What's new for T2 Internet version 10.25?

DT Max version 10.25 includes the T2 program for fiscal periods ending from 1994 to 2007 and fully supports corporation Internet filing (T2 and CO-17) and Ontario CT23 diskette or CD filing (D-File).

In this version...

Program certification
Miscellaneous topics
Integration of eligible dividends legislation

1. Schedule 53 - General Rate Income Pool (GRIP) Calculation
2. Schedule 54 - Low Rate Income Pool (LRIP) Calculation
3. Schedule 55 - Part III.1 Tax on Excessive Eligible Dividend Designations
4. T2002 - Election or Revocation of an Election not to be a Canadian Controlled Private Corporation - 89(11)
New keywords for the GRIP, the LRIP and the 89(11) election
Modified schedules

Program certification

For DT Max T2 version 10.25, the federal RSI's (Return and Schedule Information), barcodes and the corporation Internet filing module have received full CRA certification valid through taxation year-ends until October 31st, 2007 under the DT15 stamp.

Furthermore, in order to have DT Max T2 function properly, your T2 licence must be valid or else calculation of returns is not possible.

Miscellaneous topics

Verifying carryforwards

As always, we recommend that you verify your carryforwards carefully before processing your corporate client files.

Federal business number "NR" replacement no longer acceptable

As requested by the CRA, DT Max will no longer accept the "NR" wildcard in lieu of a business number on line 001 of the T2 return. Although calculations will still be performed, DT Max will generate an RSI failure message to that effect. Only valid business numbers will be allowed in order to file the corporate returns. This validation only applies to the federal jurisdiction.


Reference number mandatory for generation of Quebec annual return (LE-630)

Revenu Quebec has requested that the LE-630 no longer be generated if the keyword REFERENCE-NUMBER in the AnnualReturn group (Quebec) is missing.


Schedule 31 (part 9) - Associated corporations for Schedule 23 but not for SR&ED expenditure limit

According to the description located on part 9 of Schedule 31, there are exceptions where associated corporations for the allocation of the business limit are NOT associated for the purpose of the SR&ED expenditure limit. The exceptions are as follows:

• One corporation is associated with another corporation solely because two or more persons own shares of the capital stock of the corporation; and
• One of the corporations has at least one shareholder who is not common to both corporations.



DT Max version 10.25 now provides for these cases with the addition of the YES/NO keyword Assoc-ExpLim to the RelatedParty group to indicate whether or not the corporation is associated for purposes of the expenditure limit. If there is no entry for this keyword, DT Max will assume that the corporation is associated for purposes of the expenditure limit.


GIFI field validation change for dividends payable vs. dividends paid

Formerly, DT Max, on the basis of CRA specifications, issued a GIFI error message stating that DividendPaid cannot exceed fields 3700 + 3701, when dividends paid exceeded declared dividends. CRA requirements have changed in that regard, and hence DT Max no longer generates the failure message when this situation occurs.


Schedule 8 - Reconciliation of fixed assets vs. current expenses SR&ED deduction

DT Max T2 has been modified in order to prevent the SR&ED deduction from current expenses to be included on Schedule 8 (Reconciliation of fixed assets) as only SR&ED deduction from capital expenses should appear.

The FixdAssetRec keyword of the NetIncome group has a new option entitled Ded. expenses capitalized (books). Deductible expenses capitalized for book purposes are now picked up only from the new option and not from the SR&ED deduction.


Alberta : New AT1 consent form

Alberta Finance has revealed that it no longer accepts the federal RC-59 consent form for its purposes, even though it does not publish its own version. DT Max T2 now generates an Alberta Finance-approved facsimile that can be filed with the province's ministry.


Generation condition of Schedule 420

Please be advised that Schedule 420, entitled British Columbia Royalty and Deemed Income Rebate Calculation and Application will not be produced for taxation years that start in 2007 or later.

Integration of eligible dividends legislation

An eligible dividend is any dividend paid after 2005 to a resident of Canada by a Canadian corporation that is designated by that corporation to be an eligible dividend. A corporation's capacity to pay eligible dividends depends mostly on its status.

DT Max T2 version 10.25 fully integrates all the recently released schedules that will allow you to administer the various provisions of the federal eligible dividends legislation. Please note that there are no such provisions in regards to corporations for Quebec CO-17 returns.

The 4 new CRA eligible dividend related schedules and their purpose are as follows:


1) Schedule 53 - General Rate Income Pool (GRIP) Calculation (CCPCs and DICs)

For a Canadian-controlled private corporation (CCPC) or a deposit insurance corporation (DIC), Schedule 53 keeps track of the general rate income pool from which eligible dividends are paid.

The GRIP is in essence formed by active business income that is NOT subject to a preferential taxation rate (Small business deduction or any other).

