Chapter 2 - Page 2 of the T2 return

On this page...

• Attachments
  • Financial statements or General Index of Financial Information (GIFI)
• Information schedules and forms
  • Schedule 9, Related and Associated Corporations
    • When is a corporation associated?
  • Schedule 23, Agreement Among Associated Canadian-Controlled Private Corporations to Allocate the Business Limit
    • Associated corporations with more than one tax year in a calendar year
  • Schedule 49, Agreement Among Associated Canadian-Controlled Private Corporations to Allocate the Expenditure Limit
    • Associated corporations with more than one tax year in a calendar year
  • Schedule 28, Election not to be an Associated Corporation
  • Schedule 19, Non-Resident Shareholder Information
  • Schedule 11, Transactions With Shareholders, Officers, or Employees
  • Schedule 44, Non-Arm's Length Transactions
  • Schedule 14, Miscellaneous Payments to Residents
  • Schedule 15, Deferred Income Plans
  • Form T5004, Claim for Tax Shelter Loss or Deduction
  • T5013 Slip, Statement of Partnership Income
  • Schedule 22, Non-Resident Discretionary Trust
  • Schedule 25, Investment in Foreign Affiliates
  • Schedule 29, Payments to Non-Residents
  • Form T106, Information Return of Non-Arm's Length Transactions With Non-Residents
  • Foreign property
    • Foreign affiliates
    • Beneficiaries of non-resident trusts
    • Transfers to non-resident trusts
    • Ownership of foreign property
    • Foreign investment entities (FIEs) and non resident-trusts (NRTs)
    • Penalties
  • Schedule 50, Shareholder Information
  • Line 172 - Has the corporation made payments to, or received amounts from, a retirement compensation arrangement in the year?
• Calculation schedules

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Attachments

Schedules can be organized into two categories:

• information schedules, including general information schedules and those relating to transactions with non-residents; and
• calculation schedules, including schedules used to calculate net income, taxable income, deductions, taxes, and credits.

We provide a complete list of the schedules at the end of this guide. The schedules are available at Forms and publications. You can also get them by calling '1-800-959-2221. To file the schedules we do not publish, such as Schedule 92, gather the requested information and label it with the schedule number in the top right-hand corner of each page.

On pages 2 and 3 of the return, we list the most common schedules you may have to attach to your return. If you respond yes to any of the questions on these pages, attach to your T2 return the schedule that applies, unless otherwise instructed.

Financial statements or General Index of Financial Information (GIFI)

Each corporation should include complete financial statement information for the tax year of the return using the General Index of Financial Information (GIFI).

Note
Certain non-resident corporations do not have to file using GIFI. For more information, see Guide RC4088, General Index of Financial Information (GIFI).

GIFI schedules include:

• Schedule 100, Balance Sheet Information;
• Schedule 125, Income Statement Information, and, if necessary, Schedule 140, Summary Income Statement; and
• Schedule 141, Notes Checklist. Schedule 141 is a set of questions designed to determine who prepared the financial statements and the extent of their involvement, and to identify the type of information contained in the notes to the financial statements.
  
  Note
  Include any notes to the financial statements and the auditor or accountant's report, if they were prepared. You should include this information even if you are filing your return using tax preparation software. For more information, see Using tax preparation software.

When preparing the first return for a new corporation, attach all of the following documents:

• Schedule 101, Opening Balance Sheet Information;
• copies of all relevant agreements or the full details on shares issued for anything other than cash consideration, if they apply; and
• if it applies, the closing balance sheet of the proprietorship, partnership, or corporation if the new corporation acquired the assets or business, or assumed the liabilities of a former proprietorship, partnership, or corporation.

Corporations that are inactive throughout the tax year and that do not have balance sheet or income statement information to report are no longer required to attach schedules 100, 125, and 141 to their T2 return. However, they will be accepted if filed.

The GIFI schedules are to be completed with information from the corporation's financial statements. These schedules are laid out with a "column A" where the appropriate GIFI code is entered, and a "column B" where the corresponding dollar amount is entered.

The GIFI is included in all tax preparation software packages certified by the CRA and in most accounting software.

For more information on the GIFI, see Guide RC4088, General Index of Financial Information (GIFI).

