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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.
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.