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

To determine the SBD rate for which the corporation qualifies, first determine the highest number of hours among the following:

• Number of paid work hours of the employees of the corporation in the taxation year entered on line a;
• If the taxation year is shortened, the number of paid work hours indicated on line b;
• Number of paid work hours of the employees of one of the partnerships of which the corporation is a member, for the fiscal period of the partnership ended in the corporation’s taxation year, entered on line c*;
• Number of paid work hours of the employees of the corporation and corporations with which it is associated for the previous taxation year indicated on line 07b.

The SBD rate is then calculated as follows on line 98n in Section 9.2 of the form:

• If the number of hours determined above is higher than or equal to 5,500, the corporation qualifies for its full SBD rate calculated on line 98i for a given taxation year;
• If this number of hours is higher than 5,000 and less than 5,500, the SBD rate is reduced linearly;
• If this number of hours is less than or equal to 5,000, the corporation does not qualify for the SBD.

* Note that the paid work hours of the employees of a partnership of which the corporation is a designated member should not be included on that line. In addition, if the highest number of hours is the one on line c, the number of hours indicated on lines a, b and 07b is less than or equal to 5,000 and the corporation is not a corporation in the primary sector or the manufacturing sector, only the partnership income will qualify for the SBD. In order for the calculations to be performed correctly, answer the questions Is the number of hours of paid work of the employees of the partnership in the fiscal period ending in the taxation year of the corporation greater than 5,000 hours? and Does the partnership carry on its activities in the primary sector or in the manufacturing sector? in Section 3.2.1 of Form CO-771.2.1.2 (Jump Code: 771212).

Part 11 of the form must be completed to establish the SBD rate for a CCPC in the primary sector or in the manufacturing sector.

• The proportion of primary sector or manufacturing sector activities of the corporation must be calculated on line 187c. If the corporation is a member of a partnership, it must take into account the portion of the cost of labour and the cost of labour in the primary sector or the manufacturing sector that it is allocated based on its interest in the partnership. This does not apply to a partnership of which it is a designated member.
• The multiplier on line 194 must then be calculated based on the proportion of primary sector or manufacturing sector activities of the corporation.
• The SBD rate on line 208 is then established by multiplying the rate on line 98i by the multiplier on line 194.
• The corporation qualifies for the highest SBD rate between the rate calculated on line 98n in Section 9.2 and the rate calculated on line 208.

In addition, if the corporation’s proportion of primary sector or manufacturing sector activities calculated in the section is more than 25%, the corporation qualifies for the additional deduction for corporations in the primary and manufacturing sectors, which is calculated in Section 11.3.

The corporation qualifies for the SBD rate calculated on line 98n in Section 9.2 of the form.

For taxation years starting after 2018, a reduction in the business limit based on the adjusted aggregate investment income (AAII) for taxation years ended in the previous calendar year of the corporation and its associated corporations is added to the reduction based on taxable capital under subsection 125(5.1) ITA. This reduction applies to a corporation’s business limit for a taxation year when the total AAII of the corporation and its associated corporations, for taxation years ending in the previous calendar year, exceeds $50,000. For more information in respect of the adjusted aggregate investment income calculation, consult the Help topics for Schedule 7 and Schedule 23.

Where the amount of paid-up capital on line 80 is at least $15 million, the amount on line 94a is equal to zero. Where line 06a is not selected, the adjusted business limit on line 94a is equal to the difference between the amount on line 80 and the amount on line 85. In addition, for taxation years starting after 2018, when the filing corporation or one or more of its associated corporations, has an AAII for a taxation year ending in the previous calendar year, the amount on line 94a is equal to the amount on line 38 of Form CO-771.1.3.AJ, which then becomes applicable.

Completing Form CO-771.1.3.AJ

Complete a copy of Part 2, “Adjusted aggregate investment income” for each taxation year of the filing corporation and its associated corporations ending in the previous calendar year when the corporation(s) have an AAII in one of those taxation years.

For the filing corporation, the first copy of Section 2.2, “Adjusted aggregate investment income”, is automatically completed with the amounts entered in the CO-771.1.3.AJ – Adjusted business limit section in Schedule 9 WORKCHART, Related and Associated Corporations Workchart (Jump Code: 9 WORKCHART). For associated corporations, a copy of Part 2 is automatically created and data on lines 06 to 09 in Section 2.1, “Information about the associated corporation”, as well as amounts on lines 11, 12, 14 to 18, 21 and 23 in Section 2.2 are calculated from the relevant data entered in the “Québec CO-17 – Corporation income tax return” and “Québec CO-771.1.3.AJ – Adjusted business limit” sections of Schedule 9 WORKCHART. Note that no copy is created for related corporations, corporations for which association code “5” is selected or corporations that do not present a positive AAII. For more information in respect of this section of Schedule 9 WORKCHART, consult the Help topic for Schedule 9 WORKCHART.

When the filing corporation or one of its associated corporations has more than one taxation year ending in the preceding calendar year, create a new copy of Part 2 of the form by clicking the Add button, select the name of the corporation from the drop down menu on line 08 and enter the relevant data and the end date of the fiscal period manually. Data in the copies of Part 2 is calculated from Schedule 9 WORKCHART and only relates to the amounts for the last taxation year ending in the previous calendar year.

Starting with version 2016 v.2.0, Revenu Québec requires program calculations to be done using ten decimals, rounding up the last decimal.

In the electronic transmission, the rates or proportions must include ten decimals, and the last decimal must be rounded up.

On the paper copy of the form, only the first four decimals must be printed without being rounded up.