A CCPC or a DIC can only pay out eligible dividends to the extent of the general rate income pool balance.


2) Schedule 54 - Low Rate Income Pool (LRIP) Calculation (Non-CCPCs)

The LRIP plays an opposite role to the GRIP, in the sense that for non-CCPCs, it establishes the threshold amount of NON-eligible dividends that have to be paid out, before any amount of eligible dividends can be designated by a corporation without penalty.
Corporations resident in Canada that are neither a CCPC nor a deposit insurance corporation, or a corporation that elects under subsection 89(11) not to be a CCPC (see Schedule 54), can pay eligible dividends in any amount unless it has any taxable income that benefited from the small business deduction. In this case, the corporation will have to reduce this taxable income by paying out regular dividends before it can pay an eligible dividend.


3) Schedule 55 - Part III.1 Tax on Excessive Eligible Dividend Designations

Dividend designations that exceed the GRIP or that do not respect the LRIP requirements will be tagged as "excessive eligible dividend designations" and be subjected to Part III.1 Tax. Schedule 55 calculates Part III.1 Tax that is equal to 20% of the excess eligible dividends.

Please note that the T2 return (Schedule 200) has not yet been updated by CRA to reflect the eventuality of Part III.1 liability, on page 8. However, as per CRA directives, when Part III.1 tax is calculated on Schedule 55, DT Max will include Part III.1 Tax in the total tax liability on line 770.

4) T2002 - Election or Revocation of an Election not to be a Canadian Controlled Private Corporation

Under 89(11), with form T2002, a CCPC will be able to elect to forego the small business deduction in exchange for being able to pay eligible dividends without giving up any other benefits of CCPC status.


Reporting and taxation of dividends paid and received on Schedule 3 has not changed.

New keywords for the GRIP, the LRIP and the 89(11) election

1) General Rate Income Pool (GRIP) keywords (Schedule 53) - GRIP-BALANCE group

The GRIP-Balance group, which is under its own SmartStart section, is structured as follows:

GRIP-Balance

GRIP at the end of the previous year that will appear on line 100 of Schedule 53. For a CCPC or a DIC.


Dividend-Amt

This keyword is used to enter the amounts applicable to dividends in the current and previous tax year. There are 5 options that apply for the keyword:

• Eligible dividends received - current year
• Dividends received foreign affiliate (override) - current year
• Eligible dividends paid - current year
• Eligible dividends paid - previous year
• Excessive eligible dividend designations - previous year

 

GRIP-Adjustment

This keyword sub-group must be completed for each of the 3 prior taxation years. The following keywords apply:

Before-Future-Adj
To enter the relevant amounts before specified future tax consequences to the previous year.


After-Future-Adj
To enter the relevant amounts after specified future tax consequences to the previous year.

For the preceding 2 keywords, the following 5 types of adjustments can be entered:

• Taxable income
• Income for credit union deduction
• Income for small business deduction
• Aggregate investment income
• Accelerated tax reduction


GRIP-Addition

This keyword sub-group is used to enter information in regards to GRIP additions after an amalgamation or a wind-up has occurred; or after the corporation has become a CCPC/DIC.

Depending on the situations described above, these are the keywords through which the GRIP additions details will be entered, as applicable:

Predecessor.g

Subsidiary.g

Corp-Type.g
To indicate whether or not the predecessor corporation or the subsidiary corporation was Canadian-controlled private corporation (CCPC) or a deposit insurance corporation (DIC) in the previous year.

PriorYrInfo.g
It is under this multiple option keyword that the bulk of amounts relating to the previous/last year are entered in order to determine the GRIP addition for the purposes of Schedule 53.

Loss-CF.g
This keyword captures amounts of each type of loss that would have been deductible under subsection 111(1) in calculating the corporation's taxable income for the previous/last tax year.

Loss-Applied.g
This keyword captures amounts of each type of loss deducted under subsection 111(1) in calculating the corporation's taxable income for the previous/last tax year.


GRIP-HIST
It is required if the corporation was a CCPC, or would have been but for an election under subsection 89(11), throughout its tax year that includes January 1, 2006 in order to calculate the GRIP addition for 2006. This keyword sub-group is used to record historical data from 2001 to 2005. Select the tax year and enter the relevant information.


AMOUNT.G
Along with any one of the 8 options available, this is the keyword needed to enter the amounts applicable to the previous year for purposes of the GRIP addition for 2006.


2) Low Rate Income Pool (LRIP) keywords (Schedule 54) - LRIP-BALANCE group

The LRIP-Balance group, which is under its own SmartStart section, is structured as follows:

LRIP-Balance

LRIP at the end of the previous tax year for a corporation resident in Canada that was a corporation other than a CCPC or a DIC or a corporation that elected under subsection 89(11) not to be a CCPC. The amount will appear on line 100 of Schedule 54.


