CCH iFirm Tax T2 2020.40.30

Schedule 7, Aggregate Investment Income and Income Eligible for the Small Business Deduction

ClosedRental property income or loss (under subsection1100(11) ITR)

You can choose to manually enter the income or the loss from rental property or provide the information on rental properties in the Statement of Real Estate Rental Properties (Jump Code: RENTAL).

You can also choose to enter the income or the loss from rental property on the line Other property income or on the line Other losses from property, depending on the situation.

ClosedStatement of Real Estate Rental Properties (Regulation 1100(11))

Separate Statements

This is a multiple copy form.

Each copy of the Statement of Real Estate Rental Properties includes a section for calculating the CCA. The net income (or the net loss) calculated in each summary is carried over to the Summary of Real Estate Rental Properties (Jump Code: SRENTAL).

Foreign source

The net income realized or the net foreign loss on rental property (under regulation 1100(11)) must be entered separately on Schedule 7. In order to indicate whether the income (or the loss) is from foreign source, the Foreign source check box must be selected.

The purpose of the Statement of Real Estate Rental Properties is to permit the calculation of CCA on these properties based on the allowable limit allowed for tax purposes.

Note: The eligible income and expenditures and, in the case where the property is held by a partnership, the portion of net income (net loss) or the amount in box 107 or 110 of the T5013 slip should have already been entered in Schedule 125, Income Statement Information, and therefore, should be included in Schedule 1, Net Income (Loss) for Income Tax Purposes.

Fiscal year

The program presumes that the fiscal year is the same as the corporation’s fiscal year. You can modify these dates, but note that they are only used for information purposes and that, as a result, they are not taken into account in any calculation.

Co-Ownership

When the rental property is held as a co-ownership, proceed as follows:

  • Enter the recorded income and expenses for all of the rental property. On the appropriate line, indicate the percentage corresponding to the corporation’s share to determine the net income (before CCA) attributable to the corporation.
  • Calculate the CCA only on the taxpayer’s portion of the property. To do this, complete the Capital Cost Allowance (CCA) Workchart (Jump Code: 8 WORKCHART) in the usual manner and follow the steps in this workchart to link a given CCA class to a statement of real estate rental properties.

Real estate rental property held by a partnership

When the real estate rental property is held by a partnership, proceed as follows:

  • Complete the line Address of property (if you don’t know the address of the property, enter the name of the partnership or “T5013 slip”) and the partnership’s fiscal year, because this information will then be used to determine the appropriate lines in the following forms: Summary of Real Estate Rental Properties (Jump Code: SRENTAL) and Five-Year Comparative Review - Statement of Real Estate Rental Properties (Jump Code: S5RENTAL).
  • Complete the section “Partnership - Real estate rental held by a partnership” subsection. Note that the partnership’s name and the partner’s share are indicated for information purposes only; this information does not affect the calculations. However, this information will be retained when rolling forward the file. The partner’s share is used to determine the appropriate line in the Form Five-Year Comparative Review - Statement of Real Estate Rental Properties (Jump Code: S5RENTAL) and to ensure better tracking of the information.
  • Indicate the portion of net income for income tax purposes (or net loss for income tax purposes) allocated to the partner by the partnership. This portion will be posted to the line Partnerships: Indicate your share in the “Expenses” section.
  • If the corporation incurred expenses as a partner, enter those amounts on the line Other expenses of the partner in the “Expenses” section.
  • The net income (or the net loss) after the partner’s expenses, calculated by the program in the “Expenses” section is posted to the Summary of Real Estate Rental Properties (Regulations 1100(11)) (Jump Code: SRENTAL). Furthermore, the CCA calculation for all of the other rental properties held by the corporation will take this net income (or this net loss) into account.
  • In this statement of real estate rental properties, do not enter any other information relating to income from rental property held by the partnership or relating to expenses incurred with regard to such property.

Note: Unlike the capital cost allowance (CCA), the recapture or the terminal loss must be calculated at the partnership level before allocating the net income or loss attributable to each partner. The partnership itself is subject to the limitation on CCA based on the net rental income with respect to the property it holds.

Then, the net income (or the net loss) allocated to the partner must be taken into account when calculating the CCA limit for all of the other rental properties owned by the partnership as a sole owner or as a co-owner. Also see the “Limitation on CCA” section in this help topic.

