Tax Question:
What is a schedule 13 as part of a T2 corporate tax return?
Facts:
Corporations may have capital gains related to the sale of a property. Schedule 13 is used when the proceeds from the sale are not entirely received until after the taxation year-end, allowing the taxpayer to defer a portion of the gain for a maximum of 5 years.
When a capital property is disposed of, a corporation can claim a capital gains reserve for the proceeds to the extent that they have not yet been received. The corporation is required to calculate a reasonable portion of the gain as the reserve. Generally, the capital gain reserve is calculated as [capital gain proceeds of disposition] x [balance receivable at the end of the taxation year] This calculation is subject to another limitation. The reserve cannot exceed the lesser of:
This means that in the first year of disposition, not more than four-fifths of the gain can be taken as a reserve. Each year the calculation must be repeated to determine the amount of the reserve. Consequently, the capital gain will be taxed over a maximum of five years. In addition, this is calculating the maximum reserve amount that the corporation can take; it does not mean the amount they actually have to take. The corporation can claim any amount up to the maximum amount.
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Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.
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