been Received

Part 2 – Real estate

In this part, list all real estate disposed of during the tax year. Give the municipal address of each property.

Dispositions of non-depreciable real property (unless the property is inventory) may result in a capital gain or loss. However, dispositions of depreciable property may result in a capital gain, a recapture of CCA, or a terminal loss. See Column 6 – Undepreciated capital cost for details about terminal losses and recaptures.

Enter the total amount of gain or loss realized on disposition of real estate at amount B.

References
IT‑218, Profit, Capital Gains and Losses From the Sale of Real Estate, Including Farmland and Inherited Land and Conversion of Real Estate From Capital Property to Inventory and Vice Versa

Part 3 – Bonds

In this part, list all bonds disposed of during the tax year. Give the face value, the maturity date, and the issuer's name for each type of bond.

When you make a capital disposition of a debt obligation, the amount of any realized discount or bonus received is usually considered a capital gain. Similarly, a premium paid is considered a capital loss, either when the obligation matures or on the date you dispose of the obligation.

Enter the total amount of gain or loss realized on disposition of bonds at amount C.

Reference
IT‑479, Transactions in Securities

Part 4 – Other properties

In this part, describe any capital property disposed of during the tax year that you have not already reported in Parts 1, 2, and 3.

Other property includes capital debts established as bad debts, as well as amounts that arise from foreign currency transactions.

When an amount receivable on a capital account becomes a bad debt and you elect on your return to have the provisions of subsection 50(1) applied, a deemed disposition occurs at the end of the year. You are considered to have reacquired the debt immediately afterwards at a cost of nil. This usually allows the corporation to claim a bad debt as a capital loss in the year. Any later recovery of that debt will result in a capital gain.

References
Subsection 50(1)
IT‑159, Capital Debts Established to be Bad Debts

Foreign exchange gains or losses from buying or selling capital properties are capital gains or capital losses.

Transactions in foreign currency or foreign currency futures that do not form part of the business operations can be considered capital dispositions.

References
Subsection 39(2)
IT‑95, Foreign Exchange Gains and Losses

For dispositions of depreciable property, a capital gain results if the proceeds are more than the capital cost. However, losses on depreciable property do not result in capital losses. These losses are terminal losses. See Column 6 – Undepreciated capital cost to find out more about terminal losses.

You have to report dispositions of goodwill and other intangible properties on Schedule 10, Cumulative Eligible Capital Deduction.

Note

As of January 1, 2017, the eligible capital property regime was replaced with a new capital cost allowance class. For more details, see Schedule 10, Cumulative Eligible Capital Deduction.

Enter the total amount of gain or loss realized on disposition of other properties at amount D.

Part 5 – Personal-use property

In this part, describe any personal-use property you disposed of during the tax year.

Personal-use property of a corporation is property owned mainly for the personal use or enjoyment of an individual who is related to the corporation.

Use the $1,000 rule to determine gains and losses when you dispose of personal-use property. According to this rule, if the adjusted cost base is less than $1,000, it is considered to be $1,000. As well, when the proceeds of disposition are less than $1,000, they are considered to be $1,000.

The $1,000 rule will not apply when donors acquire personal-use property as part of an arrangement in which the property is gifted to a qualified donee, such as a registered charity.

You cannot deduct losses on dispositions of personal-use property (other than listed personal property) from your income.

Enter the total amount of gain realized on disposition of personal-use property at amount E.

Reference
Subsection 46(1)

Part 6 – Listed personal property

In this part, describe any listed personal property disposed of during the tax year.

Listed personal property is a special category of personal-use property that usually increases in value. The following is a complete list of the different types of listed personal property:

  • prints, etchings, drawings, paintings, sculptures, or other similar works of art
  • jewellery
  • rare folios, rare manuscripts, or rare books
  • stamps
  • coins

If you incur losses from disposing of listed personal property, you can only deduct these losses from capital gains realized from disposing of listed personal property.

On line 655, enter the amount of listed personal property losses from previous years you want to apply against current-year net listed personal property gains. Also, enter this amount on line 530 of Schedule 4, Corporation Loss Continuity and Application.

You can apply any unabsorbed losses in the current year to reduce similar net gains realized in the three preceding years, and in the following seven years. See Part 5 – Listed personal property losses for more details.

At amount F, enter the total amount of gains or losses realized on disposition of listed personal property minus the amount of line 655.

Part 7 – Property qualifying for and resulting in an allowable business investment loss

Generally, a business investment loss arises from the arm's length disposition (or deemed disposition) of:

  • shares of a small business corporation
  • certain debts owed to the corporation by a small business corporation, certain bankrupt corporations, or certain wound-up corporations (these corporations have to deal with the corporation at arm's length)

A small business corporation is defined in subsection 248(1).

Complete Part 7 to claim an allowable business investment loss (ABIL).

At amount G, enter the ABIL (total of column 7 multiplied by 1/2). Enter this amount on line 406 of Schedule 1.

Capital gains reserve

Often, you will not receive part of the proceeds of disposition, usually for real property, until after the end of the year. In these cases, you can defer part of the capital gain to the year the corporation is due to receive the proceeds by setting up a capital gains reserve. By using reserves, you can spread a capital gain over a maximum of five years.

Generally, a corporation that has made a gift of a non-qualifying security to a qualified donee may claim a reserve for any gain realized on this security. The reserve claimed by the corporation cannot exceed the eligible amount of the gift. This eligible amount of a gift is the amount by which the fair market value of the property that is the subject of the gift exceeds the amount of the advantage, if any, in respect of the gift.

A reserve can only be claimed if the donation is not deducted for tax purposes and the donee does not dispose of the security or the security does not cease to be a non-qualifying security. This reserve can only be claimed in tax years ending within 60 months of making the gift.

The reserve must be included in income if the corporation becomes a non-resident or tax exempt.

The reserve that you can claim in a tax year cannot be more than the lesser of the following two amounts:

A. (Capital gain ÷ Proceeds of disposition) × Amount not due until after the end of the year

and

B.

  • for the year of disposition    4/5 of the capital gain
  • for the second year              3/5 of the capital gain
  • for the third year                  2/5 of the capital gain
  • for the fourth year                1/5 of the capital gain

Add the reserve amount you deducted in a tax year to income in the following tax year.

Add the reserve opening balance and subtract the reserve closing balance on lines 880 and 885 of Schedule 6.

Show the continuity of capital gain reserves on Schedule 13, Continuity of Reserves.

References
Subparagraphs 40(1)(a)(ii) and 40(1)(a)(iii)
Subsection 40(1.01)

Part 8 – Capital gains or losses

When completing this part, line 875 is the capital gains dividends. Capital gains dividends under paragraphs 130.1(4)(a) and (b) and 131(1)(a) and (b) are considered to be capital gains. These paragraphs apply to mortgage investment corporations and mutual fund corporations. If you received any capital gains dividends in the tax year, enter them on this line.

Line 880 is the balance at the beginning of the year of the capital gains reserve from Schedule 13. This amount should include any amount from the last tax year of predecessor corporations after amalgamation or wind-up.

Part 9 – Taxable capital gains and total capital losses

Generally, a zero inclusion rate applies for capital gains arising as a result of a gift to qualified donees of certain securities or of environmentally sensitive land. The zero inclusion rate is restricted to only part of the capital gain if the taxpayer is entitled to an advantage or benefit in respect of a gift.

When completing this part, line 895 is the full amount of capital gains realized on donations of a security listed on a designated stock exchange, a share or unit of a mutual fund, an interest in a segregated fund, or a prescribed debt obligation made to a qualified donee.

Generally, if you donate property to a qualified donee that is included in a flow-through share class of property, and you have an exemption threshold for the flow-through share class of property, you may be deemed to have an additional capital gain from the disposition of another capital property subject to the 50% inclusion rate.

Amounts under section 34.2 (the adjusted stub period accrual regime) that have the character of capital are to be entered in this part of Schedule 6 and not on line 130 of Schedule 1.

Since these amounts are deemed to be taxable capital gains/allowable capital losses under the rules in section 34.2 and so already reflect the 50% inclusion rate, they are multiplied by 2 on Schedule 6 to calculate the total capital gains or losses of the corporation.

Amount U is the capital gain or loss for the year. If the amount is a loss, enter it on line 210 of Schedule 4. If the amount is a gain, multiply it by ½ and enter it at amount W of Schedule 6 and line 113 of Schedule 1.

References
Paragraphs 38(a.1), 38(a.2), and 40(12)

You can deduct an ABIL from all sources of income for the year. If any balance remains after the year the loss occurs, it becomes part of the non-capital loss. You can carry the non-capital loss back 3 tax years and carry it forward 10 tax years.

If you are unable to deduct an ABIL as a non-capital loss within this allowed time frame, the unused part becomes a net capital loss, and you can carry it forward indefinitely to reduce taxable capital gains.

Include all unused ABIL after the applicable carry-forward period in Part 2, Capital losses, of Schedule 4.

References
Paragraph 39(1)(c)
S4-F8-C1, Business Investment Losses

Schedule 8, Capital Cost Allowance (CCA)

Paragraph 20(1)(a) allows a corporation to deduct part of the capital cost of certain depreciable property from income it earned in the year from a business or property. This deduction is called capital cost allowance.

Complete Schedule 8 to calculate CCA.

When a tax year is shorter than 12 months, you generally have to prorate the CCA.

Under Part XI of the Income Tax Regulations, depreciable property is grouped into prescribed classes. Schedule II of the regulations contains a complete list of these prescribed classes.

A maximum rate is prescribed for each class. Apply the prescribed rate to the undepreciated capital cost of the class at year-end to determine the maximum CCA you can claim. You can deduct any amount up to the maximum that is available for the year.

Note

As of January 1, 2017, the eligible capital property regime was replaced with a new CCA class available to businesses.