Information schedules and forms

The following section describes the various general information schedules and forms you may have to complete.

Schedule 9, Related and Associated Corporations

Complete Schedule 9 if the corporation is related to or associated with at least one other corporation.

Reference
Section 251

When is a corporation associated?

Association is based on control. Control can be exerted either directly or indirectly in any way. A person or a group of persons can control a corporation. Keep in mind that, in this context, a person can be either an individual or a corporation.

Control includes both de jure control and de facto control. De jure control is the right of control that depends on a person owning enough shares of a corporation to give that person a majority of the voting power. De facto control occurs when a corporation is subject to any direct or indirect influencing that, if exercised, would result in actual control being exerted.

In general, a corporation is associated with another corporation if it meets one of the following six conditions at any time in the tax year. Remember that controlled means directly or indirectly in any way.

Condition 1

The corporations are associated if one corporation controls the other.

Condition 2

The corporations are associated if both corporations are controlled by the same person or group of persons.

Corporations may be associated because the same group of persons controls both corporations, but the members of this group do not act together and have no other connection to each other.

CCPCs that are associated only because of this definition of a group will not be considered associated when:

• calculating the refundable investment tax credit on eligible SR&ED expenditures;
• calculating the expenditure limit; and
• allocating the expenditure limit.

For this exception to apply, one of the corporations must have at least one shareholder who is not common to both corporations.

The corporations will continue to be associated for all other purposes of the Income Tax Act.

Condition 3

The corporations are associated if:

• each corporation is controlled by one person;
• that person is related to the person controlling the other corporation; and
• one of those persons owns at least 25% of the issued shares of any class, other than shares of a specified class, of the capital stock of each corporation.

Condition 4

The corporations are associated if:

• one corporation is controlled by one person;
• that person is related to each member of a group of persons who controls the other corporation; and
• that person owns at least 25% of the issued shares of any class, other than shares of a specified class, of the capital stock of the other corporation.

Condition 5

The corporations are associated if:

• each corporation is controlled by a related group;
• each of the members of one of the related groups is related to all members of the other related group; and
• one or more persons who are members of both related groups, either alone or together, own at least 25% of the issued shares of any class, other than shares of a specified class, of the capital stock of each corporation.

Condition 6

Two corporations that are not associated with each other will be considered associated under subsection 256(2) if they are associated with the same corporation (the third corporation). See Schedule 28, Election not to be an Associated Corporation.

References
Subsections 256(1), 256(1.1), 256(5.1), and 256(2)
Section 251
IT-64, Corporations: Association and Control

Schedule 23, Agreement Among Associated Canadian-Controlled Private Corporations to Allocate the Business Limit

All CCPCs that are associated have to file Schedule 23. This schedule is used to:

• identify all the associated corporations to establish:
  • the date the balance of tax is due (see Balance due date); and
  • the calculation of the business limit reduction; and
• assign a percentage to each of the associated corporations for the allocation of the business limit. The total of all percentages cannot be more than 100%. See the maximum business limits.

Notes
Schedule 23 need only be filed by one of the associated/related corporations for a calendar year. However, if Schedule 23 is not already on file with us when we assess any of the returns for a tax year ending in the calendar year of the agreement, we will ask for one.

If the corporation's tax year is shorter than 51 weeks, prorate the business limit allocated in column 6 of Schedule 23 based on the number of days in the tax year divided by 365.

Associated corporations with more than one tax year in a calendar year

Special rules apply to determine the business limit for associated corporations that have more than one tax year ending in the same calendar year.

For the second or later tax years that end in the same calendar year, the business limit is whichever of the following amounts is less:

• the amount allocated to the corporation for the first tax year; or
• the amount allocated to the corporation for the later tax year in question.

The business limit was increased from $400,000 to $500,000, effective January 1, 2009. If the first tax year straddles this date, calculate the amount allocated for the first tax year above as if $500,000 was used in allocating the amounts amongst associated corporations.

Make sure the total of the business limits of all associated corporations for any tax years that end in the same calendar year is not more than the maximum allowable business limit for that calendar year.

If the corporation's tax year is shorter than 51 weeks, prorate the business limit as determined above, based on the number of days in the tax year divided by 365.

