Corporation Income Tax Statistics - Annexes

Annex 1

IMPACT OF CHANGES IN THE LAW AND REGULATIONS

Various changes in legislation have occurred during the 2001 to 2005 period. For further information, please refer to federal budgets released during this period.

Link to : Department of Finance Canada budgets and fiscal updates

Annex 2

EXPLANATION OF TERMS

To obtain further information on the terms described below, please refer to the following Web site; it contains the list of returns and schedules for corporations:

Accelerated tax reduction: For tax years that end after December 31, 2000, the general federal corporate income tax rate-reduction from 28% to 21% was accelerated for active business income between $200,000 and $300,000 earned from a business carried on in Canada by a Canadian-controlled private corporation (must have been a CCPC throughout the tax year). The accelerated tax reduction no longer applied to 2005 and later tax years (refer to line 637 of the T2 Corporation Income Tax Return).

Additional deduction - credit unions: Although a credit union is not generally considered a private corporation, it is eligible for the small business deduction. A credit union can also deduct an extra 16% of its taxable income that was not eligible for the small business deduction (refer to line 628 of the T2 Corporation Income Tax Return).

Allowable refund for non-resident-owned investment corporations: An election to be taxed as a non-resident-owned (NRO) investment corporation is no longer permitted. It should be noted that existing corporations were entitled to retain their status until the end of their last tax year that began before 2003, but they were not permitted to issue new shares or increase their debt levels (refer to line 804 of the T2 Corporation Income Tax Return).

Base amount of Part I tax: To determine the base amount of Part I tax, calculate 38% of taxable income (refer to line 550 of the T2 Corporation Income Tax Return).

BN database: This database includes incorporated business identification (name, address, owner, etc.) and registration (fiscal year-end, contact, etc.) information for numerous programs.

Canadian film or video production tax credit refund: A fully refundable tax credit is available to qualified corporations that produce an eligible production certified by the Minister of Canadian Heritage to be a Canadian film or video production (refer to line 520 or line 620 of form T1131 and line 796 of the T2 Corporation Income Tax Return).

Capital tax: Under Part I.3 of the Income Tax Act, larger corporations, including large financial institutions and large insurance corporations, owed a tax on the capital they employed in Canada. To calculate their tax, larger corporations used Schedule 33, Part I.3 Tax on Large Corporations; financial institutions used Schedule 34, Part I.3 Tax on Financial Institutions; and large insurance corporations used Schedule 35, Part I.3 Tax on Large Insurance Corporations. This tax was eliminated, effective January 1, 2006.

Charitable donations claimed: Corporations can deduct charitable donations (up to 75% of net income for tax purposes) in calculating taxable income, rather than a tax credit as in the case for individuals. Corporations are allowed to carry forward unused donations and claim them in any of the following five years (refer to line 260 of Schedule 2 and line 311 of the T2 Corporation Income Tax Return).

Corporate surtax: Corporations are subject to a 4% surtax on the federal income tax it has to pay. This tax was eliminated, effective January 1, 2008 (refer to line 600 of the T2 Corporation Income Tax Return).

Corporate tax filer: For the purposes of this publication, a corporate tax filer is a 13-digit account number with a unique tax year-end date that can be associated with a specific income tax return.

Cultural gifts: Corporations may claim a deduction from net income for a gift of certified cultural property made to a designated institution or public authority (refers to line 460 of Schedule 2 and line 313 of the T2 Corporation Income Tax Return).

Dividend refund: A private or subject corporation may be entitled to a dividend refund for dividends it paid while it was a private or subject corporation (refer to line 460 of Schedule 3 and line 784 of the T2 Corporation Income Tax Return).

Ecological gifts: Corporations may deduct from net income certified ecological gifts made to Canadian municipalities and registered charities designated by the Minister of the Environment. Ecological gifts are gifts of land certified by the Minister of the Environment to be important for the preservation of Canada's environmental heritage (ecologically sensitive). It includes a covenant, an easement, or servitude (refer to line 560 of Schedule 2 and line 314 of the T2 Corporation Income Tax Return).

