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Ontario re-assessment for IDSBC for corporations with specified partnership income - versions 1.x - 2002 and subsequent
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Date: 2003-Nov.-21
Ontario re-assessment for IDSBC for corporations with
specified partnership income - versions 1.x - 2002 and subsequent
Some clients are receiving re-assessment notices for the Incentive
Deduction for Small Business Corporations (IDSBC) revising the Active Business
Income (ABI) on line 50 of the CT23. The re assessment notices are probably
incorrect.
PROBLEM
This error applies to corporations filing in Ontario with specified partnership
income that have used Federal Schedule 70 to calculate net active business
income on line B of the Federal T2 because of a positive amount on line 450 of
Federal Schedule 7. The re-assessment notice uses the value from line 400 of the
Federal T2 on line 50 of the CT23. Corporate Taxprep was changed with
version 1.0 - 2002 released in May 2002 to use the value on line B of the
Federal T2, which comes from Federal Schedule 70.
However, on December 9, 2002, Bill 198, Keeping the Promise for a Strong
Economy Act received Royal Assent and amended the Ontario Corporations
Tax Act (OCTA), subsection 41(6). The amendment was retroactive and deemed
in force May 2, 2000. This amendment has the effect of including the specified
partnership income and using the Ontario Business Limit, as specified in
subsection 41(3.2) in the calculations.
Corporate Taxprep versions 1.x - 2002, 2.x - 2002 and 1.x - 2003 were
modified to use the specified partnership income in the calculations of the ABI
as calculated federally on the Federal Schedule 70 and used on line B of the
Federal T2. Corporate Taxprep version 2.0 - 2003 was further modified to
use the Ontario Business Limit in the calculations, instead of the amount as
calculated on the Federal Schedule 70.
The Ontario re-assessment process has not yet incorporated these changes. The
initial Ontario assessment appears to accept the number as calculated by
Corporate Taxprep. The re assessment notice uses the value from line 400 of
the Federal T2, which is incorrect.
Ontario needs an Ontario equivalent of Federal Schedule 70. They have not issued
this form as of June 2003. The equivalent calculations have been included in
Corporate Taxprep version 2.0 - 2003.
SOLUTION
If you receive an Ontario notice of re assessment referring to the IDSBC, review
the tax return using Corporate Taxprep version 2.x - 2003. Trigger a
re-calculation (using Options/Re-Calculate or Ctrl+F9) and view the
resulting IDSBC at line 70 of the CT23. If the amount differs from the
re-assessment and the difference is attributable to line 50 you need to request
a review of the re-assessment. Send a letter to the office that issued the
re-assessment notice (the address of the office that issued the re-assessment is
listed at the top of the notice). Request a review of the re assessment with
reference to the provisions of the OCTA subsection 41(6) for specified
partnership income and the requirement therein to refer to the OCTA subsection
41(3.2) when applying subparagraph 125(1)(a)(ii) of the Federal Income Tax
Act (ITA). You may wish to include a copy of the CT23, the Federal T2,
Federal Schedule 7 and Federal Schedule 70 as recalculated with Corporate
Taxprep version 2.0 - 2003 to assist the assessor.
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