Non-Rental Use Portion

Enter the percentage of the expenses that pertain to a non-rental use of the property. If no percentage is entered, you can indicate a dollar amount for each of the expenses in this column, if applicable. The program will calculate the total deductible expenses, excluding the proportion that corresponds to this use.

The item Advertising is an exception to the rule and remains an input cell, because this type of expense is generally incurred for rental purposes only. If this is not the case, you have to enter a dollar amount for this item.

If an amount has been entered and then you decide to indicate a percentage, the program will retain the amount as an override. You can then remove or modify it as desired.

Expenses for Maintenance and Repairs (Québec Only)

For Québec taxation purposes only, it is possible to link a rental property to a copy of Form TP-1086.R.23.12, Cost Incurred for Work on an Immovable (Jump Code: 1086R).

In Form TP-1086.R.23.12, indicate that you want to link this property to a Statement of Real Estate Rental Properties by answering the relevant question, and then, using the drop-down menu, select the address of the property for which you wish to transfer the information.

The address and the postal code of the property will be updated to Form TP-1086.R.23.12 and an expand cell, located to the right of the expense’s description in the statement of real estate rental properties, will allow you to go from one form to the other.

TP-1086.R.23.12, Costs Incurred for Work on an Immovable

Calculating the CCA

The rental property should have already been entered in a class in the Capital Cost Allowance (CCA) Workchart (Jump Code: 8 WORKCHART).

Note: If the property is held by a partnership, you do not have to complete the “Calculation of the capital cost allowance (CCA)” section for this property, because the calculation of the CCA claim, the recapture or the terminal loss must be made at the partnership level before calculating the portion of net income (or net loss) amount allocated to the partner. Consequently, the net income (or the net loss) amount allocated to the partner that has been entered in the “Partnership - Real estate rental held by a partnership” subsection must take into account the calculation of the CCA claim, the recapture or the terminal loss on rental property held by the partnership.

In the case of a property held by co-owners, enter only the portion of the real estate rental property held by the taxpayer in a class of the Capital Cost Allowance (CCA) Workchart (Jump Code: 8 WORKCHART). In theory, this class should already exist so you only have to link it to a statement of real estate rental properties.

In the Capital Cost Allowance (CCA) Workchart, you must indicate that you want to link this property to a statement of real estate rental properties by answering the relevant question and selecting the address of the property to be linked in order to transfer the information.

Consequently, all information relating to the calculation of the class will be transferred to the “Calculation of capital cost allowance (CCA)” section of the appropriate rental form and the program will be able to apply the limitation on CCA with respect to real estate rental properties under regulation 1100(11).

For more details on the different CCA classes and calculations, refer to the online help by pressing F1 in Form Capital Cost Allowance (CCA) Workchart (Jump Code: 8 WORKCHART).

When rolling forward data, the CCA class will remain linked to a statement of real estate rental properties until you answer “Yes” to the question Was this the final year of your rental operation? in the Statement of Real Estate Rental Properties (Jump Code: RENTAL).

Limitation on CCA

The program limits the CCA to the amount representing the net rental income before CCA for all of the rental properties (including, if applicable, the recapture or terminal loss) entered in all copies of the Statement of Real Estate Rental Properties for rental properties held by the corporation either as a sole owner or a co-owner.

When applying this limit, the calculation takes into account the net rental income limit from all of the allocated net income (or net losses) from partnerships held by the corporation that were entered in a statement of real estate rental properties.

Note: Because the CCA must be calculated at the partnership level before allocating the net income or the net loss to each partner, the partnership must apply the net rental income limit before CCA for all rental properties held by the partnership (including, if applicable, the recapture or the terminal loss) before allocating the net income or the net loss to each of the partners.

This new CCA claim will updated to Schedule 8, Capital Cost Allowance (CCA) (Jump Code: 8) as well as to the T2 - Bar Code return.  

The maximum allowable CCA for federal purposes is automatically updated to the Québec and Alberta CCA columns in the CCA workchart. However, the maximum allowable CCA for provincial purposes will be adjusted to take the provincial CCA amounts into account if these amounts differ from the federal amounts.

Optimizing the Deduction

When the CCA is subject to limitation, the program will reduce the CCA claim class by class in the order that the classes appear in Schedule 8. Normally you will want to claim CCA for lower rate classes first to allow you to claim the remaining UCC more quickly over subsequent years. You may therefore find it helpful to use the Sort function in the section “Calculation of Capital Cost Allowance (CCA)” on each Statement of Real Estate Rental Properties (if you have not already done so) as this will sort the CCA classes in class number order. Alternatively, you can override the CCA being claimed for specific classes. The program will adjust the maximum allowable CCA amount for the other rental property classes if you adjust the amount of CCA claimed for any of the CCA classes relating to rental property.

