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T2 Optimizations

Updated: 2017-12-20

The Optimizations worksheet in TaxCycle T2 allows you to control optimizations in corporate tax returns, whether to optimize for minimizing or maximizing taxable income or to turn off optimizations altogether.

Optimization goal

The Optimizations worksheet allows you to see and customize optimizations for the taxpayer.

  1. At the top of the worksheet, select the optimization goal, or disable the optimizations altogether.
  2. You can set a default for this worksheet in New File options. Learn how in the New file defaults help topic.
  3. Further down the worksheet, you can see and adjust individual optimizations for federal and provincial deductions.   

t2-optimizations

Order of calculations

When optimization are enabled, TaxCycle applies the deductions in the following order:

  1. Starting with deductions on Schedule 1 to arrive at net income (T2 jacket, line 300, page 3):
    1. Capital cost allowance from Schedule 8
    2. Cumulative eligible capital deduction from Schedule 10
    3. SR&ED deductions from T661
    4. Resource deductions from Schedule 12
  2. Claiming the deductions to arrive at the taxable income (T2 jacket, line 360, page 3):
    1. Donations from Schedule 2
    2. Losses from Schedule 4

Example

Read the following scenario to explain the various optimization goals.

Name of corporation Company XYZ
Net income from S125 $12,000
Class 1, opening UCC $987,986
Maximum available annual CCA
($987,986 x 4%)
$39,519

Options 1a, 1b and 2

The results of each optimization goal are:

  • Option 1a—Claim just enough CCA to offset the taxable income to zero.
  • Option 1bClaim the full annual available CCA of $39,519 to create a non-capital loss. 
  • Option 2Claim zero CAA to maximize taxable income (a looming future loss will be carried back to the previous tax years).

cca scenarios, TaxCycle

TaxCycle applies the deductions in the following order:

  1. Starting with deductions on Schedule 1 to arrive at net income (T2 jacket, line 300, page 3):
    1. Capital cost allowance from Schedule 8
    2. Cumulative eligible capital deduction from Schedule 10
    3. SR&ED deductions from T661
    4. Resource deductions from Schedule 12
  2. Claiming the deductions to arrive at the taxable income (T2 jacket, line 360, page 3):
    1. Donations from Schedule 2
    2. Losses from Schedule 4

Option 3

The last option consists of first claiming the T2 jacket deductions, such as donations and non-capital losses, before claiming Schedule 1 deductions, such as CCA and CEC.

This option may be useful, for example, if a non-capital loss or donation is going to expire soon and you prefer to use them first and preserve as much CCA and CEC claim for the following year. 

Explain this option, let's look at Company XYZ with some variations:

Name of corporation Company XYZ
Net income from S125 $12,000
Class 1, opening UCC $500,000
Maximum available annual CCA
($500,000 x 4%)
$20,000
Non-capital loss due to expire soon $11,000

By choosing to claim the non-capital loss first before CCA, TaxCycle will preserve as much future CCA as it can. The results are as follows:

CCA claim, TaxCycle 

To select this, choose Option 1 WITHOUT selecting sub-option a or b.