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T3 Optimizations

Updated: 2019-01-30

TaxCycle T3 optimizes tax calculations to achieve the results you need for your client(s). Optimization calculations run quietly in the background as you enter information into the tax return so that as you enter data the results automatically update without you needing to click a button or select a menu item. Each tax return also includes a worksheet to help you understand the results of the optimizations and customize them to suit each client's tax situation. 

The optimizations currently only apply to federal T3 calculations. Amounts are not optimized for Québec TP-646 returns.

How optimizations are calculated

Optimization calculations run sequentially, with expiring amounts claimed first. For example, if the trust has donations remaining from a few years ago, it claims those first. 

TaxCycle also considers additional credits from Schedule 11, including the federal dividend tax credit (foreign tax deduction coming in a future release).

Once TaxCycle calculates the tax owing or refund based on the chosen optimization goal (see "Optimization goals," below), any remaining amounts are carried forward to the following year (where applicable).

Optimizations worksheet

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

  1. At the top of the worksheet, select the optimization goal, or disable the optimizations altogether. (See more in "Optimization goals," below.)
  2. You can set a default for this field for any new files you create in T3 New File options. See New file defaults help topic.
  3. Further down the worksheet, you can see and adjust optimizations for donations, net capital losses and non-capital losses. Each section shows you the calculation made to achieve the optimized result. (Scroll down to learn more about some of these optimizations.) 

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Optimization goals

Choosing an optimization goal at the top of the Optimizations worksheet helps you adjust TaxCycle's calculations to better meet the needs of your client's financial situation. To help you choose the best goal for each client, the following list explains the results of each option.

No optimizations  
This option disables ALL optimization calculations. If you select this option, you cannot choose to optimize just one type of calculation in a section further down the worksheet. To apply some optimizations and not others, choose a different optimization goal instead, and then scroll down through the worksheet and disable those optimization calculations where you want to manually set the amounts claimed.

Maximize carryforward
This option carries forward as much as possible for use in the following year(s). It only claims expiring credits that cannot be carried forward. 

Reduce federal AND provincial tax payable to zero
This option attempts to reduce both the federal and provincial tax payable to zero before carrying forward any available amounts to the following year.

Reduce federal OR provincial income tax payable to zero, whichever comes first 
This option prioritizes reducing both the federal and provincial tax payable. In order to achieve the most effective result, TaxCycle claims certain deductions or credits until there is either no federal tax owing or no provincial tax owing. It then stops in order to protect remaining amounts for carry forward. For example, if the return has donations available which would yield a $500 credit and there is over $500 owing in federal and provincial tax, TaxCycle claims the entire $500. However, if there is only $250 in federal tax payable and more than $500 in provincial tax payable, claiming the entire $500 wastes half the credit. Instead, it is more beneficial to carry forward the remaining $250 to the following year where it may then be applied against both the federal and provincial tax payable.

Reduce federal income tax payable to zero
This option reduces the federal income tax payable to zero before carrying forward any available amounts to the following year.

Reduce provincial income tax payable to zero
This option reduces the provincial income tax payable to zero before carrying forward any available amounts to the following year. 

Optimization of losses

TaxCycle optimizes the application of losses to reduce the trust's net income. 

  1. Non-capital losses are shared to the Optimizations worksheet from the NonCapLoss worksheet. Net capital losses are shared from the NetCapLoss worksheet. 
  2. TaxCycle automatically calculates the Optimized deduction for each type of losses.
  3. To disable optimizations of either Non-capital losses or Net capital losses, override (press F2) the Optimize column to No.
  4. If you wish to claim an amount different than the one TaxCycle calculates, select Yes from the Claim different amount? column and enter the amount to claim. 
  5. Any Unused balance is carried forward to the following year.

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Optimization of donations

TaxCycle optimizations the donation claim to reduce the tax owing.

  1. Donation amounts are shared to the Optimizations worksheet from the Donations worksheet. 
  2. To disable optimizations of donations only, override (press F2) the Optimize column to No.
  3. The first column shows the Maximum deduction available for this year.
  4. TaxCycle automatically calculates the Optimized deduction for each donation type, claiming donations expiring in the current year first and then only what is required to meet the optimizations goal set at the top of the worksheet. Any unused amounts are then carried forward.
  5. If you wish to claim an amount different than the one TaxCycle calculates, select Yes from the Claim different amount? column and enter the amount to claim. This amount is shared between a similar field on the Donations worksheet. It is then used in the claim calculation on Schedule 11A.
  6. Any Unused balance is carried forward to the following year.
  7. It may be beneficial to change the order in which donations are claimed. For trusts other than Graduated Rate Estate (GRE) or Qualified Disability Trust (QDT),  can claim a 33% deduction on current year donations and 29% on prior year donations (after the first $200). By default, TaxCycle claims current year donations first, after claiming donations that expire in the current year. Change this default to claim the amounts in a different order.

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