Applicability of the Form

This form becomes applicable as soon as income or expenses are entered into it.

The fact that this form is applicable does not automatically make Schedule 7 applicable.

The rules for the applicability of Schedule 7 are dictated by the Canada Revenue Agency (CRA) and have not been changed.  

Data Rolled Forward

Each copy of the Statement of Real Estate Rental Properties will be rolled forward until you answer “Yes” to the question Was this the final year of your rental operation?.

Transfer from the RENTAL form into Form T1135*

A transfer of data from the RENTAL form into the T1135 form can be made when the rental property is located outside Canada.

In order for the program to transfer data, select the check boxes Foreign source and Select this box to transfer the UCC at the end of the year for the property to Form T1135 as cost amount at year end. In addition, if you want to transfer the adjusted cost base of the land, you must also answer “Yes” to the question Does this rental property include land? in the “Identification” section.

The address, the country code, the gross income, the total amount of UCC at the end of the year and, if applicable, the adjusted cost base calculated in the “Land – MEMO code” section of Form Additions and Dispositions Workchart are transferred to category 5, “Real property outside Canada (other than personal use and real estate used in an active business).” When the rental property is held by a partnership, only the address and the country code are transferred.

Where the property is depreciable property in a prescribed class, the cost amount normally corresponds to the undepreciated capital cost of the property.

However, for purposes of calculating the cost amount in Form T1135, in certain situations, the program cannot correctly calculate the amount to be transferred. The situations for which you will need to adjust the amount using an override in Form T1135 are the following:

  • when there is a change in use of an asset;
  • when the proportion of use of property used to earn income from a business increases; and
  • when there is acquisition of depreciable property of a person with whom the corporation is at arm's length.

Please refer to the definition of “cost amount” as defined in subsection 248 (1) of the ITA.

* Note that no data is transferred if Part A, “Simplified reporting method,” has been completed in Form T1135.

For more information, consult the Help with respect to Form T1135.

See also

Schedule 8, Capital Cost Allowance (CCA)

 

When you choose to complete a copy of the Statement of Real Estate Rental Properties, the net income calculated in each statement of real estate rental properties is updated to the program workchart Summary of Real Estate Rental Properties (Jump Code: SRENTAL).

ClosedSummary of Real Estate Rental Properties (Regulation 1100(11))

The net income calculated in each statement of real estate rental properties is updated to the program workchart Summary of Real Estate Rental Properties (Jump Code: SRENTAL) and the total net income (or the net loss) of all these statements is updated to the appropriate line on Schedule 7, as follows:

For Canadian real estate rental property:

  • The net income is updated to the line 4.2, Real estate rental properties (under regulation 1100(11)) in section 2A of Schedule 7.
  • The net loss is updated to the line 8.1, Losses from rental properties (under regulation 1100(11)) in section 2A of Schedule 7.

For Foreign real estate rental property:

  • The net income is updated to the line c2, Real estate rental properties (under regulation 1100(11)) in section 2 of Schedule 7.
  • The net loss is updated to the line d2, Losses from rental properties (under regulation 1100(11)) in section 2 of Schedule 7.

In the summary, the description field includes the address of the rental property, as it appears in the corresponding Statement of Real Estate Rental Properties.

Applicability of the form

This form is applicable when two or more copies of the Statement of Real Estate Rental Properties are applicable.

 

ClosedFive-Year Comparative Review – Statement of Real Estate Rental Properties (Under Regulation 1100(11))

A five-year comparative review is automatically created for each copy of the Statement of Real Estate Rental Properties created.

Applicability of the form

This form is applicable when the corresponding copy of the Statement of Real Estate Rental Properties is applicable for the current year and prior year data has been entered or rolled forward.

Data rolled forward

The data in Form Five-Year Comparative Review - Statement of Real Estate Rental Properties will be rolled forward until you answer “Yes” to the question Was this the final year of your rental operation? in the Statement of Real Estate Rental Properties (Jump Code: RENTAL).

