Federal tax calculation

Generally, the federal tax you have to pay is based on your taxable income (line 260). Use Schedule 1 to determine your federal income tax and federal individual surtax. For information about calculating your provincial or territorial tax, see line 428.

Note
If you have to pay minimum tax (see below) or you want to claim an overseas employment tax credit (see Form T626, Overseas Employment Tax Credit) calculate these amounts before you complete Schedule 1.

Minimum tax

Minimum tax limits the tax advantage you can receive in a year from certain incentives. You have to pay minimum tax if it is more than the federal tax you calculate in the usual manner. When calculating your taxable income for this tax, which does not apply to a person who died in 1999, you are allowed a basic exempt amount of $40,000.

Generally, to find out if you have to pay this tax, add together the amounts in section B below and one-third of the taxable capital gain amount on line 199 of Schedule 3. If the total is $40,000 or less, you probably do not have to pay minimum tax. If the total is more than $40,000, you may have to pay it. To calculate if you have to pay it, use Form T691, Alternative Minimum Tax.

Below are the most common reasons why you may have to pay minimum tax:

A. You reported a taxable capital gain on line 127.

B. You claimed any of the following:

• a loss (including your share of a partnership loss) resulting from, or increased by, claiming capital cost allowance on certified feature films and certified productions;

• a loss from a limited partnership;

• most carrying charges (line 221) on certain investments;

• a loss from resource properties resulting from, or increased by, claiming a depletion allowance, exploration expenses, development expenses, or Canadian oil and gas property expenses; 

• a deduction on line 248 for an employee home relocation loan; or

• a deduction on line 249 for employee stock options and shares.

C. You claimed any of the following tax credits:

• a federal political contribution tax credit on lines 409 and 410;

• an investment tax credit on line 412;

• a labour-sponsored funds tax credit on line 414; or

• an overseas employment tax credit on Schedule 1 (see "Line 429 - Basic federal tax" on page 35).

Example
Sergio claimed a $50,000 deduction in 1999 for carrying charges. Because this deduction is more than $40,000, Sergio may have to pay minimum tax. To find out, he should complete Form T691, Alternative Minimum Tax.

Tax Tip
You may be able to claim a credit against your 1999 taxes if you paid minimum tax on any of your 1992 to 1998 returns. See "Line 427 - Minimum tax carry-over" on this page for details.

Schedule 1

Use either Method A or Method B, whichever applies, on Schedule 1 to calculate your federal tax. Attach a completed copy to your paper return. If you have a straightforward tax situation, use Method A, and follow the instructions on Schedule 1. If you have to use Method B, the information in this section will help you complete Schedule 1.

Line 423 - Tax adjustments

We may allow you a tax adjustment if you reported any of the following amounts on your 1999 return:

• under proposed changes, a lump-sum payment of certain income (see "Retroactive lump-sum payments" on page 12);
• on line 114, a lump-sum payment you received in 1999 from the Canada or Quebec Pension Plan for benefits that were payable in a previous year; or
• on line 130, a lump-sum payment from your pension or deferred profit-sharing plan for benefits you earned before January 1, 1972.

If any of these situations applies to you, we will use this line to record any tax adjustment we allow you.

Line 425 - Federal dividend tax credit

If you reported dividends on line 120, enter on line 425 of Schedule 1 the total of the dividend tax credits from taxable Canadian corporations shown on your information slips. If you did not receive dividend information slips, this is 13.3333% of the taxable amount of dividends from taxable Canadian corporations (see line 120).

Note
Foreign dividends do not qualify for this credit.

Line 427 - Minimum tax carry-over

If you paid minimum tax on any of your 1992 to 1998 returns, but you do not have to pay minimum tax for 1999, you may be able to claim a credit against your 1999 taxes for all or part of the minimum tax you paid in those years. To calculate your claim, complete Parts 1, 2, and 8 of Form T691, Alternative Minimum Tax. Attach to your paper return a completed copy of the form.

Line 429 - Basic federal tax

Your basic federal tax is a subtotal you use for certain calculations. For example, the federal individual surtax is generally a percentage of your basic federal tax.

Overseas employment tax credit - To make your claim, use Form T626, Overseas Employment Tax Credit. Enter the result of the calculation on line 429 of Schedule 1. For details, get Interpretation Bulletin IT-497, Overseas Employment Tax Credit, and Form T626.

