Rental property income or loss (under subsection1100(11) ITR)
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: 9WORKCHART).
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.
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