Date-EligDivPaid
To enter the dates and amounts of eligible dividends that were paid in the year.


Dividend-Amt.l
With respect to the amount entered above, this keyword allows the following corresponding details to be recorded:

• Taxable dividends receivable (other than eligible) LN 210
• Taxable dividends payable (other than eligible) LN 240
• Excessive eligible dividends (override) LN 250


NonElig-Divds
This keyword is used to enter all dividends other than eligible dividends that were paid on or after the date all eligible dividends were paid.

LRIP-Addition
In similar fashion as the GRIP-Addition sub-group previously discussed, the LRIP-Addition sub-group is used in situations where an amalgamation, a wind-up has occurred or where the corporation is ceasing to be a CCPC or a DIC.

Since the same set of secondary keywords as in the GRIP-Addition sub-group will appear to be completed as applicable, for reasons of brevity, we will not repeat them here.

LRIP-PrevYr
This keyword is used to enter previous year information in order to determine the LRIP at the end of the tax year. Applicable options are:

• Income for credit union deduction
• Aggregate investment income
• Investment corporation deduction


3) Subsection 89(11) election and revocation of an election keywords (T2002) - CORPTYPE group

In regards to making an election or revoking an election not to be a Canadian controlled private corporation, here are the applicable keywords:

Election.c

If the election or revocation is made in the current tax year, use the keyword Section(89) to indicate if it is a first-time election or revocation, or a subsequent election or revocation in order to generate federal form T2002.
The following options are applicable for the keyword:

Elected not to be a CCPC under subs. 89(11)


A corporation that files with the CRA, on or before its filing-due date for a particular tax year, an election to have subsection 89(11) apply, is deemed for the purposes described in subsection 125(7)(d) not to be a CCPC at any time in or after the particular tax year.




Revocation of election under subs. 89(12)


If a corporation files with the CRA, on or before its filing-due date for a particular tax year, a notice revoking, as of the end of the particular tax year, an election described in subsection 89(11), the election ceases to apply to the corporation at the end of the particular tax year.


Section(89)
To indicate whether it is the first time that the corporation elected, or revoked an election, not to be a Canadian-controlled private corporation, or to indicate that the corporation has made a subsequent election or revocation.
The following options are applicable for the keyword:

• First time election
• First time revocation
• Subsequent election
• Subsequent revocation
  

Modified schedules

Federal:

Schedule 34 - Part I.3 Tax on Financial Institutions

Schedule 35 - Part I.3 Tax on Large Insurance Corporations

Schedule 37 - Calculation of Unused Surtax Credit

The following keywords have been added:

NET-PARTVITAX
This keyword is used to enter the net Part VI Tax payable for the period before July 1, 2006 (line HH of schedule 38 for the straddle year) and the net Part VI Tax payable for the period after June 30, 2006 (line RR of schedule 38 for the straddle year).

SURTAXCR-CB
Use this keyword if you wish to carryback the unused current year surtax credit against either Part I.3 Tax or Part VI Tax.

AMOUNT.SU
Use this keyword to indicate the tax year to which the unused current year surtax credit is to be applied and the amount that is being carried back against Part I.3 Tax or Part VI Tax.


Schedule 38 - Part VI Tax on Capital of Financial Institutions

Schedule 39 - Agreement Among Related Financial Institutions - Part VI Tax

Schedule 42 - Calculation of Unused Part I Tax Credit

Schedule 45 - Agreement Respecting Liability for Part VI.1 Tax

Schedule 366 - New Brunswick Corporation Tax Calculation

Schedule 402 - Saskatchewan Manufacturing and Processing Investment Tax Credit


Quebec:

CO-771* - Calculation of the Income Tax of a Corporation

There has been a major reduction in the corporate tax rate applicable to passive income leading to the reviewed version of CO-771.

The income tax rate applicable to the passive income of corporations will be reduced to the same level as the tax rate applicable to active income ineligible for the small business deduction.

The rate applicable to active income will be subject to three increases over the next few years. The new rates take effect respectively on February 21, 2007 (9.9%), January 1, 2008 (11.4%), and January 1, 2009 (11.9%).

Where the date of a rate increase falls within the taxation year of a given corporation, the tax rate effectively applicable for such a taxation year will be a weighted tax rate reflecting the number of days in the taxation year preceding and following the rate increase.


We have received the English courtesy translations of the following forms:

CO-726.30 - Deduction for Income-Averaging for Forest Producers

CO-771.2.1.2 - Income from an Eligible Business Carried On in Canada by a Corporation That Is a Member of a Partnership


*Form available only in French