Farm losses of preceding taxation years: Farm losses carried forward from preceding years can be used to reduce taxable income (refer to line 330 of Schedule 4 and line 334 of the T2 Corporation Income Tax Return).

Federal capital gains refund: Investment corporations and mutual fund corporations that claim a capital gains refund calculate and claim the refund on Schedule 18. The federal component of the refund is entered on line 788 on page 8 of the T2 Corporation Income Tax Return (refer to line 190 of Schedule 18 and line 788 of the T2 Corporation Income Tax Return).

Federal foreign business income tax credit: To prevent double taxation, a corporation that pays foreign tax on income or profits it earned from operating a business in a foreign country can claim a federal foreign business income tax credit. This credit reduces the Part I tax that the corporation would otherwise have to pay. To calculate this credit, a corporation completes Parts 2 and 8 of Schedule 21 (refer to line 280 of Schedule 21 and line 636 of the T2 Corporation Income Tax Return).

Federal foreign non-business income tax credit: A federal foreign non-business income tax credit is available to Canadian residents to prevent double taxation of any non-business income earned in a foreign country that was taxed by that foreign country. This credit reduces Part I tax that the corporation would otherwise have to pay (refer to line 180 of Schedule 21 and line 632 of the T2 Corporation Income Tax Return).

Federal logging tax credit: Corporations that have logging operations and have paid logging tax to the province of Quebec or British Columbia can claim this credit (refer to line 580 of Schedule 21 or line 640 of the T2 Corporation - Income Tax Guide).

Federal political contribution tax credit: This credit may be claimed by a corporation that made monetary contributions in the year, before January 1, 2007, to a registered federal political party or to a candidate confirmed in a federal election (refer to line 644 of the T2 Corporation - Income Tax Guide). Effective January 1, 2007, the Canada Elections Act has banned political contributions by corporations and others (trade unions and unincorporated associations).

Federal qualifying environmental trust tax credit: A corporation that is the beneficiary under a qualifying environmental trust can claim a tax credit equal to Part XII.4 tax payable by the trust on that income (refer to line 648 of the T2 Corporation Income Tax Return).

Federal qualifying environmental trust tax credit refund: This is the amount of federal qualifying environmental trust tax credit that was not used in the Part I tax calculation (refer to line 792 of the T2 Corporation Income Tax Return).

Federal tax abatement: The federal tax abatement is equal to 10% of taxable income earned in the year in a province or territory. The federal tax abatement is not available for income earned in a foreign jurisdiction. The federal tax abatement reduces Part I tax payable (refer to line 608 of the T2 Corporation Income Tax Return).

Film or video production services tax credit refund: A fully refundable tax credit is available to eligible production corporations for a film or video production certified by the Minister of Canadian Heritage to be an accredited production (refer to line 520 or line 620 of form T1177 and line 797 of the T2 Corporation Income Tax Return).

General tax reduction: This reduction is available on qualifying income of most corporations other than CCPCs. It is 1% in 2001, 3% in 2002, 5% in 2003, and 7% in 2004 and thereafter (refer to line 639 of the T2 Corporation Income Tax Return). Manufacturing and processing profits deduction (MPPD) is also included here. Corporations that derive at least 10% of their gross revenue for the year from manufacturing or processing goods in Canada for sale or lease can claim the deduction. The MPPD reduces Part I tax otherwise payable. The MPPD is calculated at the rate of 7% on income that is not eligible for the small business deduction (refer to line BB of Schedule 27 and line 616 of the T2 Corporation Income Tax Return).

General tax reduction for CCPCs: This reduction is available on qualifying income of CCPCs and is 1% in 2001, 3% in 2002, 5% in 2003, and 7% in 2004 and thereafter (refer to line 638 of the T2 Corporation Income Tax Return).

