T2 Corporation – Income Tax Guide – What's New
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- Is this guide for you?
- What's new
- Fall Economic Statement
- T2 Auto-fill
- New payment options
- New email notifications
- Corporation Internet Filing
- 2018 federal, provincial, and territorial budgets
- Cross-border surplus stripping using partnership and trusts
- Artificial losses using equity-based financial arrangements
- Stop-loss rule on share repurchase transactions
- Voluntary Disclosures Program
- Foreign affiliates
- Capital cost allowance
- At-risk rules for tiered partnerships
- Charitable donations
- Business limit reduction
- Dividend refund
- Lower rate of Prince-Edward Island corporation income tax
- Ontario interactive digital media tax credit
- Manitoba business limit
- Manitoba credit unions
- Manitoba small business venture capital tax credit
- Manitoba cultural industries printing tax credit
- Manitoba book publishing tax credit
- Manitoba rental housing construction tax credit
- Manitoba child care centre development tax credi
- British Columbia information reporting of tax avoidance transactions
- British Columbia farmers’ food donation tax credit
- British Columbia film and television tax credit
- British Columbia book publishing tax credit
- British Columbia interactive digital media tax credit
Is this guide for you?
In this guide, we give you basic information on how to complete the T2 Corporation Income Tax Return. This return is used to calculate federal income tax and credits. Corporations that have a permanent establishment in any province or territory other than Quebec or Alberta also use this return to report provincial and/or territorial income taxes and credits. Corporations with a permanent establishment in Quebec or Alberta must file a separate provincial return.
Government of Canada’s Fall Economic Statement 2018 was tabled November 21, 2018.
It proposes the following measures for eligible property that is acquired after November 20, 2018 and that becomes available for use before 2028:
- an enhanced first year allowance for capital cost allowance (CCA) class 53 property (machinery and equipment used for the manufacturing or processing of goods) and class 43.1 and 43.2 property (clean energy equipment). The enhanced allowance will initially provide a 100% deduction for property that becomes available for use before 2024, effectively allowing for full expensing of the property. The enhanced allowance will be phased out for property that becomes available for use after 2023.
- an accelerated investment incentive, which will provide an enhanced first year allowance for certain eligible property that is subject to the CCA rules. In general, the incentive will be made up of two elements:
- a 50% increase of the net capital cost addition to a class for property that becomes available for use before 2024
- the suspension of the existing CCA half-year rule (and equivalent rules for Canadian vessels and class 13 property) for property that becomes available for use before 2028
The incentive will allow a first year deduction equal to up to three times the amount that would otherwise apply in the year the asset is available for use or, for leasehold interest, in the year the capital cost is incurred. Property currently subject to the existing half year rule will effectively qualify for an enhanced CCA equal to three times the normal first year allowance, and property not subject to the half year rule will qualify for one-and-a-half times the normal first year allowance. The incentive will be phased out for property that becomes available for use after 2023. It will also generally apply to eligible Canadian development expenses and Canadian oil and gas property expenses, but will not apply to property in classes 43.1, 43.2, or 53, which will benefit from the full expensing measures mentioned above.
The accelerated investment incentive will apply to property for which CCA is calculated on a declining balance basis (including class 14.1, intangible property), as well as property with straight line depreciation (for example, leasehold improvement, patents, and limited period licences).
In certain situations, rules related to limited partners, specified leasing properties, specified energy properties and rental properties can restrict a CCA deduction, or a loss in respect of such a deduction, that would otherwise be available. These rules will continue to apply.
Property that has been used, or acquired for use, for any purpose before it is acquired by the corporation will be eligible for the incentive only if both of the following conditions are met:
– neither the corporation nor a non-arm’s-length person previously owned the property
– the property has not been transferred to the corporation on a tax deferred rollover” basis
The accelerated investment incentive will not change the total amount that can be deducted over the life of the property, it will just allow a larger deduction in the first year.
The Fall Economic Statement 2018 introduced an accelerated rate for Canadian development expenses (CDE) that a flow-through share (FTS) investor receives from a principal business corporation (PBC). This tax measure applies to FTS agreements entered into after November 20, 2018, for CDE incurred after the agreement date.