Reference
Subsection 125(5)

Schedule 49, Agreement Among Associated Canadian-Controlled Private Corporations to Allocate the Expenditure Limit

All CCPCs that are associated and have scientific research and experimental development (SR&ED) expenditures have to file Schedule 49. These corporations use this form to:

• identify all the associated corporations;
• allocate the expenditure limit for the 35% ITC rate on qualifying SR&ED expenditures.

For more details about the ITC, see Line 652.

Note
Schedule 49 need only be filed by one of the associated/related corporations for a calendar year. However, if Schedule 49 is not already on file with us when we assess any of the returns for a tax year ending in the calendar year of the agreement, we will ask for one.

Associated corporations with more than one tax year in a calendar year

Special rules apply to determine the expenditure limit for associated corporations that have more than one tax year ending in the same calendar year. Prorate the expenditure limit for each tax year ending in the calendar year based on the number of days in the tax year divided by 365.

Be sure that the amount you prorate for each of the tax years is equal to the amount allocated to the corporation for the first tax year ending in the calendar year.

References
Subsections 127(10.3) and 127(10.6)

Schedule 28, Election not to be an Associated Corporation

File Schedule 28 if the corporation elects under subsection 256(2) not to be associated with two other corporations for the purposes of the small business deduction.

Two corporations that are not associated with each other will be considered associated under subsection 256(2) if they are associated with the same corporation (the third corporation).

However, for the purposes of the small business deduction, the third corporation is considered to not be associated with either of the other corporations if:

• it is not a CCPC at the time; or
• it elects, in prescribed form, to not be associated.

When a corporation makes this election, its business limit for the small business deduction is considered to be zero.

Notes
You have to file a new election for each applicable tax year.

Schedule 28 need only be filed by one of the associated/related corporations for a calendar year. However, if Schedule 28 is not already on file with us when we assess any of the returns for a tax year ending in the calendar year of the agreement, we will ask for one.

Reference
Subsection 256(2)

Schedule 19, Non-Resident Shareholder Information

Complete Schedule 19 if a non-resident shareholder owned a share of any class of the corporation's capital stock at any time during the tax year.

Schedule 11, Transactions With Shareholders, Officers, or Employees

Complete Schedule 11 if the corporation had transactions with shareholders, officers, or employees.

Do not include transactions the corporation carried out in the ordinary course of business, or any transactions listed on Form T106, Information Return of Non-Arm's Length Transactions with Non-Residents. See Form T106 for details.

If the corporation is involved in a transfer of property under section 85, make sure to file either Form T2057, Election on Disposition of Property by a Taxpayer to a Taxable Canadian Corporation, or Form T2058, Election on Disposition of Property by a Partnership to a Taxable Canadian Corporation. File Form T2058 when property is transferred from a partnership. File Form T2057 in all other cases.

Schedule 44, Non-Arm's Length Transactions

Complete Schedule 44 if all or substantially all of the assets of a non-arm's length corporation are transferred to or received by you in the tax year and subsections 85(1), 85(2) or 142.7(3) applied to any of the transactions.

Generally, we consider all or substantially all to be at least 90%. You have to evaluate all assets at cost or fair market value.

When this kind of non-arm's length transaction takes place, the instalment requirements of the transferee corporation have to take into account those of the transferor corporation.

Reference
Regulation 5301(8)

Schedule 14, Miscellaneous Payments to Residents

Complete Schedule 14 if you made any of the following payments to residents of Canada:

• royalties for which you have not filed a T5 slip, Statement of Investment Income;
• research and development fees;
• management fees;
• technical assistance fees;* or
• similar payments.
  
  *Technical assistance fees are payments for technical or industrial services related to producing goods or applying processes, formulae, and expertise in the production process.

List only the payments that were more than $100.

Schedule 15, Deferred Income Plans

Complete Schedule 15 if you deducted from your income payments you made to deferred income plans, such as:

• a registered pension plan;
• a registered supplementary unemployment benefit plan;
• a deferred profit sharing plan; or
• an employees profit sharing plan.

Form T5004, Claim for Tax Shelter Loss or Deduction

If you are claiming a loss or deduction from an interest in a tax shelter, file Form T5004 with your return.

