Schedule 1. Net Income for Tax
Schedule 1 (T2SCH1) reconciles a corporation's accounting net income to its net income for tax purposes by adding back non-deductible items and subtracting tax-only deductions.
Federal · Updated September 23, 2026
Definition
Schedule 1 reconciles the corporation’s accounting profit or loss with its income for tax purposes. It starts with the after-tax result from T2 Schedule 125 (T2SCH125): Income Statement GIFI Codes, reverses book-only items, and adds tax amounts calculated on other schedules. The result goes to T2 line 300. Taxable income is calculated afterward, including qualifying dividend and loss deductions.
Use the current CRA Schedule 1 and the schedules relevant to the corporation’s return. An inactive corporation still needs to consider its T2 filing obligation; inactivity does not by itself mean tax filing can be ignored.
Key lines
| Adjustment | Schedule 1 line | Reason |
|---|---|---|
| Current income-tax provision | 101 | Corporate income tax is not an operating deduction |
| Deferred income-tax provision | 102 | Reverse the book tax provision |
| Tangible-asset amortization | 104 | Replace book depreciation with tax CCA |
| Intangible-asset amortization | 106 | Apply the asset’s actual tax treatment separately |
| CCA recapture | 107 | Add the taxable recapture calculated on Schedule 8 |
| Book loss on disposal | 111 | Reverse the accounting loss before tax disposal calculations |
| Charitable donations and gifts | 112 | Consider the separate donation deduction after net income |
| Taxable capital gains | 113 | Include the Schedule 6 tax result |
| Political contributions | 114 | Add back the book expense |
| Non-deductible club dues | 120 | Apply the restriction to recreational club dues |
| Non-deductible meals and entertainment | 121 | Usually 50%, subject to exceptions |
| Non-deductible life-insurance premiums | 123 | Deductibility depends on the applicable exception |
| Book gain on disposal | 401 | Reverse the accounting gain |
| Non-taxable section 83 dividends | 402 | Remove qualifying capital dividends included in the books |
| CCA | 403 | Deduct the claim calculated on Schedule 8 |
| Terminal loss | 404 | Deduct the qualifying Schedule 8 terminal loss |
The form has additional lines for reserves, financing costs and other adjustments. Do not treat every book reserve as deductible or map all reserves to the same line. Use the current form and the underlying tax rule.
Example
A CCPC reports $120,000 of after-tax book profit. Its book expenses include a $28,000 current tax provision, $15,000 depreciation, $6,000 of ordinary client meals subject to the 50% limit, and $1,200 of non-deductible club dues. It claims $12,500 CCA. There are no asset disposals or other adjustments.
Book profit 120,000 Current tax provision: line 101 28,000 Book amortization: line 104 15,000 Non-deductible meals: line 121 3,000 Club dues: line 120 1,200 CCA: line 403 (12,500) Net income for tax: T2 line 300 154,700
Dividends are not deducted twice
An ordinary taxable Canadian intercorporate dividend included in book income is not removed from Schedule 1 merely because it may qualify for the section 112 deduction. Report it on Schedule 3 and claim the qualifying deduction on T2 line 320. Removing it from net income and deducting it again would understate taxable income. Capital dividends under section 83 follow a different treatment on Schedule 1 line 402.
Common mistakes
- Deducting tax CCA while leaving book depreciation in the expense total.
- Carrying a book disposal gain directly into taxable income without separating recapture, capital gains and terminal losses.
- Using the donation or dividend deduction twice.
- Assuming a tax adjustment changes the original financial statements. Schedule 1 reconciles the books with tax; it does not replace the books.
Related concepts
Sources
- CRA Form T2SCH1
- Income Tax Act s.18
- Income Tax Act s.20
- CRA Guide T4012
See also
Related entries
Keep the books behind these numbers current.
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