Disability-related modifications

You can deduct outlays and expenses you incur for eligible disability-related modifications made to a building in the year you paid them, instead of having to add them to the capital cost of your building. Eligible disability-related modifications include changes you make to accommodate wheelchairs. You can also deduct expenses paid to install or get disability-related devices and equipment.

You can claim this as "Other deductions" on Schedule 1, Net Income (Loss) for Income Tax Purposes.

Available-for-use rule

The available-for-use rule determines the earliest tax year in which you can claim CCA for depreciable property.

When is property available for use?

Property other than a building is considered available for use at the earliest of several dates. The following are some examples of these dates:

  • when the corporation first uses the property to earn income
  • the beginning of the first tax year that starts at least 358 days after the tax year during which the corporation acquired the property
  • immediately before the corporation disposes of the property
  • when the corporation can use the property to either produce a saleable product or perform a saleable service

A building is considered available for use on the earliest of the following dates:

  • when the corporation uses all or substantially all of the building for its intended purpose
  • when construction of the building is completed
  • the beginning of the first tax year that starts at least 358 days after the tax year during which the corporation acquired the property
  • immediately before the corporation disposes of the property
  • when the corporation acquires a replacement property, if it is replacing one it involuntarily disposed of (for example, expropriation) that it either acquired before 1990 or had already become available for use
Note

If a corporation acquires a property for a long-term project, it can elect to limit the impact of the available-for-use rule. This election is not available for rental buildings. To make this election, send us a completed Form T1031, Subsection 13(29) Election in Respect of Certain Depreciable Properties, Acquired for use in a Long Term Project, with your return.

References
Subsections 13(26) to 13(32)

Election under Regulation 1101(5q)

Line 101 – Is the corporation electing under Regulation 1101(5q)?

Tick the yes or no box.

This election allows you to include certain property usually included in classes 8 and 43 in a separate class. You have to have acquired each property at a capital cost of at least $1,000. The types of properties that qualify for this election include manufacturing and processing property, photocopiers, and electronic communications equipment, such as facsimile transmission devices or telephone equipment.

You can elect to classify a property in a separate class or several properties in one or more than one separate class.

This election can allow you to claim a terminal loss, which is any remaining undepreciated capital cost at the time of disposition of the properties in this class. For more information on terminal losses, see Column 6 – Undepreciated capital cost.

CCA rates and classes

Class 43.2 provides an accelerated capital cost allowance at a rate of 50%, on a declining-balance basis, for specified clean energy generation and energy conservation equipment. Previously, this was limited to property acquired before 2020. The eligibility is now extended to include property acquired before 2025.

Fall Economic Statement 2018 proposes an enhanced first year allowance for class 43.2 property. See What’s New.

Completing Schedule 8

This section explains how to complete each column of Schedule 8. Use a separate line for each class of property.

Note

For acquisitions made after November 20, 2018, use the latest version of Schedule 8, when available. Column numbers may change.

Column 1 – Class number

Identify each class of property with the assigned class number.

Generally, you have to group all depreciable property of the same class together. Then, calculate CCA on the undepreciated capital cost of all the property in that class.

However, sometimes you have to maintain a separate record for each property in the same class. For example, list on separate lines property that you would usually group in the same class but use to earn income from different sources. Also, list on a separate line each class 10.1 passenger vehicle and property you elected to identify in a separate class under Regulation 1101(5q).

Note

If a class number has not been provided in Schedule II of the Income Tax Regulations for a particular class of property, use the subsection provided in Regulation 1101 or 1100.

Reference
Regulations 1100 and 1101

Column 2 – Undepreciated capital cost at the beginning of the year

Enter the amount of the undepreciated capital cost at the end of the previous tax year. This is the amount from column 13 of your last tax year's Schedule 8.

Note

With new CCA class 14.1 replacing the eligible capital property regime, property that would be eligible capital property prior to January 1, 2017, will be depreciable property in the new class 14.1 after December 31, 2016.

For tax years that start January 1, 2017, the opening balance of the class is equal to the existing cumulative eligible capital pool balance as of December 31, 2016.

For tax years that start before 2017 and end after 2016, a cumulative eligible capital pool balance as of December 31, 2016, must be calculated and transferred to new CCA class 14.1 as of January 1, 2017, becoming the undepreciated capital cost balance in the class as of January 1, 2017. More information on the transitional rules that apply to tax years that start before 2017 and end after 2016 are provided on Schedule 10.

Column 3 – Cost of acquisitions during the year

For each class, enter the total cost of depreciable property you acquired in the tax year. Depreciable property is considered acquired when it becomes available for use. For more information, see the available-for-use rule.

The cost of acquisitions generally means the full cost of acquiring the property, including legal, accounting, engineering, and other fees. Land is not a depreciable property, and is therefore not eligible for CCA.

List any acquisitions that are not subject to the 50% rule, separately. See Regulations 1100(2) and (2.2) for more information about these types of acquisitions.

Do not enter section 85 transfers in this column.

References
Regulations 1100(2) and (2.2)

Column 4 – Adjustments and transfers

In some cases, you will have to adjust the capital cost of a property. In column 4, enter the amounts that will either reduce or increase the capital cost.

Reduce the capital cost of a property by the following amounts:

  • goods and services tax/harmonized sales tax (GST/HST) input tax credit claimed or entitled to be claimed, or rebate received or entitled to be received in the year
  • federal investment tax credits (ITCs), other than SR&ED ITCs, used to reduce taxes payable or claimed as a refund in the previous tax year
  • reduction of capital cost after the application of section 80
  • provincial or territorial ITCs received or entitled to be received in the current year
  • government assistance received or entitled to be received in the year
  • deemed decrease, under subsection 13(40), to the undepreciated capital cost of class 14.1 where you acquired property of that class through a non-arm’s length transfer and the property had been eligible capital property of the transferor before January 1, 2017
  • negative cumulative eligible capital balance as of December 31, 2016, for tax years that start before 2017 and end after 2016
Note

A negative cumulative eligible capital balance that becomes a negative capital cost allowance balance in class 14.1 as of January 1, 2017, will generally result in a recapture of CCA at the end of the tax year, unless amounts are added to the undepreciated capital cost of the class before the end of the year (for example, you acquire a property in class 14.1 after December 31, 2016).

Add to the capital cost of the property:

  • deemed increase, under subsection 13(39), to the undepreciated capital cost of class 14.1 where you disposed of property of that class after December 31, 2016, and that property had been eligible capital property before January 1, 2017
  • repayment of GST/HST input tax credit previously claimed
  • government assistance repaid in the year that previously reduced the capital cost

Also include in column 4 depreciable property transferred upon amalgamation or upon the wind-up of a subsidiary, and depreciable property transferred under section 85.

Show the amounts that reduce the capital cost in brackets. Do not include them as income.

Note

A corporation that receives an amount of non-government assistance to buy depreciable property has the option of either reducing the capital cost of the property by this amount, or including it in its income.

References
Subsections 13(7.1), 13(7.4), and 13(21)
Paragraph 12(1)(x)

Column 5 – Proceeds of dispositions during the year

For each class, you usually enter the total proceeds of disposition received or are entitled to be received for property disposed of during the year. However, if you disposed of the property for more than its capital cost, enter the capital cost, not the actual proceeds of disposition.

A capital gain results when you dispose of a depreciable property for more than its capital cost. However, losses on depreciable property do not result in capital losses. They may result in terminal losses. See column 6 for more details about terminal losses.

Column 6 – Undepreciated capital cost

To calculate the amount you have to enter in column 6, do the following:

  • add the amounts in columns 2 and 3
  • either subtract or add the amount in column 4 (subtract if it is a negative amount, or add if it is a positive amount)
  • subtract the amount in column 5

You cannot claim CCA in the following situations:

  • the amount in column 6 is positive, and no property is left in that class at the end of the tax year (a terminal loss)
  • the amount in column 6 is negative (a recapture of CCA)

Terminal loss

A terminal loss results when you dispose of all the property in a particular class and there is an amount of undepreciated capital cost left in column 6. You have to deduct the terminal loss from income. For details, see example 1 under the heading Schedule 8 examples.

Recapture of CCA

If the amount in column 6 is negative, you have a recapture of CCA. A recapture of CCA occurs when the proceeds of disposition in column 5 are more than the total of columns 2 and 3, plus or minus the amount in column 4 of that class.

You have to add the recapture to income. For details, see example 2 under the heading Schedule 8 examples.

The recapture and terminal loss rules do not apply to passenger vehicles in class 10.1.

Enter the recapture or terminal loss from column 6 in column 10 or 11. In this case, do not complete the rest of the columns for that line.

Column 7 – 50% rule

Generally, property acquired during the tax year is only eligible for 50% of the normal maximum CCA for the year. You can claim full CCA for that property in the next tax year.

Fall Economic Statement 2018 proposes a suspension of the 50% rule in certain conditions. See What’s New.

Note

Some asset classes use the straight-line method to calculate the CCA. In this method, the CCA is calculated by dividing the original amount by the number of years that corresponds to the life expectancy of the property. Therefore, the deducted amount stays the same from one year to the other (except the first and last year, if the half year rule applies) and you do not have to enter a rate.

Example

Declining balance method – The capital cost of an asset acquired before November 21, 2018, is $780,000. The rate for the class is 10% with a half-year rule.

First year:
10% × $780,000 = $78,000
$78,000 ÷ 2 = $39,000 CCA (half-year rule)

Second year:
$780,000 − $39,000 = $741,000 (undepreciated capital cost)
$741,000 × 10% = $74,100 CCA

Third year:
$741,000 − $74,100 = $666,900 (undepreciated capital cost)
$666,900 × 10% = $66,690 CCA
And so on for the following years.