A PBC needs to inform the investor that the renounced amount meets those conditions in order for the investor to benefit from the permissive accelerated rate for these renounced expenses.
If you have invested in a FTS after November 20, 2018 and have received a statement of resource expenses from a PBC, you may claim CDE at the rate of 45% in the tax year in which they are renounced to you and, thereafter, at a rate of 30%.
The new T2 Auto-fill service allows corporations and authorized representatives to download information from the Canada Revenue Agency (CRA) to their tax preparation software. See T2 Auto-fill.
You can now pay by credit card through third party service providers. Also, all remittance vouchers for corporations supplied after October 2018 contain a Quick Response (QR) code that allows payments to be made at Canada Post outlets. See When and how do corporations pay income tax?
On June 25, 2018, we started sending email notifications when important changes are made to your business account. See What happens after you have filed your return? and Signing up for email notifications when filing your T2 return.
When using Corporation Internet Filing, you can now specify hours and minutes in the tax year-end field of the T2 return for certain situations. See Specify hours and minutes.
Cross-border surplus stripping using partnership and trusts
For transactions or events that occur after February 26, 2018, the application of an existing anti-surplus stripping rule is expanded. This rule prevents a non-resident shareholder of a Canadian corporation from extracting (either now or in the future), without withholding tax, the corporation's retained earnings that exceed the amount of capital that the shareholder contributed to the corporation. The rule is expanded by including a look-through rule where a partnership or trust is used to avoid the purpose of the anti-surplus stripping provision.
Consequential amendments were also made to account for this expanded anti-surplus stripping rule, including changes to the thin capitalization rules and to the corresponding corporate immigration rules.
Certain aspects of the synthetic equity arrangement rules and the securities lending arrangement rules are clarified to prevent corporations from realizing artificial tax losses by using equity-based financial instruments to avoid the application of these rules. The measures related to the synthetic arrangements apply to dividends that are paid or become payable after February 26, 2018. The measures related to the securities lending arrangements apply to dividend compensation payments paid or payable, or received or receivable after February 26, 2018, unless they are paid or payable, or received or receivable before October 2018 and made according to a written arrangement entered into before February 27, 2018.
For a share repurchase made after February 26, 2018, the rules related to shares held as mark-to-market property are amended so that the tax loss otherwise realized on a share repurchase is generally decreased by the dividend deemed to be received on that repurchase when that dividend is eligible for the inter-corporate dividend deduction. Previously, in certain circumstances, the dividend stop-loss rule denied only a part of the tax loss realized on a share repurchase.
On March 1, 2018, changes to the Voluntary Disclosures Program (VDP) narrowed the eligibility criteria and imposed additional conditions on applicants. For a corporation to qualify for the VDP relief based on the eligibility criteria in effect before March 1, 2018, the CRA must have received the corporation’s application with all required information, including its name, before March 1, 2018. See Voluntary Disclosures Program.
The reassessment periods are extended for the following:
- non-resident non-arm's length persons
- requirements for information and compliance orders
- foreign affiliates
For losses incurred in a particular tax year that ends after February 26, 2018, the reassessment period for a preceding tax year to which those losses are carried back is extended six years beyond the normal reassessment period if both of the following apply:
- the losses are reduced as a result of a reassessment made to the particular tax year beyond the normal reassessment period for the year
- the reassessment to the particular tax year is made as a consequence of a transaction involving the corporation and a non-arm's length non-resident person.
For challenges made after the legislation receives royal assent, a "stop the clock" rule will extend the reassessment period of a corporation by the amount of time that a requirement for information or a compliance order is contested. See Requirements for information and compliance orders.
For tax years of a corporation that begin after February 26, 2018, the reassessment period is extended by three years for income arising in connection with a foreign affiliate of the corporation. See Extended reassessment period.
For tax years of a foreign affiliate that begin after February 26, 2018, new rules are introduced in response to “tracking arrangements” undertaken by Canadian corporations to avoid the investment business rules and the controlled foreign affiliate status, to ensure that the foreign accrual property income earned by a foreign affiliate is taxed on an accrual basis. See Foreign affiliates.
