Net federal tax

On this page...

• Recapture of investment tax credit
• Federal logging tax credit
• Lines 409 and 410 - Federal political contribution tax credit
• Line 412 - Investment tax credit
  • How to claim
• Lines 413 and 414 - Labour-sponsored funds tax credit
• Line 418 - Additional tax on RESP accumulated income payments
• Line 421 - CPP contributions payable on self-employment and other earnings
• Line 422 - Social benefits repayment
• Line 424 - Federal tax on split income
• Line 425 - Federal dividend tax credit
• Line 426 - Overseas employment tax credit
• Line 427 - Minimum tax carry-over
• Line 428 - Provincial or territorial tax
• Lines 431 and 433 - Federal foreign tax credit
  • How to claim

There are no lines on the return for the recapture of investment tax credit or for the federal logging tax credit. If these amounts apply, use them to calculate your net federal tax on Schedule 1. If the result of these adjustments is negative, and you do not have to pay minimum tax, enter "0" on line 17 of Schedule 1.

Recapture of investment tax credit

If you have to repay an investment tax credit you received previously for scientific research and experimental development, calculate on Form T2038(IND), Investment Tax Credit (Individuals), the amount you have to repay. Write "recapture of investment tax credit" and the amount below line 15 on Schedule 1. Add it to the amount on line 15.

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:

• 66.6667% of the logging tax paid for the year to the province; or
• 6.6667% 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 6.6667% of your taxable income (line 260) not including any amounts on lines 208, 209, 214, 215, 219, and 220. Write "federal logging tax credit" and the allowable amount below line 15 on Schedule 1. Subtract it from the total of the amount on line 15 and the amount of any applicable recapture of investment tax credits.

Lines 409 and 410 - Federal political contribution tax credit

Enter on line 409 the total you and your spouse or common-law partner contributed during 2005 to a registered federal political party or a candidate for election to the House of Commons.

Under proposed legislation, the amount of your contribution is the amount in excess of any advantage that you received or will receive for making the contribution. An advantage includes the value of certain property, service, compensation, or other benefit. This proposed change will apply to all contributions made after December 20, 2002.

Complete the chart for line 410 on the Federal Worksheet in the forms book to calculate your credit. However, if your total political contributions are $1,275 or more, enter $650 on line 410.

Receipts - If you are filing a paper return, include your official receipts. You do not have to attach receipts for amounts shown in box 36 of your T5013 slips, or on financial statements showing an amount a partnership allocated to you. If you are filing electronically, keep all of your documents in case we ask to see them.

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Line 412 - Investment tax credit

You may be eligible for this credit if any of the following applies. You:

• bought certain new buildings, machinery, or equipment and they were used in certain areas of Canada in qualifying activities such as farming, fishing, logging, manufacturing, or processing;
• have unclaimed credits from the purchase of qualified property after 1994;
• have an amount in box 41 of your T3 slip;
• have an amount in box 38 or 138 of your T5013 slip;
• have an amount in box 128 of your T101 slip;
• have a partnership statement that allocates to you an amount that qualifies for this credit; or
• have an investment in a mining operation that allocates certain exploration expenditures to you.

The deadline to claim renounced Canadian exploration expenses has been extended to the end of 2005 in most cases, or to the end of 2006 in certain cases. See Form T2038(IND), Investment Tax Credit (Individuals), for more information.

How to claim

Attach to your paper return a completed copy of Form T2038(IND), Investment Tax Credit (Individuals). For more information on the investment tax credit, see the information sheet attached to Form T2038(IND).

The time to submit Form T2038(IND) for a qualifying expenditure is limited. To be able to claim a credit for such an expenditure, you have to send the form to us no later than 12 months after the due date of your return for the year the expenditure arises.

Tax Tip
You may be able to claim a refund of your unused investment tax credit (see line 454).

Lines 413 and 414 - Labour-sponsored funds tax credit

You may be able to claim a credit if you became the first registered holder to acquire, or irrevocably subscribe to and pay for, an approved share of the capital stock of a prescribed labour-sponsored venture capital corporation (LSVCC) from January 1, 2005, to March 1, 2006.