Straight-line method – The capital cost of an asset acquired before November 21, 2018, is $780,000. Its life expectancy is 10 years and the half-year rule does not apply. Therefore, the capital cost allowance will be $78,000 per year ($780,000 ÷ 10).

Class 13 (property that is leasehold interest) uses the straight-line method with the half‑year rule. The amount that has to be entered in column 7 is half of the result you obtain when dividing the amount of the acquisition by the amortization period. The full amount of this result can be claimed on the second year and so on, until the last year of the amortization period. The last year of the amortization period, you can claim up to one and a half amount of this result.

For more information on the special rules that apply to class 13, see  Interpretation Bulletin IT-464, Capital Cost Allowance – Leasehold Interests. For more information on the half-year rule, see Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance.

Fall Economic Statement 2018 proposes an accelerated investment incentive for class 13 property. See What’s New.

Example

A leasehold interest of 10 years starts on January 1, 2017, and ends on December 31, 2026. A leasehold improvement of $9,000 is made in 2018 before November 21. The amortization period is 9 years, which is the number of years remaining in the lease.

First year (2018):
$9,000 ÷ 9= $1,000
$1,000 ÷ 2= $500 CCA (half-year rule)

Second year and following (2019 to 2025):
$1,000 CCA per year

Last year of amortization period (2026):
$1,000 × 1 1/2 = $1,500 CCA.

If a disposition occurs during the amortization period, the terminal loss is claimed in the year it occurs.

Column 10 – Recapture of capital cost allowance

Enter the amount of recapture from column 6, if applicable. Be sure you include the recapture as income. Enter the total of amounts from column 10 on line 107 of Schedule 1.

Column 11 – Terminal loss

Enter the terminal loss from column 6, if applicable. Deduct the terminal loss from income. Enter the total of amounts from column 11 on line 404 of Schedule 1.

Column 12 – Capital cost allowance

To claim the maximum CCA for each class, multiply the amount in column 8 by the rate in column 9, and enter the result in column 12. You do not have to claim the maximum allowable CCA. You can claim any amount up to the maximum.

If the tax year is less than 365 days, prorate the CCA claim for all property except for those classes of property that Regulation 1100(3) excludes. The exceptions in Regulation 1100(3) include:

  • class 14 assets
  • class 15 assets
  • timber limits and cutting rights
  • industrial mineral mines
  • certified productions
  • Canadian film or video productions
  • certain mining equipment in classes 28 and 41

To determine the maximum CCA claim, multiply the maximum CCA for a complete year by the number of days in the tax year divided by 365.

Reference
Regulation 1100(3)
S4-F15-C1, Manufacturing and Processing.

The total of all amounts in column 12 is the CCA claim for the tax year. Deduct this amount on line 403 of Schedule 1.

Note

If you want to change the amount of CCA claimed in a tax year, send a written request within 90 days of the date on the notice of assessment or notice of reassessment. Only under certain circumstances can we make adjustments after the 90-day period has expired.

For more information, see Information Circular IC84-1, Revision of Capital Cost Allowance Claims and Other Permissive Deductions.

Column 13 – Undepreciated capital cost at the end of the year

Subtract the amount in column 12 from the amount in column 6 and enter the difference.

When there is a recapture of CCA or a terminal loss for a particular class in the year, the undepreciated capital cost at the end of the year is always nil.

Schedule 8 examples

Example 1: Terminal loss

An import-export business decided to sell its warehouse, because it is better to lease instead. The business received $60,000 for the warehouse. At the end of the 2018 tax year, the business had no more assets in class 3.

The business's Schedule 8 for its 2018 tax year looks like this:

Schedule 8 examples – Example 1
1
Class number
Line 200
2
Undepreciated capital cost at the beginning of the year (amount from column 13 of last year's Schedule 8)
Line 201
3
Cost of acquisitions during the year (new property must be available for use)
Line 203
4
Adjustments and transfers (show amounts that will reduce the undepreciated capital cost in brackets)
Line 205
5
Proceeds of dispositions during the year (amount not to exceed the capital cost)
Line 207
6
Undepreciated capital cost (column 2 plus column 3 plus or minus column 4 minus column 5)
1. 3 $65,000 Blank space for value  Blank space for value  $60,000 $5,000
2. Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value 
3. Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value 
4. Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value 
Schedule 8 examples – Example 1 (table continued)
7
50% rule (½ of the amount, if any, by which the net cost of acquisitions exceeds column 5)
Line 211
8
Reduced undepreciated capital cost (column 6 minus column 7)
9
CCA rate %
Line 212
10
Recapture of capital cost allowance
Line 213
11
Terminal loss
Line 215
12
Capital cost allowance (for declining balance method, column 8 multiplied by column 9; or a lower amount)
Line 217
13
Undepreciated capital cost at the end of the year (column 6 minus column 12)
Line 220
1. Blank space for value  $5,000 N/A   $5,000 Blank space for value  Blank space for value 
2. Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value 
3. Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value 
4. Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value 

The amount in column 11 is a terminal loss.

The import-export business deducts the $5,000 terminal loss from its income (line 404 of Schedule 1).

Example 2: Recapture of CCA

A clothing company bought a sewing machine in 2016 for $15,000. Now, because of the overwhelming success the company has had in the retail end of the business, it has decided to concentrate solely on retailing. As a result, the company sold its sewing machine in 2018 for $18,000 (but the proceeds of disposition in column 5 cannot be more than $15,000, the capital cost). At the beginning of 2018, the undepreciated capital cost of the sewing machine was $10,800.

The company's Schedule 8 for its 2018 tax year looks like this:

Schedule 8 examples – Example 2
1
Class number
Line 200
2
Undepreciated capital cost at the beginning of the year (amount from column 13 of last year's Schedule 8)
Line 201
3
Cost of acquisitions during the year (new property must be available for use)
Line 203
4
Adjustments and transfers (show amounts that will reduce the undepreciated capital cost in brackets)
Line 205
5
Proceeds of dispositions during the year (amount not to exceed the capital cost)
Line 207
6
Undepreciated capital cost (column 2 plus column 3 plus or minus column 4 minus column 5)
1. 8 $10,800 Blank space for value  Blank space for value  $15,000 ($4,200)
2. Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value 
3. Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value 
4. Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value 
Schedule 8 examples – Example 2 (table continued)
7
50% rule (½ of the amount, if any, by which the net cost of acquisitions exceeds column 5)
Line 211
8
Reduced undepreciated capital cost (column 6 minus column 7)
9
CCA rate %
Line 212
10
Recapture of capital cost allowance
Line 213
11
Terminal loss
Line 215
12
Capital cost allowance (for declining balance method, column 8 multiplied by column 9; or a lower amount)
Line 217
13
Undepreciated capital cost at the end of the year (column 6 minus column 12)
Line 220
1. Blank space for value  ($4,200) N/A $4,200 Blank space for value  Blank space for value  Blank space for value 
2. Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value 
3. Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value 
4. Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value 

The amount in column 10 is the recapture of CCA.

The clothing company includes the $4,200 recapture in its income (line 107 of Schedule 1). The capital gain is $18,000 minus $15,000, which equals $3,000.

Example 3: 50% rule

In the 2018 tax year, before November 21, 2018, a bookstore bought a photocopier to help keep up with the paperwork, and started using it right away. The copier cost $10,000. The bookstore has to apply the 50% rule when it calculates the amount of CCA it can deduct for 2018.

The bookstore's Schedule 8 for its 2018 tax year looks like this:

Schedule 8 examples – Example 3
1
Class number
Line 200
2
Undepreciated capital cost at the beginning of the year (amount from column 13 of last year's Schedule 8)
Line 201
3
Cost of acquisitions during tde year (new property must be available for use)
Line 203
4
Adjustments and transfers (show amounts that will reduce the undepreciated capital cost in brackets)
Line 205
5
Proceeds of dispositions during tde year (amount not to exceed tde capital cost)
Line 207
6
Undepreciated capital cost (column 2 plus column 3 plus or minus column 4 minus column 5)
1. 8 $14,000 $10,000 Blank space for value  Blank space for value  $24,000
2. Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value 
3. Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value 
4. Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value 
Schedule 8 examples – Example 3 (table continued)
7
50% rule (½ of the amount, if any, by which the net cost of acquisitions exceeds column 5)
Line 211
8
Reduced undepreciated capital cost (column 6 minus column 7)
9
CCA rate %
Line 212
10
Recapture of capital cost allowance
Line 213
11
Terminal loss
Line 215
12
Capital cost allowance (for declining balance method, column 8 multiplied by column 9; or a lower amount)
Line 217
13
Undepreciated capital cost at the end of the year (column 6 minus column 12)
Line 220
1. $5,000 $19,000 20 Blank space for value  Blank space for value  $3,800 $20,200
2. Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value 
3. Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value 
4. Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value  Blank space for value 

List of CCA rates and classes

The following chart is a partial list and description of the most common capital cost allowance (CCA) classes. You will find a complete list in Schedule II of the Income Tax Regulations.

