Deduction as per paragraph 20(1)(e) of the ITA

This form is used to calculate the deduction pursuant to paragraph 20(1)(e) of the Income Tax Act (ITA). It relates to the expenses of issuing shares or selling shares, units or interest and expenses of borrowing money.

When you enter the detail relating to an expense, it will be updated to Form, Deduction Summary as per Paragraph 20(1)(e) of the ITA (Jump Code: SFINANCING), and the total deductible expenses will be updated to line 395, Deduction as per paragraph 20(1)(e) of the ITA, of Schedule 1 (Jump Code: 1), and to the corresponding applicable provincial lines.

In general, this deduction corresponds to the lesser of:

  • 20% of the expense incurred during the year or a preceding taxation year. This amount must be prorated using the number of days in the taxation year (short year);
  • the excess of the expense on the total of the amounts deductible by the corporation in accordance with the expense in the calculation of its income for the preceding taxation years.

Ensure that any of these expenses deducted in the financial statements have been added back on line 216, “Financing fees deducted in books,” and/or on line 235, “Share issue expense” to Schedule 1, if applicable.

Note: Do not enter expenses under other paragraphs, such as expenses entirely deductible as per paragraph 20(1)(e.1), on this form.

In general, this box should be selected when all debt obligations in respect of a borrowing described in subparagraph 20(1)(e)(ii) or in respect of indebtness described in subparagraph 20(1)(e)(ii.1) are settled or extinguished in the taxation year. See paragraph 20(1)(e) for all details with regards to the application of these two subparagraphs.

When this box is selected, the program will claim as a deduction for the year in column E, Annual deduction, the total expense balance, i.e. the amount entered in column C, Balance before the annual expense.

This form is applicable as soon as there is an amount in column E, Annual deduction.

For each expense entered in the form, when the difference between the balance before the annual expense (column C) and the annual deduction (column E) is positive, the following data related to the expense is retained:

  • the description;
  • the date of the expense;
  • the expense amount (column A); and
  • the amounts deductible in the preceding taxation years (column B).

For that purpose, the annual deduction amount will always correspond to the deductible amount and not to the amount deducted in the taxation year (if the value has been modified with an override, it will not be taken into account).

The amount that will be posted to this line will correspond to the total of the amounts in column B, Amounts deductible in the preceding taxation years, and column E, Annual deduction (if the value has been modified with an override, it will not be taken into account).

See Also

Deduction Summary as per Paragraph 20(1)(e) of the ITA

IT-341R4 – Expenses of Issuing or Selling Shares, Units in a Trust, Interests in a Partnership or Syndicate and Expenses of Borrowing Money

Schedule 1, Net Income (Loss) for Income Tax Purposes

AT1 Schedule 12, Alberta Income/Loss Reconciliation

CO-17.A.1, Net Income for Income Tax Purposes