For tax years of a foreign affiliate that begin after February 26, 2018, a Canadian corporation’s foreign affiliate that is a regulated foreign financial institution whose principal business is to derive income from trading or dealing in indebtedness will only be exempted from the foreign property accrual property rule if it satisfies minimum capital requirements.
Capital cost allowance
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.
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. See Current-year limited partnership losses.
Effective February 27, 2018, universities outside of Canada to which tax creditable gifts can be made are no longer required to be prescribed in Schedule VIII of the Regulations. See Line 311 – Charitable donations.
Business limit reduction
For tax years that begin after 2018, the business limit of a Canadian-controlled private corporation (CCPC) is reduced on a straight-line basis if the CCPC, and any other corporation it is associated with, earn combined income from passive investments between $50,000 and $150,000. Previously, the business limit was reduced based only on the taxable capital employed in Canada. The reduction in the CCPC’s business limit is now the greater of its taxable capital business limit reduction and its passive income business limit reduction for the year. See Reduced business limit.
For tax years that begin after 2018, the dividend refund rule is changed so that a private corporation gets a refund of its refundable dividend tax on hand (RDTOH) only where it pays non-eligible dividends, or eligible dividends that are derived from portfolio dividends it received from non connected corporations. A transitional rule will preserve the refundability of a corporation's pre-existing RDTOH. See Dividend refund.
For tax years ending after December 31, 2017, the lower rate of Prince Edward Island corporation income tax decreases from 4.5% to 4%. It will further decrease to 3.5% effective January 1, 2019. See Prince Edward Island.
The eligibility of the Ontario interactive digital media tax credit is extended to film and television websites that are purchased or licensed by a broadcaster and embedded in the broadcaster’s website. This change applies to products that had not received a certificate of eligibility or a letter of ineligibility as of November 1, 2017. See Ontario interactive digital media tax credit.
Effective January 1, 2019, the Manitoba business income limit eligible for the small business deduction rate increases from $450,000 to $500,000. See Manitoba.
Credit unions and caisses populaires in Manitoba are eligible for an additional deduction for income over the business limit that is not eligible for the small business deduction. This deduction will be phased out over five years, starting in 2019. See Manitoba additional deduction for credit unions. The 1% profits tax applicable to Manitoba credit unions and caisses populaires is eliminated effective January 1, 2019.
Effective March 12, 2018, the minimum investment eligible for the credit was lowered from $20,000 to $10,000. See Manitoba small business venture capital tax credit.
This credit, which was scheduled to end on December 31, 2018, is extended to December 31, 2019. See Manitoba cultural industries printing tax credit.
This credit, which was scheduled to end on December 31, 2018, is extended to December 31, 2019. See Manitoba book publishing tax credit.
Manitoba rental housing construction tax credit projects must be made available for use before 2020 for projects in which the application was submitted before March 13, 2018. For applications submitted after March 12, 2018, and before 2019, the project must be available for use before 2021. See Manitoba rental housing construction tax credit.
Effective March 13, 2018, a new refundable income tax credit is introduced for the creation of licensed child care centres. See Manitoba child care centre development tax credit.
British Columbia information reporting of tax avoidance transactions
Effective February 21, 2018, the BC government introduced updates to its anti avoidance rule and other amendments that require corporations in BC to disclose aggressive tax avoidance transactions to the CRA. This parallels the federal approach on reportable transaction rules. See Information reporting of tax avoidance transactions.
British Columbia farmers’ food donation tax credit
This credit, which was scheduled to end December 31, 2018, is extended to December 31, 2019. See British Columbia farmers’ food donation tax credit.
British Columbia film and television tax credit
This credit is expanded to include a new scriptwriting tax credit. This new refundable credit is equal to 35% of eligible scriptwriting expenditures incurred after February 20, 2018. See British Columbia film and television tax credit.
British Columbia book publishing tax credit
This credit, which was scheduled to end March 31, 2018, is extended three years to March 31, 2021. See British Columbia book publishing tax credit.
British Columbia interactive digital media tax credit
This credit, which was scheduled to end August 31, 2018, is extended five years to August 31, 2023. See British Columbia interactive digital media tax credit.
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