Schedule 1. Net Income for Tax

Definition

Schedule 1 (T2SCH1) is the mandatory reconciliation schedule attached to every T2 Corporation Income Tax Return. It starts with accounting net income (after tax) from the income statement (matching ) and converts it to net income for tax purposes by adjusting for the differences between GAAP and the

. The result flows to line 300 of the T2 jacket and is the starting point for calculating taxable income and federal tax.

Filing is required for every corporation filing a T2, including nil returns and inactive CCPCs. The schedule is unchanged in structure for 2026 tax years.

Key lines

Schedule 1 is organized into two sides: additions (non-deductible or tax-only income) and deductions (tax-only expenses or book-only income).

Common add-backs (increase taxable income):

• Line 101: Provision for income taxes (current and deferred), since tax is not a deductible expense
• Line 104: Amortization of tangible assets (book depreciation is replaced by )
• Line 106: Amortization of intangibles (replaced by Class 14 or Class 14.1 CCA)
• Line 121: 50% of meals and entertainment (see ; ITA s.67.1)
• Line 123: Non-deductible club dues and recreational facilities (ITA s.18(1)(l); see )
• Line 126: Non-deductible life insurance premiums (ITA s.18(1)(l.1))
• Line 127: Political and charitable donations (donations are deducted separately on the T2 jacket, not through Schedule 1)
• Line 128: Reserves claimed on the books but not allowed for tax
• Line 141: Loss on disposal of capital property per books (replaced by Schedule 6 treatment)

Common deductions (decrease taxable income):

• Line 403: Capital cost allowance from
• Line 404: Terminal loss from
• Line 414: Taxable dividends received from taxable Canadian corporations (removed here, then deducted again on T2 line 320 via s.112)
• Line 417: Book gains on sale of capital property (replaced by taxable capital gains from )
• Line 418: Prior-year reserves (brought back into income under s.20(1)(n))

Example

A CCPC reports book net income after tax of $120,000. Adjustments:

Common mistakes

• Claiming CCA without adding back book amortization first (doubles the deduction).
• Treating a realized book capital gain as taxable at 100% rather than running it through .
• Missing the 50% meals add-back on client lunches coded to travel.
• Omitting line 414 for dividends received (double-counted otherwise when s.112 runs on the T2 jacket).

Related concepts