List of CCA rates and classes
Class number Description CCA rate
1 Most buildings made of brick, stone, or cement acquired after 1987, including their component parts such as electric wiring, lighting fixtures, plumbing, heating and cooling equipment, elevators, and escalators (additional allowance of 6% for buildings used for manufacturing and processing in Canada and 2% for buildings used for other non-residential purposes, for buildings acquired after March 18, 2007) 4%
3 Most buildings made of brick, stone, or cement acquired before 1988, including their component parts as listed in class 1 above 5%
6 Buildings made of frame, log, stucco on frame, galvanized iron, or corrugated metal that are used in the business of farming or fishing, or that have no footings below-ground; fences and most greenhouses 10%
7 Canoes, boats, and most other vessels, including their furniture, fittings, or equipment 15%
8 Property that is not included in any other class such as furniture, calculators and cash registers (that do not record multiple sales taxes), photocopy and fax machines, printers, display fixtures, refrigeration equipment, machinery, tools costing $500 or more, and outdoor advertising billboards and greenhouses with rigid frames and plastic covers 20%
9 Aircraft, including furniture, fittings, or equipment attached, and their spare parts 25%
10 Automobiles (except taxis and others used for lease or rent), vans, wagons, trucks, buses, tractors, trailers, drive-in theatres, general-purpose electronic data-processing equipment (for example, personal computers) and systems software, and timber-cutting and removing equipment 30%
10.1 Passenger vehicles costing more than $30,000 if acquired after 2000 30%
12 Chinaware, cutlery, linen, uniforms, dies, jigs, moulds or lasts, computer software (except systems software), cutting or shaping parts of a machine, certain property used for earning rental income such as apparel or costumes, and videotape cassettes; certain property costing less than $500 such as kitchen utensils, tools, and medical or dental equipment acquired after May 1, 2006 100%
13 Property that is leasehold interest (the maximum CCA rate depends on the type of leasehold and the terms of the lease) n/a
14 Patents, franchises, concessions, and licences for a limited period – the CCA is limited to whichever is less:
  • the capital cost of the property spread out over the life of the property; or
  • the undepreciated capital cost of the property at the end of the tax year
Class 14 also includes patents, and licences to use patents for a limited period, that you elect not to include in class 44
n/a
14.1 As of January 1, 2017, intangible capital property, previously known as eligible capital property, including goodwill, trademarks, franchises, concessions, or licences for an unlimited period, patents and licences to use patents for an unlimited period, that you elect not to include in Class 44. For each tax year that ends before 2027, an additional 2% CCA is allowed for property acquired before 2017 (maximum $500). 5%
16 Automobiles for lease or rent, taxicabs, and coin-operated video games or pinball machines; certain tractors and large trucks acquired after December 6, 1991, that are used to haul freight and that weigh more than 11,788 kilograms 40%
17 Roads, sidewalks, parking-lot or storage areas, telephone, telegraph, or non-electronic data communication switching equipment 8%
29 Machinery and equipment acquired after March 18, 2007, and before 2016 that is used in Canada mainly to manufacture and process goods for sale or lease 50%
38 Most power-operated movable equipment acquired after 1987 used for moving, excavating, placing, or compacting earth, rock, concrete, or asphalt 30%
43 Machinery and equipment acquired after February 25, 1992, that is used in Canada mainly to manufacture and process goods for sale or lease. Also see class 53. 30%
43.1 Clean energy generation and energy conservation equipment not included in Class 43.2, including mid-efficiency, fully or partially fossil-fuelled cogeneration systems; electric vehicle charging stations set up to supply more than 10 kW but less than 90 kW of continuous power. Also includes heat recovery equipment for which the primary purpose is extracting heat for sale. 30%
43.2 Clean energy generation and energy conservation equipment acquired before 2025. Also includes heat recovery equipment used primarily for extracting heat for sale, and eligible geothermal equipment that is used to produce electricity, heat or a combination of heat and electricity. 50%
44 Patents and licences to use patents for a limited or unlimited period that the corporation acquired after April 26, 1993—however, you can elect not to include such property in class 44 by attaching a letter to the return for the year the corporation acquired the property. In the letter, indicate the property you do not want to include in class 44 25%
46 Data network infrastructure equipment that supports advanced telecommunication applications, acquired after March 22, 2004 – it includes assets such as switches, multiplexers, routers, hubs, modems, and domain name servers that are used to control, transfer, modulate and direct data, but does not include office equipment such as telephones, cell phones or fax machines, or property such as wires, cables or structures 30%
50 General-purpose computer equipment and systems software acquired after March 18, 2007, that is not used principally as electronic process control, communications control, or monitor equipment, and the systems software related to such equipment, and data handling equipment that is not ancillary to general-purpose computer equipment. 55%
53 Machinery and equipment acquired after 2015 and before 2026 that is used in Canada mainly to manufacture and process goods for sale or lease. 50%

Schedule 10, Cumulative Eligible Capital Deduction

As of January 1, 2017, the eligible capital property regime was replaced with a new CCA class available to businesses.

Note

If your tax year starts after December 31, 2016, do not complete Schedule 10. Refer to Schedule 8, Capital Cost Allowance (CCA).

Under the old regime, eligible capital expenditures were for intangible property such as goodwill, and were added to the cumulative eligible capital pool at a 75% inclusion rate. The rate of depreciation of those expenditures was 7% on a declining-balance basis. Under the new regime, as of January 1, 2017, newly-acquired eligible properties are included in a new CCA class 14.1 at a 100% inclusion rate with a 5% CCA rate on a declining-balance basis. The existing CCA rules generally apply.

Fall Economic Statement 2018 proposes an accelerated investment incentive for CCA class 14.1 property. See What’s New.

Special transitional rules apply to transfer any existing cumulative eligible capital (CEC) balance of a business to the new CCA class. Furthermore, for each tax year that ends before 2027, an additional 2% CCA is allowed for property acquired before January 1, 2017, and included in class 14.1.

A separate business deduction is provided for incorporation expenses incurred after 2016, such that the first $3,000 of the expenses, less the total of all amounts deducted by other taxpayers for the incorporation of the corporation, may be treated as a current expense rather than being added to the new class 14.1.

More information on the transitional rules are provided on Schedule 10.

References
Subsection 14(5)
Paragraph 20(1)(b)
Section 85
IT‑143, Meaning of Eligible Capital Expenditure

Schedule 12, Resource-Related Deductions

You have to complete the appropriate parts of Schedule 12 if you are claiming any of the following deductions on Schedule 1:

  • Canadian development expenses
  • Canadian exploration expenses including Canadian renewable and conservation expense (CRCE)
  • Canadian oil and gas property expenses
  • depletion
  • foreign exploration and development expenses
  • specified foreign exploration and development expenses
  • foreign resource expenses

Fall Economic Statement 2018 proposes an accelerated investment incentive for eligible Canadian development expenses and Canadian oil and gas property expenses. See What’s New.

Canadian development expenses and Canadian exploration expenses

For expenses incurred after 2018:

  • Qualifying expenditures associated with the drilling or completing of an oil or gas discovery well (a previously unknown petroleum or natural gas reservoir), expenditures in building a temporary access road to, or in preparing a site for any such well, will be classified as Canadian development expenses (CDEs) instead of Canadian exploration expenses (CEEs). Expenditures incurred before 2021 (excluding expenses that are deemed because of the look-back rule to have been completed on December 31, 2020) in connection with an obligation that was committed to in writing (including a commitment to a government under the terms of a license or permit) by the corporation before March 22, 2017, will continue to be classified as CEE.
  • Drilling expenditures can continue to be classified as CEEs, or reclassified as CEEs, in situations where (i) the well has been abandoned in the year or within 6 months after the year without having produced otherwise than for specified purposes; (ii) the well has not produced within the 24 months after the drilling of the well is completed, otherwise than for specified purposes; or (iii) the minister of Natural Resources has certified that the relevant costs associated with drilling the well are expected to be more than $5 million and it will not produce within 24 months.
  • Eligible small oil and gas corporations will no longer be allowed to treat the first $1 million of CDEs as CEEs when renounced to shareholders under a flow-through share (FTS) agreement. The measure will include expenses incurred in 2019 that could have been deemed to be incurred in 2018 because of the look- back rule. Expenditures incurred under FTS agreements entered into after 2016 and before March 22, 2017 will still be allowed this treatment, if the expenses are incurred after 2018 and before April 2019.

Schedule 12 gives details for the calculations required.

Canadian renewable and conservation expenses (CRCEs)

Expenses incurred after March 21, 2017, solely for determining the extent and quality of a geothermal resource or for drilling a well for both electricity and heating geothermal projects, qualify as CRCEs if at least 50% of the depreciable property to be used in the geothermal project (determined by reference to its capital cost) is property described in capital cost allowance (CCA) class 43.1, subparagraph (d)(vii). Previously, this applied only to electricity generation projects that were included in CCA class 43.1 or 43.2

So, these expenses may be deducted in full in the year, carried forward indefinitely to the future or transferred to investors using flow-through shares.

References
Part XII of the Regulations
Sections 65 and 66

Schedule 13, Continuity of Reserves

You have to complete Schedule 13 to show the continuity of deductible reserves. Indicate, on the appropriate lines, the prior-year and the current-year reserves as well as the reserve transferred from an amalgamation or wind-up. If your corporation or the predecessor corporation deducted a reserve amount last year, add that amount to current-year income and establish a new reserve amount. See Capital gains reserve.

Complete Schedule 13 as follows:

Part 1 – Capital gains reserves

Establish the continuity of reserves for each different property. Unlike other reserves, you have to report the total capital gain reserves that you and the predecessor corporation deducted last year. Add the current-year reserve on Schedule 6 to calculate the current-year capital gain.

Part 2 – Other reserves

In this part, establish the continuity of the following reserves:

For amounts received after March 20, 2013, related to services not rendered, no deduction will be available for a reserve for a reclamation obligation. This measure will not apply to an amount received that is directly attributable to a reclamation obligation that was authorized by a government or regulatory authority before March 21, 2013, and that is received, as applicable:

  • under a written agreement between the corporation and another party (other than a government or regulatory authority) that was entered into before March 21, 2013, and not extended or renewed after March 20, 2013
  • before 2018

Enter, on line 125 of Schedule 1, the total of the balance of your reserve at the beginning of the year (line 270 of Schedule 13) plus the amount of reserve transferred on wind-up/amalgamation (line 275 of Schedule 13).

Enter, on line 413 of Schedule 1, the balance at the end of the year (line 280 of Schedule 13).

Note

The balance at the beginning of the year of reserves from financial statements and the balance at the end of the year of reserves from financial statements should not be entered on Schedule 13. Enter these amounts on line 414 and line 126 of Schedule 1 respectively.

