Computation of income for tax purposes

The computation of income subject to tax is a two-step process. First, the net income as per the corporation’s Financial Statements is restated in taxation terms. Then the net income for tax purposes is reduced for items such as charitable donations, taxable dividends received, losses carried forward, etc. The result is the corporation’s taxable income on which the income tax is calculated.

TIP

The corporate accounting records should be prepared in such a way to ensure a quick and efficient identification of various taxation items. Some of the items to consider:

  • amounts received and reported as per tax slips issued in the name of the business (i.e. T3's, T5's, T5013 – partnership statement, charitable donation receipts);
  • update continuity schedule for capital assets purchased or disposed of during the year;
  • identify any amounts receivable that may not be collectible as of year-end;
  • identify “unrealized” gains or losses recorded as per Financial Statements (i.e. foreign exchange currency translation, changes in fair market values).

Your trusted Chartered Accountant provides tax, assurance services and accounting engagements to individual and small business clients located in Calgary and area.