Gifts to Canada, a province, or a territory: Corporations can claim a deduction from net income for a gift made to Canada or to a province or territory (refer to line 360 of Schedule 2 and line 312 of the T2 Corporation Income Tax Return).

Gross revenue: Gross revenue is the sum of all farming and non-farming revenues (i.e. total revenue) on Schedule 125 that are related to the production of goods and services of a corporation. Examples of revenues excluded for the gross revenue calculation include income/loss from partnerships/joint ventures, certain gains/losses, and other revenues such as subsidies and grants, royalty tax credit, rebates, insurance proceeds, etc. The concept of gross revenue here is very similar to that of active business income as defined in subsection 248(1) of the Income Tax Act.

Investment corporation deduction: A Canadian public corporation that is an investment corporation can claim a deduction from Part I tax otherwise payable:

• The deduction is equal to 20% of the taxable income for the year that exceeds the taxed capital gains for the year;
• The corporation's taxed capital gains are entered at line 624 on page 7 of the T2 return and the investment corporation deduction is entered at line 620.

(Refer to line 620 of the T2 Corporation Income Tax Return).

Investment tax credit applied against Part I Tax: Canadian corporations earning business income are allowed to deduct a specified percentage of the cost of certain types of current and capital expenditures from Part I tax otherwise payable (refer to line III of Schedule 31 and line 652 of the T2 Corporation Income Tax Return).

Investment tax credit refund: In certain circumstances, CCPCs may claim a refund for part or all of the unused Investment Tax Credit (ITC) they earned during the tax year (refer to line QQ of Schedule 31 and line 780 of the T2 Corporation Income Tax Return).

Limited partnership losses of preceding taxation years: Limited partnership losses may be carried forward and deducted by a taxpayer against any type of income to the extent that the partner has an at-risk amount at the end of the fiscal period of the partnership ending in that year (refer to Schedule 4 and line 335 of the T2 Corporation Income Tax Return).

Losses carried back: These are losses available in the current year that are carried back and approved to offset taxable income in a prior tax year. Depending on the nature and timing of the loss, the loss can be carried back three years and carried forward over a specified number of years (refer to Schedule 4 and the T2 Corporation - Income Tax Guide for additional information). Schedule 4 provides information on corporations' reported losses and how they are used. When a carryback request has been made by a corporation, then approval by the Canada Revenue Agency becomes necessary; this information is not available in Schedule 4. The loss carryback amounts in this publication generally reflect loss carryback requests that have been approved.

Net capital losses of preceding taxation years: Losses arising from the disposition of capital property in preceding years can be used to offset capital gains of the current year, as calculated on schedules 4 and 6. The capital loss is multiplied by the current inclusion rate (refer to line 332 of the T2 Corporation Income Tax Return).

Net federal taxes: Net federal taxes are equal to total federal tax minus all other credits. The sum of the following constitutes all other credits for this publication: investment tax credit refund (line 780), dividend refund (line 784), federal capital gains refund (line 788), federal qualifying environmental trust tax credit refund (line 792), Canadian film or video production tax credit refund (line 796), film or video production services credit refund (line 797), allowable refund for non-resident-owned investment corporations (line 804), and tax remitted under the Syncrude Remission Order (line 816) (refer to the T2 Corporation Income Tax Return).

Net income: This is the net amount of net income/loss before taxes and extraordinary items minus extraordinary item(s) minus legal settlements plus unrealized gains/losses minus unusual items minus current taxes minus future (deferred) income tax provision (refer to Schedule 125).

Net income (or loss) for income tax purposes (excluding exempt income): This is net income calculated for corporation income tax purposes per Schedule 1[Footnote 8] (refer to Schedule 1 and line 300 of the T2 Corporation Income Tax Return). For this publication, net income (or loss) for income tax purposes excludes exempt income. Exempt income is corporate income that is generally exempt from tax under section 149 of the Income Tax Act. For the purposes of this publication, exempt income is the sum of all income exempt under paragraph 149(t) and all other income that is exempt under section 149 (refer to line 370 of the T2 Corporation Income Tax Return).