Schedule 16, Patronage Dividend Deduction

Complete Schedule 16 if you are claiming a patronage dividend deduction. This deduction is for payments made to customers for allocations in proportion to patronage. An allocation in proportion to patronage entitles a customer to receive payment calculated at a rate relating to the quantity, quality, or value of either goods or products sold or services rendered.

Corporations have to pay amounts that qualify for this deduction either during the tax year, or in the 12 months that follow the tax year.

An agricultural cooperative corporation for a particular tax year can deduct patronage dividends issued in the form of tax deferred cooperative shares, but deductions cannot be more than 85% of its income for that year that is attributable to business done with its members.

Corporations other than credit unions and cooperative corporations cannot deduct patronage dividends paid to non-arm's length persons.

Parts 1, 2, and 3 of Schedule 16 give details on how to calculate the allowable patronage dividend deduction. Enter this deduction on line 416 of Schedule 1.

If you are claiming a patronage dividend deduction, you also have to complete Part 5 of Schedule 16 entitled "Calculation of income from an active business carried on in Canada (ABI)". Enter the amount from line 124 at line 400 of the return.

File one completed copy of this schedule with your return.

Note

Eligible members of agricultural cooperative corporations can defer including in income patronage dividends in the form of tax deferred cooperative shares issued before 2021 to the year of their disposal.

However, a member may elect to have an amount included in income before the disposition of the tax deferred cooperative shares. To make this election, the member must send a letter specifying the amount to be included in income with their return for the particular tax year.

References
Sections 135 and 135.1
IT‑362, Patronage Dividends

Schedule 17, Credit Union Deductions

As a credit union, you may claim allocations for bonus interest payments and allocations in proportion to borrowing. If so, complete Schedule 17.

This schedule was also used to calculate the "Additional deduction – credit unions" to reduce Part I tax. This additional deduction was phased out. The last year that you could claim it was 2016.

Note


Ontario, Manitoba, Saskatchewan, and British Columbia provide a provincial tax reduction for credit unions. For details, see Ontario credit union tax reduction, Manitoba additional deduction for credit unions, Saskatchewan credit union tax reduction, and British Columbia credit union tax reduction.

A credit union can deduct from its income for a tax year both the total of all bonus interest payments and the payments it made to its members for allocations in proportion to borrowing. It can also deduct payments made in the 12 months after the end of the tax year. However, the credit union cannot deduct an amount if it could have deducted it in the previous tax year.

The allocation in proportion to borrowing for a tax year means an amount a credit union credits to a member that is entitled to, or will receive, this amount.

On Schedule 17, you have to calculate the payment made in proportion to borrowing at a rate that is related to one of the following:

  • the amount of interest payable by the member on money the member borrowed from the credit union
  • the amount of money the member borrowed from the credit union

You have to calculate the bonus interest payment at a rate that is related to one of the following:

  • the interest payable by the credit union on money standing to the member's credit
  • the amount of money standing to the member's credit

The amount the credit union credited to the member has to bear the same rate as the interest or money that the credit union similarly credited to all other members of the credit union of the same class.

Complete the appropriate parts of Schedule 17 to calculate this deduction. Add lines 305 and 315 of Schedule 17 and enter the result on line 315 of Schedule 1.

References
Subsections 137(2) and 137(6)

Form T661, Scientific Research and Experimental Development (SR&ED) Expenditures Claim

We publish Guide T4088, Scientific Research and Experimental Development (SR&ED) Expenditures Claim – Guide to Form T661, which gives details on how to complete Form T661. For more information, go to Scientific Research and Experimental Development (SR&ED).

File Form T661 if you carry on business in Canada and have incurred expenditures for scientific research and experimental development (SR&ED) you carried on in Canada and for some salary or wage expenditures for SR&ED carried on outside Canada.

To avoid delays in processing, use the most recent version of Form T661.

A corporation has to file Form T661 to identify an expenditure and support its characterization as SR&ED, as well as any claim preparer information.

If the corporation does not provide, in this way, information about the expenditure, it may not deduct that amount as a SR&ED expenditure.

If the corporation does not provide complete and accurate claim preparer information, a $1,000 penalty applies. However, the SR&ED claim will not be disallowed for this reason. When a SR&ED claim preparer participates in preparing the claim, the corporation and the SR&ED claim preparer are liable, together or separately, for the penalty.

Capital SR&ED expenditures incurred before 2014 and current SR&ED expenditures form a special pool that you can deduct in the current year. You can also carry forward to any future year the expenditures in that pool as long as you have not deducted them before.

If the SR&ED expenditures have been included in your income statement, enter the amount on line 118 of Schedule 1. Enter the SR&ED expenditures claimed in the year, on line 411 of Schedule 1.

Form T661 summarizes the costs for all SR&ED projects. You have to complete the form and place it on top of the return for the tax year you incur SR&ED expenditures. File Form T661 whether or not you claim an ITC. If you do not file Form T661 and Schedule 31, Investment Tax Credit – Corporations, on or before the day that is 12 months after your filing due-date for the tax year in which the SR&ED expenditures were made, you cannot claim SR&ED expenditures and an ITC for that year. For more information, see Line 652 – Investment tax credit.

When a corporation is a member of a partnership that incurs SR&ED expenditures, the partnership has to file Form T661 along with the T5013 FIN, Partnership Financial Return and T5013 SUM, Information Slips Summary. Each partner that receives an Information slip T5013, Statement of Partnership Income, showing its share of the expenditures, does not have to file it with its return. They should keep it in case we ask for it later.

References
Subsections 37(1), 149(7), 149(7.1), 162(5.1) and 248(1)
Regulation 2900
T4088, Scientific Research and Experimental Development (SR&ED) Expenditures Claim – Guide to Form T661

Losses

Current-year losses

A corporation may not always have net income to report. Instead, it may have incurred a loss for the year. The different types of losses a corporation can incur are:

  • non-capital loss
  • farm loss
  • restricted farm loss
  • limited partnership loss
  • capital loss

The application and continuity of the first four losses are calculated on Schedule 4, Corporation Loss Continuity and Application. Information on how to complete Schedule 4 follows this section.

Capital losses are determined on Schedule 6, Summary of Dispositions of Capital Property. For information on how to complete this schedule, see the section on Schedule 6.

Applying losses

A corporation can apply unused losses and deduct them from income it earned in the current tax year or in previous tax years.

Note

You can choose whether or not to deduct an available loss from income in a tax year. You can deduct losses in any order. However, for each type of loss, make sure to deduct the oldest available loss first.

You can view non-capital loss balances using the "View return balances" service through:

Losses carryback

You can use losses in any order, but consider the following:

  • a current-year non-capital loss or farm loss can reduce any kind of income or taxable dividends subject to Part IV tax for the three previous years
  • a net capital loss can reduce taxable capital gains included in your income for the three previous years
  • a restricted farm loss can reduce farming income for the three previous years
  • a listed personal property loss can reduce capital gains incurred on listed personal property for the three previous years

Except for net capital losses, you cannot use other year losses to create or increase a non-capital loss for the tax year.

Use Schedule 4 to request the carryback of any losses to prior years. If you do not attach your request to the return, you can send it separately to your tax centre.

Calculating losses when there is an acquisition of control

Following an acquisition of control, special rules apply for calculating and deducting net capital losses, non-capital losses, and farm losses. You will find more information about these rules on Schedule 4 and at lines 063 and 065. Also, see the following references for details.

References
Subsections 111(4) and 111(5)
IT‑302, Losses of a Corporation - The Effect That Acquisitions of Control, Amalgamations, and Windings-Up Have on Their Deductibility - After January 15, 1987

How to complete Schedule 4, Corporation Loss Continuity and Application

Part 1 – Non-capital losses

Determination of current-year non-capital loss

To determine the current-year non-capital loss, you have to complete Part 1 as follows:

Net income (loss) for income tax purposes – income from all sources minus losses from business and property, plus or minus the adjustments on Schedule 1

deduct

net capital losses deducted in the year – net capital losses from previous years used to reduce taxable capital gains included in income

taxable dividends deductible – taxable dividends received, deductible under section 112 or 113 or subsection 138(6) (for details, see line 320)

amount of Part VI.1 tax deductible – unused Part VI.1 tax deductible in the taxable income calculation

amount deductible as prospector's and grubstaker's shares – paragraph 110(1)(d.2) – The amount deductible is the value of any shares received from a corporation on disposition of a right or a mining property, except if the amount is exempt from tax in Canada by virtue of one of Canada's tax treaties, multiplied by ½

Subtotal – If the result is positive, enter "0"

deduct

section 110.5 or subparagraph 115(1)(a)(vii) – addition for foreign tax deductions – any amounts added to the taxable income to use foreign tax deductions you could not otherwise deduct from Part I tax. For details, see line 355

add

current-year farm loss – whichever is less: the net loss from farming or fishing included in the income, or the non-capital loss before deducting the farm loss

Calculating current-year farm loss

The current-year farm loss is whichever of the following amounts is less:

  • the loss from farming or fishing that is more than the farming or fishing income for the year
  • the amount of the current-year non-capital loss as calculated in Part 1 of Schedule 4 before you deduct the farm loss for the year

Enter the farm loss calculated on line 310 of Schedule 4.

The farm loss can also include an amount allocated from a partnership.

If the result after the calculation shown under Part 1 is negative, enter this result (as positive) on line 110 of Schedule 4 as the current-year non-capital loss.

Note

You cannot use prior-year losses to create or increase a current-year non-capital loss, except with net capital losses of other years.

Continuity of non-capital losses and request for a carryback

Use this area to establish the continuity of non-capital losses and to carry back a current-year non-capital loss to prior years.