The promoter has to prepare Form T5003, Statement of Tax Shelter Information, and send copies to each investor. Attach copy 2 of Form T5003 to your return.

Use the following guidelines to complete your T2 return and schedules:

• for a gift, use line 311, 312, 313, 314, or 315 of the return, whichever applies;
• for a limited partnership loss (see Part 7 - Limited partnership losses), use lines 600 to 620 of Schedule 4, and line 222 of Schedule 1;
• for a business investment loss, use lines 900 to 950 of Schedule 6; and
• for any other losses or deductions, use lines 700 to 704 of Schedule 1.

Reference
IC89-4, Tax Shelter Reporting

T5013 Slip, Statement of Partnership Income

If you are a member of a partnership, attach to your return a list of all the partnership identification numbers assigned to the partnerships of which you are a member.

Corporate partners that receive a T5013 slip have to file it with the return for the tax year in which the fiscal period of the partnership ends.

Notes
Each partnership has to file a T5013 Summary, Information Return of Partnership Income, for each fiscal period. However, some partnerships are exempt from this requirement. For more information, see Guide T4068, Guide for the Partnership Information Return.

Except where an election is filed under subsection 249.1(4), for the tax year that includes the first day of the first fiscal period of a business, partnerships with at least one member who is an individual, a professional corporation, or another affected partnership have to have a December 31 fiscal period end.

Schedule 22, Non-Resident Discretionary Trust

Complete Schedule 22 if the corporation, a foreign affiliate the corporation controls, or any other corporation or trust that did not deal at arm's length with the corporation had a beneficial interest in a non-resident discretionary trust at any time during the tax year (without reference to section 94).

Schedule 25, Investment in Foreign Affiliates

Complete Schedule 25 if the corporation is resident in Canada and holds shares in one or more foreign affiliates, as defined in subsection 95(1).

Schedule 29, Payments to Non-Residents

Complete Schedule 29 if the corporation paid or credited any of the following amounts to non-residents:

1. royalties;
2. rents;
3. management fees/commissions;
4. technical assistance fees;*
5. research and development fees;
6. interest;
7. dividends;
8. film acting payments:
   • for a motion picture film; or
   • for a film or videotape for use in connection with television; or
9. other services.
   
   *Technical assistance fees are payments for technical or industrial services related to producing goods or applying processes, formulae, and expertise in the production process.

If the total amount paid or credited to a payee is less than $100, you do not have to complete this schedule with the information for that payee.

A corporation that makes payments or credits amounts to non-residents under Regulations 202(1) and 105(1) of the Income Tax Regulations has to file the applicable information return.

References
Regulations 105(1) and 202(1)

Form T106, Information Return of Non-Arm's Length Transactions With Non-Residents

Form T106 is an annual information return on which you report the corporation's activities with certain non-resident persons under section 233.1.

File Form T106 if:

• at any time in the tax year, you were either a resident in Canada or a non-resident that carried on business (other than as a member of a partnership) in Canada;
• you entered into reportable transactions with a non-resident person with whom you were not dealing at arm's length at any time in the year and partnerships of which the non-resident person is a member; and
• the total reportable transactions exceed CAN $1,000,000.

Form T106 consists of the T106 Summary and the T106 slips. File a separate T106 slip for each non-resident.

On Form T106, report all transactions between you and the non-resident, including those transactions concerning:

• tangible property;
• rents;
• royalties and intangible property;
• services; and
• advances, loans, or other accounts receivable or payable to or from a non-resident (beginning and ending balances including gross increases and decreases).

File Form T106 within six months of the end of the reporting corporation's tax year. Send it to the following address:

Ottawa Technology Centre
Validation and Verification Division
Other Programs Unit
875 Heron Road
Ottawa ON  K1A 1A2

Note
If you file Form T106 late, the corporation will be subject to penalties. When the filing deadline falls on a Saturday, Sunday, or statutory holiday, we will consider the return filed on time if it is sent on the first business day after the filing deadline.

References
Sections 233.1 and 251
Subsections 162(7) and 162(10)

Foreign property

Foreign affiliates

A corporation resident in Canada, of which a non-resident corporation is a foreign affiliate at any time in the year, must file one of two forms for the affiliate within 15 months after the end of its tax year:

• Form T1134-A, Information Return Relating to Foreign Affiliates That are not Controlled Foreign Affiliates; or
• Form T1134-B, Information Return Relating to Controlled Foreign Affiliates.

