Schedule 71 has to be completed by corporations that are members of single-tier partnerships and Schedule 72 has to be completed by corporations that are members of multi-tier partnerships. A single-tier partnership is a partnership that is not a member of another partnership, whereas a multi-tier partnership is a partnership that is a member of another partnership. Schedule 73 is used to calculate the amounts to be added or deducted in the corporation income. The amounts required to calculate the various income inclusions and deductions in Schedule 73 come from Schedule 71 and schedule 72.
If the corporation elects to align the end of its fiscal period with the filing corporation’s taxation year end, the latter must include in its income the income from this alignment period. It will, however, under certain circumstances, be able to deduct a portion of this additional income as a Transitional Reserve in order to spread the tax on this additional income over five years. Moreover, if the partnership’s fiscal period is not ending on the same date as the filing corporation’s taxation year, regardless of whether or not there was an alignment, a calculation must be performed to determine the income in this Stub Period
.
For more information on the above mentioned tax measure or to consult the definitions of the various related terms, please refer to section 34.2 and section 34.3 of the Income Tax Act (ITA).
Operation of the Alberta button
An option has been added to Schedules 71 and 72 to allow you to generate a copy for Alberta containing all the federal data for the partnership. This copy will allow you to make changes to certain amounts that may differ for Alberta tax purposes. Note that if all of the partnership amounts for Alberta are the same as the federal amounts and the federal net income is the same as that of Alberta, you are not required to create copies for the Alberta calculations; all amounts will update to the proper locations both federally and provincially. However, as soon as you create a provincial copy to enter one or more amounts that differ from the federal values, you must create a provincial copy for each federal copy created. In that case, only the provincial copies will be used in the Alberta calculations and the federal calculations will not take the provincial copies into account.
When you first click the Alberta button, a copy corresponding to the federal copy will be created for Alberta and all amounts on the federal copy will be transferred to the provincial copy. You will be able to modify certain amounts in the provincial copy, if applicable. If you click the Alberta button again, all modifications to the federal copy will be updated to the provincial copy. However, if you had modified certain values in the provincial copy, the fields containing those values will not be updated with the amounts from the federal copy.
Note that zero is considered as being a value. If an amount should be nil on a line of a provincial copy, do not simply erase the input. Enter “0” in this provincial copy in order for the value to be retained should you click the Alberta button again. Otherwise, the amount in the federal copy will be transferred again to the provincial copy when you click one of these buttons.
Note: During a subsequent year, in the provincial copies, the rolled forward data will not be replaced when you click the Alberta button. Only new data entered in the federal copies will be transferred to their respective linked copies.
Schedule 71 and Schedule 72 ‒ Part 7, “Transitional reserve”
During its first taxation year ending after March 22, 2011, the corporation can choose to claim a reserve against the additional inclusion amount (the “qualifying transitional income”) which is composed of the Adjusted Stub Period Accrual and the eligible alignment income, if applicable.
The calculation of the reserve will be performed by the program in this first taxation year. This calculation takes into account the amounts obtained in the sections “Eligible alignment income” and “Adjusted stub period accrual (ASPA)”. The program will also keep track of this reserve in subsequent taxation years.
Please note that the qualifying transitional income might have to be adjusted. The adjustment generally has to be made the year following the year where the qualifying transitional income has been calculated for the first time. To calculate this adjustment and for more details about the calculation, please consult Part 6 in Schedules 71 and 72.
The filing corporation cannot deduct any amount as a Transitional Reserve in the calculation of its income if:
- the corporation is a member of a partnership that was not subject to a multi-tier alignment and was not a member of this partnership:
- at the end of the partnership’s fiscal period that begins before March 22, 2011, and ends in the tax year of the corporation that includes this date,
- at the end of the partnership’s fiscal period commencing immediately after the fiscal period referred to above and until after the end of the year of the corporation that includes March 22, 2011, and
- continuously since before March 22, 2011 until the end of the taxation year;
- the corporation is a member of a partnership in respect of which there is a multi-tier alignment, unless the corporation has been a member of the partnership continuously since before March 22, 2011 to the end of the taxation year:
- at the end of the year or at any time in the following taxation year:
- the corporation’s income is exempt from tax under Part 1,
- the corporation is non-resident and the partnership does not carry on business through a permanent establishment in Canada, as defined under subsection 16.1(1) of the Income Tax Act.
- the year ends immediately before another taxation year:
- at the beginning of which the partnership no longer principally carries on the activities to which the reserve relates,
- in which the corporation becomes a bankrupt
- in which the corporation is dissolved or wound up other than in circumstances to which subsection 88(1) of the Income Tax Act applies.
If the corporation is in one of the above mentioned situations, it is not eligible for the Transitional Reserve. Therefore, the amount on line EE of Schedule 71 and/or the amount on line QQ of Schedule 72 should be overridden with “0.”
The amount on line CC of Schedule 71 and the amount on line OO of Schedule 72 are calculated based on the filing corporation’s net income established in Schedule 1 without taking the provisional reserve into account. However, the program calculations do not handle deductions pursuant to sections 61.3 and 61.4 of the Income Tax Act (ITA). If the corporation is claiming deductions under those sections and these deductions are included in the income of Schedule 1, override the amount on line CC of Schedule 71 and/or the amount on line OO of Schedule 72 making sure to exclude these deductions.