The current-year non-capital loss can reduce any kind of income or taxable dividends subject to Part IV tax for the 20 following tax years and for the 3 previous tax years. The loss expires after the carry-forward period.

When completing this part, line 105 is the amount of non-capital losses transferred from a predecessor corporation after amalgamation or a subsidiary after wind-up where not less than 90% of the issued shares in each class were, immediately before the wind-up, owned by the corporation This amount is the unused non-capital losses available to be carried forward at the end of the tax year of the predecessor corporation or subsidiary ending immediately before the amalgamation or wind-up, minus any expired amount.

Line 150 is an amount received under subsection 111(10) as a fuel tax rebate that reduced non-capital loss for a previous year, and any other adjustments not previously mentioned. These adjustments would apply to corporations that have undergone an acquisition of control and whose losses that accrued before the acquisition of control are not deductible after the acquisition of control.

Line 140 is the amount of debt forgiveness under section 80 that reduces the non-capital losses balance. Losses have to be reduced in the order established by section 80.

The result of this part is the closing balance of non-capital losses you carry forward to future years (line 180).

Complete Part 6 to establish the balance of non-capital losses by year of origin.

Part 2 – Capital losses

Continuity of capital losses and request for a carryback

The current-year capital loss is calculated on Schedule 6. Complete this part to establish the continuity and the application of capital losses.

To establish the continuity, you have to enter the amount of capital losses and not the amount of net capital losses available. The inclusion rate will be used only when the loss is applied. You have to indicate the balance of any previous-year capital losses carried forward.

The net capital loss can reduce taxable capital gains included as income for the three previous tax years and indefinitely for future years.

When completing this part, line 205 is the amount of capital losses transferred from a predecessor corporation after amalgamation or a subsidiary afterwind-up where not less than 90% of the issued shares of each class were, immediately before the wind-up, owned by the corporation. This amount is the unused capital losses available to carry forward at the end of the tax year of the predecessor corporation or subsidiary ending immediately before the amalgamation or wind-up, including any amount of the allowable business investment loss (ABIL) expired as non-capital loss for the predecessor corporation or the subsidiary), divided by the inclusion rate for the tax year in which the ABIL was incurred.

Line 250 is the amount of any other adjustments not previously mentioned. These adjustments would apply to corporations that have undergone an acquisition of control and whose losses that accrued before the acquisition of control are not deductible after the acquisition of control. These adjustments would also apply to corporations whose losses that occurred after the acquisition of control are not deductible before the acquisition of control.

Line 240 is the amount of debt forgiveness under section 80 that reduces the capital losses balance. Losses have to be reduced in the order established by section 80.

Line 220 is the lesser of the non-capital losses from a previous year that have expired in the year and the amount of the ABIL incurred in the same previous year that is included in the amount of non-capital losses expired in the year, divided by the 0.50 inclusion rate.

On the appropriate line (lines 951 to 953), enter the amount of capital loss you carry back to prior years.

The result of this part is the closing balance of available capital losses you carry forward to future years (line 280). The net capital loss amount will be calculated at the 50% inclusion rate.

Part 3 – Farm losses

Continuity of farm losses and request for a carryback

Use this part to establish the continuity of farm losses and to carry back a current-year farm loss to previous years. Farm losses include losses from farming and fishing businesses.

Farm losses will expire after 20 tax years following the year of the loss.

When completing this part, line 305 is the amount of farm losses transferred from a predecessor corporation after amalgamation or subsidiary after wind-up where not less than 90% of the issued shares in each class were, immediately before the wind-up, owned by the corporation. This amount is the unused farm losses available to carry forward at the end of the tax year of the predecessor corporation or subsidiary ending immediately before the amalgamation or wind-up minus any expired amount.

Line 350 is any other adjustments not previously mentioned. These adjustments would apply to corporations that have undergone an acquisition of control and whose losses that accrued before the acquisition of control are not deductible after the acquisition of control.

Line 340 is the amount of debt forgiveness under section 80 that reduces the farm losses balance. Losses have to be reduced in the order established by section 80.

The result of this part is the closing balance of farm losses you carry forward to future years (line 380).

Complete Part 6 to establish the balance of farm losses by year of origin.

Part 4 – Restricted farm losses

Current-year restricted farm loss

If your chief source of income is neither farming nor a combination of farming and some other subordinate source of income, the loss arising from the farming activity that you can deduct is restricted. An amount of farm loss allocated from a partnership may also be restricted.

The limit of deductible farm losses for a year is $17,500.

Enter your amount on line 410 of Schedule 4 and add it to your income on line 233 of Schedule 1.

References
Subsection 31(1)
IT‑232, Losses - Their Deductibility in the Loss Year or in Other Years

Continuity of restricted farm losses and request for a carryback

Use this part to establish the continuity of restricted farm losses and to carry back a current-year restricted farm loss to prior years.

The current-year restricted farm loss can reduce farm income for the 20 following tax years if the loss was incurred in a tax year ending after 2005 and for the 3 previous tax years. The loss expires after the carry-forward period.

When completing this part, line 405 is the amount of restricted farm losses transferred from a predecessor corporation after amalgamation or a subsidiary after wind-up where not less than 90% of issued shares in each class were, just before the wind-up, owned by the corporation. This amount is the unused restricted farm losses available to carry forward at the end of the tax year of the predecessor corporation or subsidiary ending just before the amalgamation or wind-up minus any expired amount.

Line 440 is the amount of debt forgiveness under section 80 that reduces the restricted farm losses balance. Losses have to be reduced in the order established by section 80.

Line 450 is the amount of any other adjustments not previously mentioned. These adjustments would apply to corporations that have undergone an acquisition of control and whose losses that accrued before the acquisition of control are not deductible after the acquisition of control.

The result of this part is the closing balance of restricted farm losses you carry forward to future years (line 480).

Complete Part 6 to establish the balance of restricted farm losses by year of origin.

Part 5 – Listed personal property losses

Continuity of listed personal property loss and request for a carryback

Use this part to establish the continuity of listed personal property losses and to carry back a current-year listed personal property loss against net capital gains incurred on the same kind of property of the three previous years.

A listed personal property loss cannot be transferred.

When completing this part, line 530 is the amount of prior-year listed personal property losses applied in the current year to reduce the net capital gain incurred in the current year on the same kind of property (enter this amount on line 655 of Schedule 6).

Line 550 is the amount of adjustments. These adjustments would apply to corporations that have undergone an acquisition of control and whose losses that accrued before the acquisition of control are not deductible after the acquisition of control.

The result of this part is the closing balance of listed personal property losses you carry forward to future years (line 580).

Complete Part 6 to establish the balance of listed personal property losses by year of origin.

Part 6 – Analysis of balance of losses by year of origin

Use this part to show by year of origin the balance of losses you can carry forward to future years. Enter each loss by year of origin, starting with the current year and going down to the 20th previous year.

Part 7 – Limited partnership losses

Current-year limited partnership losses

Use this part to calculate the current-year limited partnership losses that cannot be deducted in the year, but can be carried forward to other years.

The amount of partnership loss allocated to a limited partner is reported on an information slip T5013, Statement of Partnership Income. If the limited partner does not receive this slip because the partnership is exempt from filing, you have to file the partnership’s financial statements with the return to prove the corporation’s share of the partnership loss for the year.

Report the amount in the corporation's tax year that the partnership's fiscal period ends in.

The part of a partnership loss that a limited partner can deduct in determining net income for income tax purposes may be restricted.

For tax years that end after February 26, 2018, it was clarified that the at-risk rules apply to a partnership that is itself a limited partner of another partnership and that a corporation's available non-capital loss and limited partnership loss carry-forward balances have to be adjusted as if these rules applied in the preceding years.

In column 606, enter the corporation's at-risk amount at the fiscal period ending of the partnership (column 602). The amount entered in column 604 is from a business (other than a farming or fishing business) or from property.

In general terms, you have to calculate a limited partner's at-risk amount as follows:

the adjusted cost base of its partnership interest

plus

its share of the current-year's income from the partnership

minus

all amounts the partner owes to the partnership, and any amount or benefit to which the partner is entitled that is intended to protect it from the loss of its investment

In general, interests in partnerships that were operating on a regular and continuous basis on February 25, 1986, and continuously thereafter, are exempt from the at risk rules. However, partnership interests may lose their exempt status if, after February 25, 1986, there has been either a substantial contribution of capital to the partnership or substantial partnership borrowings.

The difference between the corporation’s share of the actual loss of the partnership and the corporation’s at-risk amount (reduced by any investment tax credit, farming losses and resource expenses the partnership allocated to the corporation for that fiscal period) is called a limited partnership loss. This amount is entered in column 620.

Add the total of column 620 to line 222 of Schedule 1. Enter all those losses in column 670 to establish the continuity of losses.

References
Subsection 96(2.1)
IT‑232, Losses - Their Deductibility in the Loss Year or in Other Years

Limited partnership losses from prior tax years that may be applied in the current year

Complete this part if you want to apply limited partnership losses from previous years to reduce any kind of income in the current year. However, the deductible amount in respect of each partnership is limited to the difference between the balance of losses for that partnership and the corporation’s at-risk amount for that partnership after deducting the amounts specified under subparagraph 111(1)(e)(ii).

Continuity of limited partnership losses that can be carried forward to future tax years

Limited partnership losses can be carried forward indefinitely to future years.

For this part, column 664 is the amount of limited partnership losses transferred from a predecessor corporation after amalgamation, or a subsidiary after wind-up, where not less than 90% of the issued shares in each class were, immediately before the wind-up, owned by the corporation. This amount is the unused limited partnership losses available to carry forward at the end of the tax year of the predecessor corporation or subsidiary ending immediately before the amalgamation or wind-up.

The result of this part is the amount of limited partnership losses you carry forward to later years (column 680).