A separate form has to be filed for each foreign affiliate.

Forms T1134-A and T1134-B contain more information about filing.

Beneficiaries of non-resident trusts

A corporation may have received, in the year, funds or property from, or been indebted to, a non-resident trust in which it had a beneficial interest. If so, you have to complete and file Form T1142, Information Return in Respect of Distributions From and Indebtedness to a Non-Resident Trust.

A separate form has to be filed for each non-resident trust. Form T1142 contains more information about filing.

Transfers to non-resident trusts

A corporation may have transferred or loaned funds or property to a non-resident trust. If so, you may have to complete and file Form T1141, Information Return in Respect of Transfers or Loans to a Non-Resident Trust.

A separate form has to be filed for each non-resident trust. Form T1141 contains more information about filing.

Ownership of foreign property

If, at any time in the year, the total cost of all specified foreign property the corporation owned or held a beneficiary interest in was more than $100,000, you have to complete and file Form T1135, Foreign Income Verification Statement.

For more information, see Form T1135.

Foreign investment entities (FIEs) and non-resident trusts (NRTs)

The 1999 federal budget proposed changes to the taxation of FIEs and NRTs. These proposed changes require a corporation with an interest in an FIE to include an amount from the investment in its income; they will also deem NRTs with a connection to Canada to be resident here and will make a "contributor" to and a "beneficiary" under such trusts jointly and severally liable for the trust's Canadian tax liability. Therefore, any corporation that is a "contributor" or a "beneficiary" with respect to an NRT will be jointly liable with the NRT for the NRT's Canadian tax.

Amendments to the outstanding proposal are provided in the 2010 Budget regarding NRT. Those measures will apply for the 2007 and later tax years. An election allowing a trust to be deemed resident for the 2001 to 2006 tax years will still be available. The attribution of trust income to resident contributors will apply only to tax years that end after March 4, 2010, where the contributor elects.

Corporations who have included income from a NRT may need to amend their returns where the NRT filed based on the previous proposals and the NRT does not intend to elect an earlier effective date. If the corporation needs time to get supporting documentation and cannot file its request within the normal reassessment periods, it should file Form T2029, Waiver in Respect of the Normal Reassessment Period or Extended Reassessment Period.

The 2010 federal budget announced that the outstanding proposal regarding FIEs would be replaced. The new measure applies for tax years that end after March 4, 2010, but the existing provision continues to apply. The changes from the current rules include:

• an increase in the prescribed rate applicable to the computation of income from offshore investment fund property;
• the broadening of circumstances in which beneficiaries of certain non‑resident trusts, or persons who have contributed to them, are required to report income on a modified foreign accrual property income basis. The rules are to be broadened to apply to any resident beneficiary who, together with any person not dealing at arm's length with the beneficiary, holds 10 % or more of any class of interests in a non‑resident trust determined by fair market value; and
• the extension of the reassessment period.

A corporation who voluntarily complied with the outstanding proposals in previous years will have the option of having those years reassessed. If the corporation does not wish to be reassessed for those years, and had more income than would have been the case under the existing rules, the taxpayer will be entitled to a deduction in the current year for the excess income.

For more information about the proposed changes, call us at one of the telephone numbers provided.

Penalties

There are substantial penalties for not completing and filing Forms T1134-A, T1134-B, T1135, T1141, and T1142 by the due date, and for knowingly or under circumstances amounting to gross negligence making false statements or omissions in any of the information returns.

References
Sections 233.1 to 233.6
Subsections 162(7), 162(10), 162(10.1), 163(2.4)

Schedule 50, Shareholder Information

Complete Schedule 50 if you are a private corporation and if any shareholder holds 10% or more of your common and/or preferred shares. Give a maximum of the 10 top shareholders and the requested information.

Line 172 - Has the corporation made payments to, or received amounts from, a retirement compensation arrangement in the year?

To answer this question, tick the yes or no box. No schedule or form is required.

Calculation schedules

You may also have to use various calculation schedules to complete the rest of your return. We list these schedules on page 2 of the return. You will find details about each of these schedules in the following chapters.

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