 

CO-771, Calculation of the Income Tax of a Corporation (Jump Code: 771)

When, in the Capital Cost Allowance (CCA) Workchart (Jump Code: 8 WORKCHART), the CCA amount claimed with regard to rental properties for Québec purposes differs from the amount claimed for federal purposes, a diagnostic prompt you to review the income (or loss) amount from properties calculated for Québec purposes on line 22, if applicable.

Adjusted aggregate investment income

The adjusted aggregate investment income from all taxation years ending in the preceding calendar year is used to calculate the business limit reduction under paragraph 125(5.1)(b) ITA. For more information on the business limit reduction, consult the help topic for Schedule 23.

When rolling forward a client file in which there is a return with a taxation year starting after 2018, the amount on line 745, Adjusted aggregate investment income, will be rolled forward to line Total adjusted aggregate investment income for taxation years that end in the preceding calendar year in the “Schedule 23 – Agreement among associated Canadian-controlled private corporation to allocate the business limit” section of Form Schedule 9 WORKCHART, Related and Associated Corporations Workchart (Jump Code: 9 WORKCHART).

Part 3A - Canadian and foreign investment income and adjusted aggregate investment income calculation

Custom Part 3A groups the detailed calculations of the Canadian (column A) and foreign (column B) investment income as well as the adjusted aggregate investment income calculation (column C).

The total of the amounts entered on the lines of columns A and B is used to calculate the amount on the lines in Part 1, “Aggregate investment income,” of the schedule. The amounts entered in column C are used to calculate the amount on the lines in Part 2, “Adjusted aggregate investment income.” Finally, the amounts entered in column B are used to calculate the amount on the lines in Part 3, “Foreign investment income.”

In column A, Canadian investment income, certain amounts calculated by the program may include foreign income (or losses). As a result, the amounts calculated on the following lines in column A are reduced from the amount entered on the corresponding line in column B, Foreign investment income:

  • Line 1.2, Eligible portion of the capital gains reserve (addition/deduction)
  • Line 1.3, Taxable capital gains under section 34.2
  • Line 2.3, Allowable capital losses under section 34.2
  • Line 4.4, Property income under section 34.2
  • Line 8.4, Property losses under section 34.2

You must manually enter any other property income and other losses on lines 4.3 and 8.3 in all relevant columns, including other non-deductible dividends, interest, rent, royalties as well as the income or loss from a specified investment business carried on in Canada.

In column C, Adjusted aggregate investment income, the amounts on some of the following lines must be modified to take into account the definition under subsection 125(7) ITA:

  • On lines 1.1, 1.2 and 2.1, only the capital gains and losses arising from the disposition of a property other than an “active asset” (as defined under subsection 125(7) ITA) are taken into account. When you select the check box of column PA on the relevant lines of the different tables of Schedule 6, Summary of Dispositions of Capital Property (Jump Code: 6) as well as on the lines in column A in the table of Part 1, “Capital gain reserves (federal),” in Schedule 13, Continuity of Reserves (Jump Code: 13), the amounts of taxable capital gains and allowable capital losses will be added to lines 1.1, 1.2 and 2.1.
    Note that the net capital losses of previous years (line 2.2) as well as taxable capital gains and allowable capital losses arising from the disposition of an active asset or calculated under section 34.2 ITA (lines 1.3 and 2.3) are not taken into account.
  • On line 4.3, include the income from a specified foreign investment business as well as all amounts in respect of a life insurance policy that are included in the calculation of the corporation’s income for the year but that are not included in the corporation’s aggregate investment income.
  • On line 5.3, only the dividends received from connected corporations are taken into account. When “1” is entered on line 205 in a row of Part 1, “Dividends received in the tax year” in Schedule 3, Dividends Received, Taxable Dividends Paid, and Part IV Tax Calculation (Jump Code: 3), the amount entered on line 240 of that row is added to line 5.3.
  • On line 8.3, include any losses from a specified foreign investment business.
  • On line 10, enter all amounts that have been deducted from the calculation of the corporation’s income for the year under subsection 91(4) ITA.

Specified Partnership Income (Part 4)

A Canadian-controlled private corporation (CCPC), which is an actual member of a partnership that earns income from an active business in Canada or which is a designated member of a partnership, must complete Parts 4 and 5 of Schedule 7 to determine its specified partnership income.

Table 1 – Specified partnership income

A CCPC is deemed to be a “designated member” of a partnership when, during a taxation year, it provides (directly or indirectly) services or property to this partnership while it is not an actual member but while a person not dealing at arm’s length with the CCPC holds a direct or indirect interest in the partnership.