Lines 431 and 433 - Federal foreign tax credit

This credit is for foreign income or profits taxes you paid on income you received from outside Canada and reported on your Canadian return. Certain tax treaties with other countries may affect whether you are eligible for this credit.

Note
You may have deducted an amount on line 256 for income that is not taxable in Canada under a tax treaty. In that case, do not include that income, or any tax withheld from it, in your foreign tax credit calculation.

If you paid tax to more than one foreign country, and the total non-business income tax you paid to all foreign countries is more than $200, you have to do a separate calculation for each country for which you claim a foreign tax credit. In that case, enter the total of your allowable foreign tax credits on line 36 of Schedule 1.

You also have to do a separate calculation for business income taxes paid to each foreign country. In that case, use Form T2209, Federal Foreign Tax Credits, to calculate your credit. You can carry unclaimed foreign business income taxes back three years and forward seven years.

In most cases, the foreign tax credit you can claim for each foreign country is whichever of the following two amounts is lower:

• the foreign income tax you actually paid; or
• the tax due to Canada on your net income from that country.

Note
If you paid tax on income from foreign property (other than real property) your foreign tax credit for the income from that property cannot be more than 15% of your net income from that property. However, you can deduct on line 232 the part of the foreign taxes you paid over 15%.

For details on how to calculate your claim, get Interpretation Bulletin IT-270, Foreign Tax Credit.

How to claim

• Complete the federal foreign tax credit area in Method B on Schedule 1 and attach the schedule (and Form T2209, if you use it) to your paper return.
• Attach a note showing your calculations. Show all amounts in Canadian dollars. See "How do you report foreign income and other amounts?" on page 11.
• Attach to your paper return proof, such as an official receipt, showing the foreign taxes you paid. If you paid taxes to the U.S., attach your W-2 information slip, U.S. 1040 return, and any other supporting documents that apply. If you are using EFILE (see page 7) show them to your EFILE service provider, and keep them in case we ask to see them.
• If you were a member of a partnership and are entitled to claim a part of the foreign taxes the partnership paid, include in your calculation the amount shown in the financial statements or in box 33 of your T5013 slip.

Tax Tips
Your federal foreign tax credit on non-business income may be less than the tax you paid to a foreign country. If so, and you were not a resident of Quebec, you may be able to claim a provincial or territorial foreign tax credit. Get Form T2036, Provincial Foreign Tax Credit, to help you calculate the credit. Attach a completed copy of the form to your paper return.

Also, you may be able to claim a deduction on line 232. You can claim the amount of net foreign taxes you paid for which you have not received a federal, provincial, or territorial foreign tax credit. This does not include certain taxes you paid, such as those on amounts you could have deducted under a tax treaty on line 256. For details, get Interpretation Bulletin IT-506, Foreign Income Taxes as a Deduction From Income.

Federal logging tax credit

If you paid logging tax to a province for logging operations you performed in the province, you may be able to claim a logging tax credit. To calculate your credit, use whichever of the following two amounts is less for each province in which you had a logging operation:

• 66.67% of the logging tax paid for the year to the province; or
• 6.67% of your net logging income for the year in the province.

Your allowable credit is the total of the credits for the year for all provinces, up to 6.67% of your taxable income (line 260) not including any amounts on lines 208, 209, 214, 215, 219, and 220.

There is no line on the return to claim your tax credit. To claim this credit, write "federal logging tax credit" and the allowable amount below line 37 in Method B on Schedule 1. Subtract it from the amount on line 37, and enter the result on line 406 of your return. If the result is negative, enter "0."

Line 419 - Federal individual surtax

You may have to pay a federal individual surtax on your basic federal tax. Use Schedule 1 to calculate your federal individual surtax, if any.

Tax Tip
You may be able to reduce the federal individual surtax you have to pay by using the unclaimed part of any foreign tax credit or investment tax credit you can claim. For details, get Form T2209, Federal Foreign Tax Credits, and Form T2038 (IND), Investment Tax Credit.

Line 464 - Additional federal foreign tax credit

If you claimed a foreign tax credit, you may be able to claim an additional federal foreign tax credit. Use Part 2 of Form T2209, Federal Foreign Tax Credits, to calculate this credit.

Line 468 - Additional investment tax credit

You may be able to reduce your individual surtax by part of the unused investment tax credit you earned for 1999. See Form T2038 (IND), Investment Tax Credit, for details.