Non-capital losses of preceding taxation years: A corporation's non-capital loss is its loss from carrying on a business or from property expenses in excess of property income (refer to Schedule 4 and line 331 of the T2 Corporation Income Tax Return).

Other tax credit carrybacks: These are unused credits carried back to offset Part I taxes otherwise payable. Depending on the nature and timing of the credit, these unused credits can be carried back 3 years and may be carried forward a specified number of years. When a carryback request has been made by a corporation, then approval by the Canada Revenue Agency becomes necessary; this information is not available on the applicable schedule. The other carryback amounts in this publication reflect credit carryback requests that have been approved.

Part I tax payable: This is the total of corporation income taxes paid by a corporation (refer to line 700 of the T2 Corporation Income Tax Return).

Part I.3 tax payable: This is a tax levied on the taxable capital employed in Canada by larger corporations, including large financial institutions and large insurance corporations (refer to line 704 of the T2 Corporation Income Tax Return or the definition of "Capital tax" of this publication).

Part II surtax payable: Tobacco manufacturers have to pay a surtax equal to a certain percentage of Part I tax on tobacco manufacturing profits for the year (refer to line 708 of the T2 Corporation Income Tax Return).

Part IV tax payable: Parts 1 and 2 of Schedule 3 are used to calculate tax payable on taxable dividends received. This applies to private or subject corporations only (refer to line 712 of the T2 Corporation Income Tax Return).

Part IV.1 tax payable: Public corporations and certain other corporations may be subject to the 10% Part IV.1 tax on dividends they receive on taxable preferred shares. A restricted financial institution is also subject to tax on dividends received on taxable restricted financial institution shares (refer to Schedule 43 and Line 716 of the T2 Corporation - Income Tax Guide for exceptions and further information).

Part VI tax payable: This is a tax levied on a financial institution's taxable capital employed in Canada (refer to line 890 of Schedule 38 and line 720 of the T2 Corporation Income Tax Return).

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 three times the Part VI.1 tax the corporation has to pay for 2003 and later tax years and nine-fourths (9/4) of the Part VI.1 tax the corporation has to pay for tax years before 2003 (refer to line 270 of Schedule 43 and line 325 of the T2 Corporation Income Tax Return).

Part VI.1 tax payable: Part VI.1 tax is levied on dividends (other than certain excluded dividends) that a corporation paid on short-term preferred shares and taxable preferred shares (refer to line 270 of Schedule 43 and line 724 of the T2 Corporation Income Tax Return).

Part XIII.1 tax payable: Every authorized foreign bank is subject to tax equal to 25% of its taxable interest expense for the year (refer to Schedule 92 and line 727 of the T2 Corporation Income Tax Return).

Part XIV tax payable: Every corporation that is non-resident in a tax year is subject to a "branch" tax of 25%, which can be reduced by a tax treaty. In addition, a tax treaty may restrict the branch tax to corporations that carry on business in Canada through a permanent establishment in Canada (refer to line 126 of Schedule 20 and line 728 of the T2 Corporation Income Tax Return).

Prospector's and grubstaker's shares: This is a deduction for prospector's and grubstaker's shares allowed under 110(1)(d.2) of the Income Tax Act where the taxpayer has included an amount in income for the year in respect of the share. The amount is deducted from net income for tax purposes. This amount is needed on Schedule 21 to calculate adjusted net income for purposes of the maximum allowable foreign tax credit. The deduction equals ½ of the value of any shares received from a corporation after disposition of a right or mining property, except if the amount is exempt under a tax treaty (refer to line 350 of the T2 Corporation Income Tax Return).

