Schedule 7 is generally used by Canadian Controlled Private Corporations (CCPCs) (see FAQ #13) to calculate their aggregate investment income. It also calculates foreign investment income, specified partnership income and active business income.
If a corporation earns investment income during the year, the investment income is included on schedule 7. The investment income is then used in several different calculations on schedule 7 in order to determine various balances used for the calculation of taxes. Many of the investment numbers are calculated and carried forward from other schedules in the tax return. For example, dividend income is calculated and carried forward from schedule 3 (see International FAQ #8) and taxable capital gains is calculated and carried forward from schedule 6 (see FAQ #164).
One of the calculated balances on schedule 7 is aggregate investment income. Aggregate investment income is calculated for the purpose of determining a refundable portion of taxes. It consists of:
- Net taxable capital gains less net capital losses applied (Canadian and foreign sources)
- Rent (Canadian and foreign sources)
- Royalties (Canadian and foreign sources)
- Foreign dividends
- Dividends from Canadian corporations are excluded.
Aggregate investment income is subject to the high corporate rate of tax as well as an additional tax on investment income of 62/3%. The additional tax can be refunded if a corporation pays a dividend.
Furthermore, schedule 7 calculates specified partnership income and active business income. They are both calculated for the purpose of determining the small business deduction (see FAQ #101). Specified partnership income and active business income will be covered in a future FAQ.
Call us at Gilmour Knotts Chartered Professional Accountants to learn more about how to work with the complex set of rules of calculating aggregate investment income and active business income.
By Angela Hardbattle, Dipl. T (Hons), CPA, CA
Staff Accountant, Gilmour Knotts
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