Schedule 5, Tax Calculation Supplementary - Corporations

Schedule 5, Tax Calculation Supplementary - Corporations

You have to complete Schedule 5 if one of the following applies:

• there is a permanent establishment of the corporation or its partnerships in more than one province or territory (complete Part 1), whether or not you are taxable (if taxable, also complete Part 2)

• the corporation is claiming provincial or territorial tax credits, or rebates (complete Part 2)

• the corporation has to pay taxes other than income tax (see "Part 2 of Schedule 5" on page 100)

  Note
  The Newfoundland and Labrador offshore area and the Nova Scotia offshore area are considered provinces.

For information on the calculation of tax for each province and territory, see the sections that follow in this chapter.

Part 1 of Schedule 5 - Allocation of taxable income

You must complete Part 1 of Schedule 5 if you or your partnerships had a permanent establishment in more than one province or territory. Complete columns A to F for each province or territory in which you had a permanent establishment in the tax year. If there is no taxable income, you only have to complete columns A, B and D.

The CRA assesses provincial or territorial income taxes on the amount of taxable income allocated to each province or territory. For details on how to allocate taxable income, see Regulation 402 and Income Tax Folio S4-F3-C2, Provincial Income Allocation.

Special rules for establishing a corporation's gross revenue and salaries and wages attributable to a jurisdiction are provided in cases where the corporation is a member of a partnership and the partnership had permanent establishments in more than one jurisdiction. See Guide T4068, Guide for the Partnership Information Return (T5013 Forms), and prescribed Form T5013 SCH 5, Allocation of Salaries and Wages, and Gross Revenue for Multiple Jurisdictions - Schedule 5.

Whether or not the partnership filed a T5013 and related schedules, the partner corporations must report their permanent establishments and allocable revenue and salaries and wages on their own Schedule 5, inclusive of their partnership allocations. If a partner has a 50% share of partnership income it must include 50% of the gross revenue from T5013 SCH 5 in its T2 SCH 5 gross revenue. Salaries and wages of the partnership should also be reported on the T2 SCH 5 in the same proportions.

Generally, to allocate taxable income to each province or territory, you have to use a formula based on gross revenue, and salaries and wages. See Part 1 of Schedule 5 for details.

You will find the general rules on how to allocate gross revenue in Regulation 402.

Do not include any of the following amounts in gross revenue:

• interest on bonds, debentures, or mortgages

• dividends on shares of capital stock

• rents or royalties from property that are not part of the principal business operations

Allocate gross salaries and wages paid in the year to the permanent establishment in which those salaries and wages were paid only to the extent they were paid to employees of the permanent establishment (the permanent establishment is not necessarily the permanent establishment in which those salaries and wages were paid). Do not include in gross salaries and wages any commissions paid to a person who is not an employee, unless that person renders services that would normally be performed by an employee of the corporation. The allocation of salaries paid through a central paymaster is subject to the deeming rules under Regulation 402.1.

See Regulations 403 to 413 for details on special methods for allocating taxable income for the following types of businesses:

• insurance corporations (Regulation 403)

• banks (Regulation 404)

• federal credit unions (Regulation 404.1)

• trust and loan corporations (Regulation 405)

• railway corporations (Regulation 406)

• airline corporations (Regulation 407)

• grain elevator operators (Regulation 408)

• bus and truck operators (Regulation 409)

• ship operators (Regulation 410)

• pipeline operators (Regulation 411)

• divided businesses (Regulation 412)

• non-resident corporations (Regulation 413)

In field 100, enter the regulation number that applies to attribute the taxable income.

Reference
Regulations 400 to 413.1

Part 2 of Schedule 5 - Provincial and territorial tax payable, tax credits, and rebates

Complete Part 2 of Schedule 5 if one of the following applies:

• there is provincial or territorial tax (and a permanent establishment in more than one province or territory)

• there is a claim for provincial or territorial tax credits or rebates

• there is a claim for provincial or territorial refundable tax credits

  Note
  Corporations with a permanent establishment in Quebec or Alberta must complete the appropriate provincial corporation returns and schedules to report provincial tax and claim provincial credits and rebates.

Corporations with a permanent establishment in Ontario must also complete Part 2 of Schedule 5 if one of the three previous or five following conditions applies. The corporation:

• is claiming the Ontario small business deduction

• is claiming the Ontario credit union reduction

• has an addition to Ontario basic income tax (such as a transitional tax debit)

• has Ontario corporate minimum tax payable

• has Ontario special additional tax on life insurance corporations payable

Corporations must also complete Part 2 of Schedule 5 if they have Newfoundland and Labrador capital tax on financial institutions payable or Nova Scotia financial institutions capital tax payable.

On line 255 of Schedule 5, enter the net amount of provincial and territorial tax payable or the net amount of refundable credits. When the result is positive, enter the net provincial or territorial tax payable on line 760 of the return. When the result is negative, enter the refundable provincial or territorial tax credit on line 812 of the return. Attach to your return any forms you completed to claim provincial or territorial credits or rebates.

In the following sections, you will find information about provincial and territorial tax rates, foreign tax credits, and details on the provincial and territorial credits and rebates.

Dual rates of provincial and territorial income tax

Generally, provinces and territories have two rates of income tax: the lower rate and the higher rate.

The lower rate applies to the income eligible for the federal small business deduction. One component of the small business deduction is the business limit. Some provinces or territories choose to use the federal business limit. Others establish their own business limit.

The higher rate applies to all other income. For detailed information on the income eligible for each rate and the rates that apply to each province and territory, see the sections that follow in this chapter or go to canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/corporation-tax-rates.

When you allocate taxable income to more than one province or territory, you also have to allocate proportionally any income eligible for the federal small business deduction.

On the appropriate lines of Part 2 of Schedule 5, enter the gross amount of each provincial or territorial tax payable.

Provincial or territorial foreign tax credits

Every province and territory allows a corporation to claim a foreign tax credit for taxes it paid to another country on foreign non-business income. This credit reduces the provincial tax otherwise payable.

However, you cannot claim foreign tax credits for the provinces of Quebec and Alberta on the federal return because these provinces collect their own income taxes.

The provincial or territorial foreign tax credit is available to a corporation that meets all of the following criteria:

• it is resident in Canada throughout the tax year

• it has a permanent establishment in the province or territory at any time in the tax year

• it has foreign investment income for the tax year

For Ontario, an authorized foreign bank is eligible for the foreign tax credit if it performed Canadian banking business.

You can claim this credit only if the foreign non-business income tax paid exceeds the federal foreign non-business income tax credit deductible for the year.

For each province or territory for which you are claiming a credit, you have to do a separate calculation. Also, if you paid tax to more than one foreign country you have to do a separate calculation for each country.

If dual rates of corporation tax apply, use the higher rate when you calculate the foreign tax credit. For Ontario, use the basic rate of tax.

To claim the foreign tax credit, complete Schedule 21, Federal and Provincial or Territorial Foreign Income Tax Credits and Federal Logging Tax Credit.

On the appropriate lines of Part 2 of Schedule 5, enter the applicable provincial and territorial foreign tax credits.

5