In cases where the CCPC is a designated member of a partnership, you must answer “Yes” to the question in column A and only complete lines 200 and 311. Otherwise, when the corporation is an actual member of the partnership, you must complete lines 200, 300 and 310, as well as columns 1D and 2D, when applicable.

The program assumes that the number of days in the partnership’s fiscal period, calculated on line 325, is 365 days, regardless of the filing corporation’s taxation year. If the fiscal period of the partnership is less than 365 days, enter, using an override, the correct number of days on line 325.

The “specified partnership income” of a partnership (calculated on line 340) is the portion of a CCPC’s income from an active business carried on in Canada, as an actual member or designated member of a partnership, which is eligible for the small business deduction. This income is equal to the lesser of the following amounts:

  • The total of the corporation’s share of the income of the partnership, the income of the corporation for the year from the provision of services or property to the partnership and the amount included pursuant to section 34.2;
  • An amount equal to the specified partnership business limit:

The “specified partnership business limit,” calculated in column K1, establishes the maximum amount of income that an actual member or a designated member of a partnership earned that is eligible for the small business deduction under the definition of “specified partnership income”:

  • For an actual member of a partnership, it is the proportionate share of the notional small business limit of a partnership;
  • For a designated member, it is nil unless an actual member assigns a portion of its specified partnership business limit to the designated member.

Specified partnership’s loss

The section relating to specified partnership’s income should be completed even if there is a specified partnership’s loss. In this case, enter the amounts as negative amounts in columns B1 and C1 of table 1.

Tables 2 and 3 - Specified partnership business limit assignments under subsection 125(8) ITA

An actual member may assign a portion or all of its specified partnership business limit to a designated member.

When a CCPC is a designated member of a partnership and an actual member assigns it part of its specified partnership business limit, lines 405, 406, 415, 416 and 420 as well as lines 410, 441 or 412, where applicable, must be completed by the CCPC in table 2.

When a corporation is an actual member of a partnership that assigns part of its specified partnership business limit to a designated member, lines 425, 426, 430, 435, 436 and 440 must be completed by the corporation in table 3.

Specified corporate income and assignment under subsection 125(3.2) ITA (Part 7 as well as lines AA and CC of Part 6)

The “specified corporate income” referred to in subsection 125(7) ITA is the portion of a CCPC’s income from an active business carried on in Canada that is eligible for the small business deduction under subsection 125(1) ITA.

A CCPC’s specified corporate income for the year corresponds to the lesser of the following amounts:

  • The total amounts each of which is income from an active business of the CCPC for the year from the provision of services or property to the private corporation (amount on line 615, deducted from the calculation on line CC);
  • The total of all amounts each of which is the portion of the business limit of the private corporation that it assigns to the CCPC under new subsection 125(3.2) ITA (amount on line 625, added to the calculation on line AA).

The difference between these two amounts corresponds to the corporate income not eligible for the SBD.

This measure applies to taxation years that begin after March 21, 2016.

Income deemed to be active business income under subsections 129(6) and 256(2) ITA (line 540 of Part 6)

Subsection 125(1) ITA refers to the portion of a CCPC’s income that is paid or payable by an associated corporation that is deemed, under subsection 129(6), to be income of the corporation for the year from an active business where the associated corporation is not a CCPC or is a CCPC that made an election under subsection 256(2). This portion of income will be taxed at the general corporate income tax rate and no longer at the small business tax rate obtained through the small business deduction.

Filing of a copy of Schedule 7 with the Québec return

As per Revenu Québec requirements, a copy of Schedule 7 must be filed with the Québec return in the following situations:

  • Another CCPC assigns a portion of the business limit to the corporation under subsection 125(3.2) ITA;
  • The corporation assigns a portion of the specified partnership business limit to a designated member of a partnership under subsection 125(8) ITA;
  • A member of a partnership assigns a portion of the specified partnership business limit to the corporation under subsection 125(8) ITA.

When the corporation has a permanent establishment in Québec and an amount is indicated on line 335, 336 or CC of Schedule 7:

  • A copy of this schedule is automatically attached to the Québec return when this return is electronically filed;
  • A copy of this schedule is printed for the Québec return with the “Client,” “GOVT RSI, Bar Codes,” and “Office” print formats.

See also

T2 Corporation – Income Tax Guide

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