What is the definition of Taxable Income in Canada and what is it comparable to in the United States of America (U.S.)?
The term Taxable Income in Canada is the amount of income your company will be taxed on. Taxable Income is comparable to the concept of Adjusted Gross Income (AGI) or the Schedule M-1 Reconciliation of Income per Books to Income per Return in the U.S.
In Canada, Taxable Income is calculated on Schedule 1 of the corporate tax return. Schedule 1 starts with net income per your accounting system and adjusts it for the standardized accounting policies used in the tax system to arrive at Taxable Income. Schedule 1 adjusts your corporation’s income for allowable deductions for tax purposes to arrive at Taxable Income. For more information on Schedule 1, see our Domestic FAQ #160.
Canadian tax rates are then applied to Taxable Income to calculate your taxes due.
Taxable Income in Canada is similar to the concept of AGI for individuals in the U.S. AGI is an individual’s gross income minus deductions and payments for tax purposes. AGI is the starting point for calculating an individual’s taxes in the U.S, just as Taxable Income is the starting point for calculating corporate taxes in Canada.
The Schedule 1 of the Canadian corporate tax return is also similar to the Schedule M-1 of the Form 1120 U.S. corporate income tax return. The Schedule M-1, reconciles between the income per your accounting system and adjusts for non-taxable items and additional taxable items to arrive at income per the return (Taxable Income).
Dawn Loeffler, BA (Hons), CPA, CA
Manager, Gilmour Group CPA’s
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