Part 8 – Election under paragraph 88(1.1)(f)

Further to a winding-up of a subsidiary, the portion of a non-capital loss, restricted farm loss, farm loss, or limited partnership loss incurred by the subsidiary is deemed to be the parent corporation's loss for its tax year starting after the winding-up has begun.

Paragraph 88(1.1)(f) allows the parent corporation to elect that this loss is deemed to be a loss from its tax year previous to the year mentioned above.

Tick box 190 if you are making an election under paragraph 88(1.1)(f).

Taxable income

The following section explains how to calculate the deductions you may be able to claim to reduce net income. You will use these amounts to arrive at your taxable income.

Line 300 – Net income or (loss) for income tax purposes

On line 300, enter the net income or loss for income tax purposes, as you calculated on Schedule 1. If you did not have to make any adjustments to the net income or loss from the financial statements, enter on line 300 the net income or loss from the income statement. Show the amount of any loss in brackets.

Note

On Schedule 1, do not deduct charitable donations, taxable dividends, net capital losses, non-capital losses, farm losses, or restricted farm losses from other years. You have to deduct these items from net income for income tax purposes to arrive at taxable income.

Lines 311 to 315

The amount deductible by the corporation will generally be the eligible amount. The eligible amount of a gift is the amount by which the fair market value of the property that is the subject of the gift exceeds the amount of the advantage, if any, in respect of the gift. For more information on the tax treatment of charitable gifts, see Pamphlet P113, Gifts and Income Tax.

Line 311 – Charitable donations

Complete Schedule 2, Charitable Donations and Gifts, if, during the tax year, you made charitable donations, or unused charitable donations were transferred from a predecessor corporation after amalgamation or from a subsidiary corporation after wind-up.

The eligible amount of gifts to Canada, a province, or a territory that was deductible before the 2016 tax year under paragraph 110.1(1)(b) is now deductible as charitable gifts under paragraph 110.1(1)(a) on line 311.

You can claim a deduction from net income for charitable donations made to any of the following qualified donees:

  • registered charities (including registered national arts service organizations)
  • registered Canadian amateur athletic associations
  • registered housing corporations resident in Canada set up only to provide low cost housing for the aged
  • registered Canadian municipalities
  • registered municipal or public bodies performing a function of government in Canada
  • the United Nations or its agencies
  • registered universities outside Canada the student body of which ordinarily includes students from Canada

As of February 27, 2018, such universities are no longer required to be prescribed in Schedule VIII of the Regulations.

  • registered foreign charities to which Her Majesty in right of Canada had made a gift
  • Her Majesty in right of Canada, a province, or a territory

The maximum amount of charitable donations that a corporation can deduct is equal to 75% of its net income (line 300).

This limitation can be increased by the following amounts:

  • 25% of the taxable capital gains arising from gifts of capital property made in the year and included in taxable income for the year; this amount is multiplied by the eligible amount of the gift divided by the corporation's proceeds of disposition for the gift
  • 25% of all taxable capital gains in the year from the disposition in a previous year of a non-qualifying security of a corporation that is making a gift to a qualified donee
  • 25% of whichever is less:
    • the amount of recapture, included in the income of the year, arising from the donation of a prescribed class of depreciable property
    • the eligible amount of the gift divided by the corporation's proceeds of disposition for the gift, multiplied by the lesser of the capital cost and the proceeds of disposition of the property minus any outlays and expenses made for the purpose of making the disposition

Charitable donations are deducted in the order they were made (first-in, first-out rule).

If you are reporting nil net income or a loss for the year, you cannot claim donations to create or increase a loss.

However, you can carry forward unused charitable donations and claim them in any of the five following tax years.

Note

On line 255 of Schedule 2, enter the amount of any other adjustments (these adjustments would apply to corporations that have undergone an acquisition of control and whose donations carryforward that accrued before the acquisition of control are not deductible after the acquisition of control).

Complete Part 1 of Schedule 2 to calculate the total donations available and the charitable donations closing balance.

Complete Part 2 of Schedule 2 to calculate the maximum deduction allowable and to determine the amount to claim for charitable donations including gifts of capital property.

On line 311, enter the amount you want to apply against taxable income. This amount cannot be more than the lesser of:

  • the total donations available
  • the maximum deduction allowable

Complete Part 6 of Schedule 2 to establish the continuity of charitable donations.

You do not have to file receipts with your return. However, you have to keep them in case we ask for them later.

Notes

When a credit union calculates its income for purposes of the 75% limit, it has to add back any amounts it previously deducted for bonus interest payments and payments for allocations in proportion to borrowing.

Where a corporation makes a gift of a non‑qualifying security, that gift has to be ignored for the charitable donations deduction. However, if the donee disposes of the security within 60 months, for consideration other than another non‑qualifying security of any person, or the security ceases to be a non‑qualifying security of the corporation within 60 months, the corporation will be treated as having made the gift at that later time.

A non‑qualifying security generally includes an obligation of the corporation or a non‑arm’s length person, a share of the corporation or a share issued by a corporation with which the corporation does not deal at arm’s length, the corporation’s beneficial interest in a trust in certain circumstances, and any other security issued by the corporation or a non‑arm’s length person. Specifically excepted from this definition are obligations, shares, and other securities listed on designated stock exchanges and deposits with financial institutions.

Monetary gifts to Canada should be made payable to the Receiver General. Send the gift, along with a note stating that the money is a gift to Canada, to:

Place du Portage
Phase III
11 Laurier Street
Gatineau QC  K1A 0S5

If you made such a gift, you should have been provided with an official donation receipt.

References
Paragraph 110.1(1)(a)
Subsections 40(1.01), 110.1(1.1), and 248(31)

Line 313 – Cultural gifts

Complete Part 3 of Schedule 2 if, during the tax year, one of the following occurred:

  • you donated cultural gifts
  • the cultural gifts were transferred from a predecessor corporation after amalgamation or from a subsidiary corporation after wind-up

You can claim a deduction from net income for a gift of certified cultural property made to designated institutions or public authorities. The most you can deduct is the total eligible amount of the gifts donated in the current tax year and any undeducted amounts from the five previous years.

If the eligible amount of cultural gifts is more than your net income for the year minus other donations you claim, you can carry the excess forward for up to five years.

Note

On line 455 of Schedule 2, enter the amount of any other adjustments (these adjustments would apply to corporations that have undergone an acquisition of control and whose donations carryforward that accrued before the acquisition of control are not deductible after the acquisition of control).

Cultural gifts are deducted in the order they were made (first-in, first-out rule).

On line 313, enter the eligible amount for cultural gifts you want to apply against taxable income.

Complete Part 6 of Schedule 2 to establish the continuity of cultural gifts.

The Cultural Property Export Review Board will issue you a certificate containing prescribed information. The qualified donee will issue a receipt. You do not have to file receipts and certificates with your return. However, keep them in case we ask for them later.

For gifts of certified cultural property made after February 10, 2014, if the certified cultural property is acquired as part of a gifting arrangement that is a tax shelter, the fair market value (FMV) of the property is deemed to be the lesser of the FMV of the property otherwise determined and its cost to the donor. For more information about the deemed FMV rule, see Pamphlet P113, Gifts and Income Tax.

References
Paragraph 110.1(1)(c)
Subsection 110.1(1.1) and 248(31)
IT-407, Dispositions of Cultural Property to Designated Canadian Institutions

Line 314 – Ecological gifts

Complete Part 4 of Schedule 2 if, during the tax year, one of the following occurred:

  • you made certified ecological gifts
  • the ecological gifts were transferred from a predecessor corporation after amalgamation, or from a subsidiary corporation after wind-up

You can claim a deduction from net income for certified ecological gifts made to Canada, a province, territory or Canadian municipality, municipal or public bodies performing a function of government in Canada or an approved registered charity.

For ecological gifts made after March 21, 2017:

  • the requirement to approve recipients of ecologically sensitive land on a gift-by-gift basis is extended to recipients that are municipalities and municipal and public bodies performing a function of government. They were previously automatically eligible recipients, without the need for approval
  • private foundations are no longer allowed to receive gifts of ecologically sensitive land

An ecological gift is a gift of land (including a covenant, an easement, or, in the case of land in Quebec, a real servitude) that is certified by the minister of Environment and Climate Change (ECC) as ecologically sensitive.

For gifts made after March 21, 2017, for land in the province of Quebec, donations of personal servitudes that run for at least 100 years can qualify as ecological gifts.

The eligible amount of a gift of ecologically sensitive land and, consequently, the corporate donor's proceeds of disposition are considered to be the amount determined by the minister of ECC.

Ecologically sensitive land must be protected and should not be used for other purposes. A tax of 50% of the fair market value of the land will be charged to recipients who change the use of the land or dispose of it without the consent of the minister of ECC.

The maximum deduction you can claim is the total of gifts made during the current tax year plus the unclaimed gifts from the five previous tax years.

If the amount of ecological gifts is more than your net income for the year minus any other donations you claim, you can carry the excess forward for up to 10 years. For gifts of ecologically sensitive land made before February 11, 2014, the carry-forward period is 5 years.

Note

On line 555 of Schedule 2, enter the amount of any other adjustments (these adjustments would apply to corporations that have undergone an acquisition of control and whose donations carryforward amounts that built up before the acquisition of control are not deductible after the acquisition of control).

Deduct ecological gifts in the order they were made (first-in, first-out rule).

On line 314, enter the amount of ecological gifts you want to apply against taxable income.

Complete Part 6 of Schedule 2 to establish the continuity of ecological gifts.

For an ecological gift, you must get a certificate issued by the minister of the ECC and a Certificate for Donation of Ecologically Sensitive Land. The qualified donee will issue a receipt. You do not have to file the receipt and the two certificates with your return. However, keep them in case we ask for them later.

