By Grant Gilmour
Tax Question:
What is a schedule 1 as part of a T2 corporate tax return?
Facts:
There are many schedules in a corporate tax return and they vary from company to company. Some schedules are required for some companies and optional or prohibited for others. Schedule 1 appears in almost all corporate tax returns.
Discussion:
Schedule 1 is considered the heart of the corporate tax return. Its important function is to summarize and reconcile the differences between profit for accounting purposes and profit for tax purposes (taxable income). It allows business owners to calculate their profits in a variety of different accounting policies and systems that make sense for their business and then translate those results to the standardized accounting policies used in the tax system. For example, if your calculation of profit had automobile depreciation at 50% for the year, you would find that was higher than the rate allowed per Canadian tax rules. So on the schedule 1 you would show your depreciation being added back to your profit and the allowed 30% a year for tax being calculated deducted instead. The schedule 1 would refer to schedule 8 for the details of this calculation. Please keep reading over the next few weeks to see what other schedules link to the schedule 1 and adjust and convert accounting profit into taxable income.
Think about the schedule 1 and that fact that it adjusts all companies’ profits from what they report to a standardized system of taxable income. Which number would you find more consistent year on year as a report of income? This schedule 1 is an important element in keeping the tax playing field even in Canada. People cannot pay more or less tax based on their accounting choices. The tax system is in place to standardize accounting for tax purposes.
Recommendation:
Call us at Gilmour Knotts Chartered Professional Accountants to learn more about how to work within the system to minimize taxable income.
Grant Gilmour B.SC. MBA, CPA, CA is the International Tax Partner of Gilmour Knotts Chartered Accountant. To connect with Grant visit: www.gilmour.ca
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