Recapture of investment tax credit: A corporation that disposed of a property used in scientific research and experimental development (SR&ED), or converted it to commercial use, should report a recapture of ITC in its income tax return for the year in which the disposition or conversion occurred (refer to line 602 of the T2 Corporation Income Tax Return).

Refundable tax on CCPC's investment income: An additional refundable tax of 6 2/3% is levied on the investment income (other than deductible dividends) of a CCPC. This additional tax is not part of the corporate surtax base (refer to line 604 of the T2 Corporation Income Tax Return).

Resource deduction: Corporations with taxable resource income can claim this deduction. The rate is 1% effective January 1, 2003; 2% effective January 1, 2004; 3% effective January 1, 2005; 5% effective January 1, 2006; and 7% effective January 1, 2007. For tax years that straddle a calendar year, the rate is prorated based on the number of days in each calendar year (refer to line 438 of the T2 Corporation Income Tax Return).

Restricted farm losses of preceding taxation years: The restriction on the amount of a loss deductible in any one year by a taxpayer whose chief source of income for a tax year is neither farming nor a combination of farming and some other source of income is used to offset farming income of the current year, as determined on Part 4 of Schedule 4 (refer to line 430 of Schedule 4 and line 333 of the T2 Corporation Income Tax Return).

SDCT database: This database contains information on tax returns, financial statements, and tax schedules filed by incorporated businesses in Canada.

Section 110.5 additions: 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 (refer to line 355 of the T2 Corporation - Income Tax Guide for further information).

Small business deduction (SBD): Corporations that are CCPCs throughout the tax year may claim the SBD, provided they have income from an active business in Canada and taxable capital below a specified threshold. The SBD reduces the amount of Part I tax otherwise payable and is capped at a certain amount (refer to line 430 of the T2 Corporation Income Tax Return).

Tax remitted under Syncrude Remission Order: The Syncrude Remission Order (which does not apply to taxation years after 2003) allowed a deduction in computing income of amounts paid as royalties. However, this deduction is allowable only for federal income tax purposes (refer to line 816 of the T2 Corporation Income Tax Return).

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) of the Income Tax Act, amounts allocated to a member credit union as taxable dividends or net capital gains may be claimed by that member as a deduction from taxable income under paragraph 137(5.2)(c) (refer to line 340 of the T2 Corporation Income Tax Return).

Taxable dividends deductible under section 112 or 113, or subsection 138(6): Corporations are permitted to deduct dividends that are received from taxable Canadian corporations (and in certain cases from foreign affiliates) in the determination of taxable income (refer to line J of Schedule 3 and line 320 of the T2 Corporation Income Tax Return).

Taxable income (excluding exempt income): This is the tax base, the amount of income subject to the statutory tax rate (38%) (refer to line 360 of the T2 Corporation Income Tax Return). In this publication, taxable income excludes exempt income.

Total assets: This is the total of all current, capital, long-term assets, and assets held in trust (refer to line 2599 of Schedule 100).

Total federal tax: This is the sum of the following: Part I tax (line 700), Part I.3 tax (line 704), Part II surtax (line 708), Part IV tax (line 712), Part IV.1 tax (line 716), Part VI tax (line 720), Part VI.1 tax (line 724), Part XIII.1 tax (line 727), and Part XIV tax (line 728) (refer to the T2 Corporation Income Tax Return).

Annex 3

REGROUPED NAICS

*These are corporations that have not been assigned a NAICS code.

ANNEX 4

TABLES

REFERENCES

Canada Revenue Agency. Guide to the General Index of Financial Information (GIFI) for Corporations. Publication No. RC4088.

Canada Revenue Agency. T2 Corporation – Income Tax Guide. Publication No. T4012.

Statistics Canada (2003). North American Industry Classification System, Canada 2002. Statistics Canada Catalogue No. 12-501-XPE.

Footnotes

[Footnote 8]

Schedule 1 transforms income reported under the generally accepted accounting principles (GAAP) to income for tax purposes.

Date modified:

2009-06-19