If you’re filing a corporate T2 tax return for your Ontario business, you may be eligible for the Ontario Transitional Tax Debits and Credits. You must be a specified corporation with a permanent address in Ontario and your entity must meet at least one of these criteria:
- The company must have entered a transitional or reorganizational shift of its entity with its tax year ending before 2009 or with its tax year beginning after 2008
- The entity must not have distributed or exchanged any of the company’s assets in any eligible discontinuous state before 2009
- The company’s eligibility regarding a merging or restructuring of one or more companies is amalgamated after December 31, 2008, and its permanent address is in Ontario either before or after the merge
- A company must have specified any pre-2009 tax debits or credits transferable to another tax year
If your company is a specified corporation in transition, you must claim the Ontario Transitional Tax Debits and Credits tax attribute. It is important to assess the value of your assets as an enterprise including your company’s income and taxable income when filing.
Ontario transitional tax debits
To be eligible for any Ontario transitional tax debits, your company must either:
- Have a total Ontario tax pool balance that is greater than a federal total tax pool balance of a given tax year, or
- Your company must have additional transitional tax debits or credits from a previous tax year
In general, if you are claiming that your company’s tax pool has exceeded the Ontario tax pool, you must pay additional corporate income taxes. This is scheduled with payment instalments over a 5-year period with the Canada Revenue Agency.
If eligible, you may be able to defer the transitional tax debits so long as you are not also claiming the scientific research and experimental development incentive or the subsequent expenditure for the same tax year.
Ontario transitional tax credits
Before January 1, 2009, when filing your company’s tax return and you claim that your Ontario tax pool exceeds the federal one, your company’s return would be given a specific transitional tax credit. However, with the transition from the Corporations Tax Act of Ontario, federal and provincial transitional tax attribute credits are no longer available to claim today.
How to calculate transitional tax debits
To calculate your Ontario Transitional Tax Debits, you will need to file your T2 corporate tax return in addition to filing Schedule 506, Schedule 507, and Schedule 5: line 276. If your company has entered an amalgamation during the tax year that you are filing for, you must also file Schedule 524.
Visit the Government of Canada’s website to retrieve the downloadable PDFs of all necessary forms. Following the instructions, determine your provincial tax pool, federal tax pool, corporate income and finally, tax income in all according lines throughout these forms. It is important to keep a thorough log of your company’s assets and properties during your company’s transitional restructuring.
Schedule 506 is the form intended for companies who are entering into or completing a structural transition of growth or into an amalgamation with one or more entities. This transitional tax debit is intended to assist and support corporations during their reorganizational shift.
Schedule 507 is the calculation form where you enter your company’s structural transition tax pools both provincially and federally, and where you claim for any eligibility of post-2008 or pre-2009 wind-ups (also called amalgamations, or discontinuous restructurings after 2008 or before 2009).
Schedule 5 is the form with which you claim your company’s supplementary tax calculation using line 276. This includes any status where your entity has more than one operational address across jurisdictions, or you are claiming provincial or territorial tax credits, or you are required to pay taxes in the province of Ontario.
In the instance that you file your T2 corporate tax return within a tax year of an amalgamation of your company, Schedule 524 is required. This form reports your company’s specialty type as well as identifying the newly formed taxable year of your company.
Claim your Ontario Transitional Tax Debits with T2inc Ontario
Whether you’re a seasoned business owner growing your enterprises or a new entrepreneur amalgamating your venture with other start-ups, you may be eligible to claim the Ontario Transitional Tax Debits and Credits tax attribute.
The tax experts at T2inc are skilled in corporate T2 tax returns in Ontario, serving the Toronto and Greater Toronto Area. Contact us to get started on your next tax assessment, leveraging every deductible and tax attribute available to you!