This form can be used to add to income any tax credit amount, deduction or any other amount that is considered inducement or government assistance. The amounts are added to income if the column A check box located to the left of the line’s title is selected. When this check box is selected, the amount is updated to line 295 of Schedule 1 (Jump Code: 1).
Moment of taxation of a tax credit
According to the July 14, 2003, Technical News No. 29, the CRA’s is of the opinion that:
“a tax credit or a reduction in the tax calculation is considered to be received at the earliest of:
- when the amount is applied as a reduction of instalment payments to be paid by the taxpayer, if it is credited to his instalment account by the fiscal authorities; or
- when all the conditions for its receipt are met, at the earliest of:
- when it reduces the tax payable for a taxation year, or
- when it is paid, if it allows for or increases a tax refund.”
In order for an amount to be credited to the taxpayer’s account as an instalment by the tax authority, the latter must have received the taxpayer’s return. Therefore, the amount is generally credited in the taxation year following the taxation year where the credit or deduction was used. Then, the amount to be added to income corresponds to the previous year amount.
In order to meet the conditions of receipt, a prescribed form or a certificate must often be filed with the tax return. Given that these conditions are usually met in the year following the taxation year where the tax credit or deduction was used, the amount to be added to income is the previous year amount.
When an amount allows you to obtain or increase a tax refund, the program considers that this amount is paid the year following the corporation’s taxation year. If this circumstance is the first to occur, but it does not occur in the year following the corporation’s taxation year, please make the required changes.
Note that the amounts claimed for the following tax credits are considered to be assistance received from a government before the end of the taxation year in which they are claimed and, therefore, are added to income in the current taxation year:
- The Canadian film or video production tax credit under paragraph 125.4(5) ITA;
- The video production services tax credit under paragraph 125.5(5) ITA; and
- The Canadian journalism labour tax credit under paragraph 125.6(3) ITA.
In addition, the amounts for the Canadian emergency wage subsidy (CEWS) and Canada emergency rent subsidy (CERS) received or deemed received by a qualifying entity for a qualifying period under subsections 125.7(2) and 125.7(2.1) ITA are considered to be assistance received from a government immediately before the end of the qualifying period to which it relates (125.7(3) ITA). Therefore, these amounts should be added to income in the current taxation year.
Assistance amount that has already been taken into account
The program is not able to determine if an amount of assistance has already been included in income for the year or a prior year, if it reduced the cost or the capital cost of a property, reduced an outlay or expense. You must determine if the amount of assistance must be added or not to income using the column A check box located to the left of the line’s title.
Credit related to depreciable property
When the tax credit relates to depreciable property, the capital cost of this property must normally take this credit amount into account. The program is not able to make the calculations necessary to reduce the capital cost of the given property when a credit relates to depreciable property. The amounts in the “Tax credits whose amount should reduce the capital cost of property” section are for your information only; you must make the necessary adjustments. The program is not always able to determine if certain credits relates to depreciable property. For these credits, you will find the following reference in the chart: “Please verify if the credit amount relates to depreciable property. For more information, press F1 to consult the Help.” If the credit relates to depreciable property, you must reduce the capital cost of the property and you must not add the credit amount to income. In order for a credit amount to reduce the capital cost of a property, it must have been received by the taxpayer, or the taxpayer must be entitled to receive the credit. A taxpayer is entitled to receive a credit when he or she meets the requirements to receive the credit. For more information, please consult paragraph 12(1)(x) and subsection 13(7.1) of the ITA.
Amount from a partnership or a trust
By virtue of subsection 12(2.1) of the ITA, the government assistance that a beneficiary of a trust or a partner of a partnership receives and which is granted as part of an expense or within the framework of an activity of the trust or partnership is deemed received by the trust or partnership. The amount of assistance must therefore be added to the trust or partnership’s income. The program is not always able to determine the amount of government assistance that comes from a trust or a partnership and that should not be added to the corporation’s income. We recommend that you review the amount of assistance to be added to income and make the necessary adjustments, if required.
Research and development tax credits
When a credit amount relates to research and development, only the portion in respect of the prescribed proxy amount (PPA) should be added to income. The program is not always able to determine if the credit amount to be added to income only relates to the PPA. Please pay attention to these credits and make the necessary changes, if required. Also note that the Québec R&D salaries tax credit program allows you to include certain salaries in the calculation of eligible salaries which may not qualify for the federal SR&ED program if the claimant has elected to use the proxy method, e.g. administrative support for SR&ED. The portion of the provincial tax credit earned on these salaries is not considered to be assistance under paragraph 37(1)(d) and should be included in income under section 9 or paragraph 12(1)(x) of the ITA. Only this portion of the tax credit should be entered in the form. The program is not able to determine if these salaries are taken into account in the calculation of the Québec R&D tax credits. If this is the case, you will have to enter these amounts on the appropriate lines.
Québec characteristics
The Québec Government has specified that certain Québec tax credits should not be added to income. These credits do not have a check box in column B: only Québec taxable credits have a column B check box. In addition, Revenu Québec has specified in the IMP. 87-6 Bulletin that it considers that a credit is received “when the amount of the credit is less than income tax and capital tax to pay on the due date of the balance applicable to a taxpayer for a taxation year. Furthermore, if the amount of the credit exceeds the balance, the surplus is considered as being received at the time where it is actually paid to the taxpayer or assigned to a debt of it.” The program considers that a credit is paid or assigned to a debt the year following the corporation’s taxation year. If this is not the case, please make the required changes.
See also
T661, Scientific Research & Experimental Development Expenditures