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T2 - Ontario Schedule 510 - CMT Carryforward Calculation Bug


#1

Taxcycle seems to be incorrectly calculating an ending balance of CMT loss carryforward on line 770 of Ontario Schedule 510 when using prior year losses in 2016. This also causes the ending balance of loss amounts in Part 10 to be incorrect.

I think I have traced the culprit to the 2nd line in Part 3 - CMT Payable

Between lines 515 and 518 there is a line that says "Deduct: CMT loss available (amount R from Part 7). On my client’s return Taxcycle is leaving this value at 0 even though amount R (CMT loss available) has a large positive balance, which should have flowed to the line between 515 and 518.

Even though my corporation has enough taxable income to more than use up its prior year losses, this glitch causes the ending CMT loss continuity balance in Part 10 as well as the CMT loss carryforward balance (end of year) on line 770 to be incorrect. Basically speaking, the opening and ending balances are the same, although the ending CMT balance (line 770) should be zero.

If I override the amount in part 3 (between lines 515 and 518) with the correct figure from amount R of Part 7, everything seems to work out. ie the losses in Part 10 get applied in the year and line 770 properly becomes zero.

To test this, you would need to carryforward an Ontario T2 return with non capital loss carryforwards, and taxable income in 2016.

I can E-courier the offending T2 return if you are unable to replicate on your end.


#2

@snoplowguy

Good evening,

Thanks for reporting that to us. I will take a look tomorrow. If you could send us a file via ecourier, I would really appreciate it. Make it to attention of me.

Steven


#3

File has been sent to your attention.


#4

I thought this may have been an issue that just arose on yesterday’s release. This morning I looked back through some T2’s that I filed around Christmas and it seems the issue has been around for a while, but I did not notice it because it does not change the amount of tax payable.

I also missed seeing it on a T2 Notice of Assessment I received a while back because the income tax calculated by the software was the same as the income tax on the Notice of Assessment… and I was too lazy to read the Explanation of Changes because I can’t remember the last time I’ve seen anything changed.

I may have more of these (as may other Taxcycle users) so I will need to devise some type of “search string” in the CMM to figure out which assessed T2’s have have been affected and manually override the amount on the S510 so that the opening balances are correct for 2017.

Attached is a T2 Notice of Assessment received in early January that demonstrates how the glitch gets picked up by the CRA.


#5

@snoplowguy

Good afternoon. I confirm that it’s a bug. I will fix it for the next T2 release and I will apply the fix to all the older year T2 modules.

I took a look at the TaxCycle calculation. Basically, the calc for the field in question (field above line 518 in Part 3) is coded to calculate only if the threshold in Part 1 are met. For example, if you override total assets field and total revenue field to be more than the threshold (ie. Enter $200 million in both fields), you will see that Part 3 all of sudden calculates.

Now, I took a look at the Ontario Tax Act which basically says that the eligible losses must be applied to the fullest extent possible to reduce the corporation’s adjusted net income in a taxation year to nil, regardless of whether or not the corporation was subject to the CMT. So, the key phrases I totally missed here is “regardless of whether or not the corporation was subject to the CMT”.

Thank you again for bringing this to our attention. My apologies for any inconvenience this may have caused you.

Steven Yu


#6

@snoplowguy

One more thing to mention. When you cfwd a T2 file with the above issue, we will attach a cfwd memo to next year’s S510 to review the opening balance of the CMT losses. If you have any questions, please let me know. Have a great day.

Steven


#7

Thanks Steven,

I was wondering whether I would need to sort through all of the T2’s I had prepared to find other instances of this. A memo would help this.