Today: Friday, September 22, 2017, 5:19 pm (PST)

What is a Schedule 20?

Posted by:

Angela Hardbattle

Angela Hardbattle

Tax Question:

What is a schedule 20 as part of a T2 corporate tax return?

Facts:

Schedule 20 is used to calculate an additional tax on non-resident corporations. This tax is called Part 14 or ‘branch’ tax and relates to non-resident corporations that earn income from a business carried on in Canada and have a permanent establishment in Canada.

Discussion:

Having a permanent establishment in Canada can result in federal and provincial/territorial taxes on net profits attributed to Canada. However, an additional 25% tax will also be charged on net profits. This tax is often referred to as a ‘branch’ tax as the company is considered to have a Canadian operations branch in order for the tax to be applicable.

There is an exemption for the first $500,000 of profits (cumulative over the life time of the business). Thus, no 25% tax will be due unless the profits exceed $500,000. In addition, the profits must remain in Canada in order to be exempt from this tax. If profits are removed by a dividend, then the relevant tax rates will apply.

Taxes paid can be used as a tax credit in the non-resident’s country of origin tax return. However, if taxes owed in the country of origin are less than the taxes paid in Canada, there is no refund of the excess taxes paid. It would just be considered the cost of doing business in Canada.

Angela Hardbattle, Dipl. T (Hons), CPA, CA

Manager, Gilmour Group CPA’s
Email: faqs@gilmour.ca

Disclaimer: The information contained in this article is intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. While we have made every attempt to ensure the information contained in this article has been obtained from reliable sources and accurately described herein. SW Media Group and Gilmour Group Incorporated is not responsible for any errors or omissions, or for the results obtained from the use of this information. Before taking any action that might affect your personal and business finances, you should consult a qualified professional advisor.

 

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