References
Paragraph 110.1(1)(d)
Subsections 110.1(5), 110.1(1.1), and 248(31)

Line 315 – Gifts of medicine

Note

For gifts of medicine made after March 21, 2017, the additional deduction for gifts of medicine is eliminated. You can carry forward unused deductions in the five following tax years after the gift has been made. If you are reporting nil net income or a loss for the year, you cannot claim the deduction to create or increase a loss.

The elimination of the additional deduction does not affect the general income tax treatment of donations, including gifts of medicine, that corporations make to registered charities.

Complete Part 5 of Schedule 2 if, during the tax year, one of the following occurred:

  • you made a gift of medicine before March 22, 2017
  • you are applying an additional deduction available for carryforward
  • your gifts of medicine were transferred from a predecessor corporation after amalgamation, or from a subsidiary corporation after wind-up

For eligible gifts of medicine made in the year and before March 22, 2017, you can claim the additional deduction from net income if the gift was made to a registered charity for charitable activities carried on outside Canada. An eligible gift was a gift of medicine that was part of the corporation’s inventory immediately before being donated, that qualified as a drug within the meaning of the Food and Drugs Act, and generally met the requirements of that Act but was not a food, cosmetic, or device (as those terms are used in that Act), a natural health product (as defined in the Natural Health Products Regulations) or a veterinary drug.

The registered charity had to be one that, in the opinion of the minister for International Development, met conditions prescribed by regulation. (If no such minister had been appointed, the opinion of the minister of Foreign Affairs was required). Also, the eligible gift of medicine had to be available for the donee's use at least six months before its expiration date as defined in the Food and Drug Regulations (Food and Drugs Act).

The maximum deduction you can claim is the lesser of:

  • the cost to the corporation of the gifts of medicine
  • 50% of the amount, if any, by which the proceeds of disposition of the donated medicine exceeded the cost to the corporation of the medicine

multiplied by

  • the eligible amount of the gift divided by the proceeds of disposition for the gift

If the amount of the gifts of medicine minus any other donations you claim is more than your net income for the year, you can carry the excess forward for up to five years.

Note

On line 655 of Schedule 2, enter the amount of any other adjustments (these adjustments would apply to corporations that have undergone an acquisition of control and whose donations carryforward amounts that accrued before the acquisition of control and are not deductible after the acquisition of control).

Gifts of medicine are deducted in the order they were made (first-in, first-out rule).

On line 315, enter the amount for gifts of medicine you want to apply against your current year taxable income.

Complete Part 6 of Schedule 2 to establish the continuity of the gifts of medicine.

References
Paragraph 110.1(1)(a.1)
Subsections 110.1(8) and 110.1(9)
Regulation 3505

Line 320 – Taxable dividends deductible under section 112 or 113, or subsection 138(6)

Complete Schedule 3, Dividends Received, Taxable Dividends Paid, and Part IV Tax Calculation, if you either received or paid dividends. For details on how to complete Schedule 3, see Parts 3 and 4 of Schedule 3 and Line 712 – Part IV tax payable.

When calculating taxable income, you can deduct, under section 112, any of the following types of taxable dividends received:

  • dividends from a taxable Canadian corporation, or from a corporation resident in Canada and controlled by the receiving corporation
  • dividends (or a portion of them) from a non-resident corporation (other than a foreign affiliate) that has carried on business in Canada continuously since June 18, 1971

The following types of taxable dividends received are not deductible under section 112:

  • dividends from a corporation that is exempt from Part I tax
  • dividends on collateralized preferred shares (loss rental plans)
  • dividends that are part of a dividend rental arrangement, as defined in subsection 248(1)
  • dividends on term preferred shares received by certain financial institutions
  • dividends on shares guaranteed by a specified financial institution, as described in subsection 112(2.2)

References
Subsections 112(1), 112(2), and 112(2.1) to 112(2.9)

Section 113 contains the authority and the limitations concerning the deduction of dividends received from foreign affiliates.

Subsection 138(6) contains the authority for a life insurer to deduct the taxable dividends received from taxable Canadian corporations, other than dividends on term preferred shares that are acquired in the ordinary course of its business.

On line 320, enter the amount of taxable dividends (as per Schedule 3) deductible from income under section 112, or 113, or subsection 138(6). This amount is the total of column 240 of Schedule 3.

Note

A dividend does not include stock dividends received from a non-resident corporation.

By deducting taxable dividends received from net income or loss amount shown on line 300, you can create or increase a non-capital loss for the year.

Reference
IT-269, Part IV Tax on Taxable Dividends Received by a Private Corporation or a Subject Corporation

Line 325 – Part VI.1 tax deduction

A corporation that pays Part VI.1 tax on dividends it paid on taxable preferred shares and short-term preferred shares can deduct 3.5 times the Part VI.1 tax the corporation has to pay. For details on how to calculate Part VI.1 tax, see Line 724 – Part VI.1 tax payable.

On line 325, enter the Part VI.1 tax times 3.5.

Reference
Paragraph 110(1)(k)

Line 331 – Non-capital losses of previous tax years

On line 331, enter any non-capital losses carried forward from previous years to reduce taxable income from line 130 of Schedule 4.

On line 330 of Schedule 3, enter the amount of current-year non-capital losses, and on line 335, enter the non-capital losses from previous years to be used to reduce dividends subject to Part IV tax.

The total of those two amounts has to be entered as an applied amount on line 135 of Schedule 4. For details, see Part 1 – Non-capital losses.

References
Paragraphs 111(1)(a), 186(1)(c), and 186(1)(d)

Line 332 – Net capital losses of previous tax years

On line 332, enter the amount of net capital losses from previous years that you applied against taxable capital gain incurred in the year. This amount is the capital loss entered on line 225 of Schedule 4 that you multiply by 50%. See Part 2 – Capital losses for details.

Note

A net capital loss can create a non-capital loss in the year you apply it, because the net capital loss is not limited to reducing the taxable income, but to reducing the taxable capital gain in that year.

References
Section 38
Subsections 111(1.1) and 111(8)
Paragraph 111(1)(b)

Line 333 – Restricted farm losses of previous tax years

On line 333, enter the amount you want to apply to reduce the current-year farm income. On line 430 of Schedule 4, enter the amount of restricted farm loss used. For details, see Restricted farm losses.

Reference
Paragraph 111(1)(c)

Line 334 – Farm losses of previous tax years

On line 334, enter the farm losses you are carrying forward from previous years to reduce taxable income from line 330 of Schedule 4.

On line 340 of Schedule 3, enter the amount of the current-year farm loss, and on line 345, enter the previous years' farm losses that you are using to reduce dividends subject to Part IV tax.

The total of those two amounts has to be entered on line 335 of Schedule 4 as the amount applied. For details, see Part 3 – Farm losses.

References
Paragraphs 111(1)(d), 186(1)(c), and 186(1)(d)

Line 335 – Limited partnership losses of previous tax years

On line 335, enter the deductible amount of limited partnership losses from previous years that were applied against other incomes in the current year from Part 7 of Schedule 4.

Reference
Paragraph 111(1)(e)

Line 340 – Taxable capital gains or taxable dividends allocated from a central credit union

If a central credit union has made an election under subsection 137(5.1), amounts allocated to a member credit union as taxable dividends or net non-taxable capital gains may be claimed by that member as a deduction from taxable income under paragraph 137(5.2)(c). Enter these amounts on line 340.

Line 350 – Prospector's and grubstaker's shares

You can deduct ½ of the value of any shares received from a corporation after disposition of a right or a mining property, except if the amount is exempt under a tax treaty.

Reference
Paragraph 110(1)(d.2)

Line 355 – Section 110.5 additions or subparagraph 115(1)(a)(vii) additions

You can use foreign tax deductions to reduce Part I tax that you would otherwise have to pay. Under section 110.5 and subparagraph 115(1)(a)(vii), a corporation that cannot deduct its foreign income tax deductions (for example, if it has no Part I tax payable for the year) can choose to add an amount to its taxable income. In this way, the corporation can use these otherwise non-deductible foreign tax deductions.

The amount you add to income for this purpose forms part of the non-capital loss. See Non-capital losses for details.

However, you cannot add an amount under section 110.5 if that addition increases any of the following deductible amounts:

  • the small business deduction
  • the manufacturing and processing profits deduction
  • the federal logging tax credit
  • the federal political contribution tax credit
  • the investment tax credit (ITC)
  • the share-purchase tax credit
  • the SR&ED tax credit

If the corporation is an authorized foreign bank, you cannot add an amount under subparagraph 115(1)(a)(vii) if that addition increases any of the following deductible amounts:

  • the federal logging tax credit
  • the federal political contribution tax credit
  • the ITC

On line 355, enter the amount you added to income under section 110.5 or subparagraph 115(1)(a)(vii).

Line 360 – Taxable income

To calculate this amount, subtract all the deductions you entered on lines 311 to 350 from the net income for income tax purposes on line 300. Add, if it applies, section 110.5 or subparagraph 115(1)(a)(vii) additions (line 355). Enter the taxable income on line 360.

If the result is a loss, enter "0" on line 360.

Note

If you want to carry back a current-year loss to a prior tax year, see How to complete Schedule 4 for details.

Line 370 – Income exempt under paragraph 149(1)(t)

Note

The tax exemption under paragraph 149(1)(t) is eliminated for tax years that start after 2018.

Insurers who are not engaged in any other business except insurance and who earn at least 20% of their gross premium income (net of reinsurance ceded) from the business of property used in a fishing or farming business, or residences of farmers or fishers, are eligible for an exemption from Part I tax on their taxable income.

On line 370, enter the exempt income if you meet the criteria of paragraph 149(1)(t).

Taxable income for a corporation with exempt income under paragraph 149(1)(t)

Enter on this line the result of line 360 minus line 370.

References
Subsections 149(4.1) and 149(4.2)

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