Under proposed legislation, you will no longer be able to claim this credit on your federal income tax return if you buy shares, under a labour-sponsored fund in accordance with a provincial or territorial law, for which you cannot claim a credit for that province or territory because of certain provincial or territorial restrictions.

If you became the first registered holder of an approved share from January 1, 2005, to March 1, 2005, and did not claim the whole credit for it on your 2004 return, you can claim the unused part on your 2005 return. If you became the first registered holder of an approved share from January 1, 2006, to March 1, 2006, you can claim any part of the credit for that share on your return for 2005 and the unused part on your return for 2006.

Enter your net cost on line 413. Net cost is the amount you paid for your shares, minus any government assistance (other than federal or provincial tax credits) on the shares. Enter the amount of the credit on line 414. The allowable credit cannot be more than 15% of the net cost, to a maximum of $750.

Note
If the first registered holder of the share is an RRSP for spouse or common-law partner, either the RRSP contributor or the annuitant may claim this credit for that share.

Receipts - If you are filing a paper return, include your T5006 slip, Statement of Registered Labour-Sponsored Venture Capital Corporation Class A Shares, or official provincial or territorial slips. If you are filing electronically, keep them in case we ask to see them.

Tax Tip
Your province or territory may offer a similar tax credit. For details, see the provincial or territorial forms in the forms book, unless you were a resident of Quebec on December 31, 2005. In that case, see the guide for your provincial income tax return for Quebec.

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Line 418 - Additional tax on RESP accumulated income payments

You may have received an accumulated income payment from a registered education savings plan (RESP) in 2005. If so, you may have to pay an additional tax on all or part of the amount in box 40 of your T4A slip. Enter the amount from line 10, 13, or 16 (whichever applies) on Form T1172, Additional Tax on Accumulated Income Payments From RESPs. For more details, get information document RC4092, Registered Education Savings Plans (RESPs).

Line 421 - CPP contributions payable on self-employment and other earnings

See this section.

Line 422 - Social benefits repayment

See this section.

Line 424 - Federal tax on split income

Certain income of a child who was born in 1988 or later is treated differently (see "Split income of a child under 18"). If this tax applies, calculate it on Form T1206, Tax on Split Income, and enter the amount from line 4 on line 424 on Schedule 1.

Line 425 - Federal dividend tax credit

If you reported dividends on line 120, enter on line 425 on 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 426 - Overseas employment tax credit

You may be able to claim this credit if both of the following apply for 2005:

• You were a resident or deemed resident (as defined under E) of Canada at any time in the year.
• You have employment income from certain kinds of work you did in another country.

To make your claim, use Form T626, Overseas Employment Tax Credit, and mail it with your tax return to the International Tax Services Office, 2204 Walkley Road, Ottawa, ON K1A 1A8. For details, get Interpretation Bulletin IT-497, Overseas Employment Tax Credit, and Form T626.

Line 427 - Minimum tax carry-over

If you paid minimum tax on any of your 1998 to 2004 returns, but you do not have to pay minimum tax for 2005, you may be able to claim credits against your taxes for 2005 for all or part of the minimum tax you paid in those years.

To calculate your claim, complete the parts of Form T691, Alternative Minimum Tax, that apply. Attach the form to your paper return.

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Line 428 - Provincial or territorial tax

See this section.

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. 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 federal foreign tax credit on line 14 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. For tax years ending before March 23, 2004, you can carry unclaimed foreign business income taxes back three years and forward seven years. For tax years ending after March 22, 2004, the carry-forward period is 10 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 in 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 may be able to deduct on line 232 the part of the foreign taxes you paid over 15%.

Beginning in 2004, mandatory foreign social security contributions, other than U.S. FICA payments, will no longer be accepted as non-business income taxes for foreign tax credit purposes.

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

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How to claim

• Complete the federal foreign tax credit area on Schedule 1. Do all of your calculations in Canadian dollars. See "How do you report foreign income and other amounts?".
• 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 calculations the amount shown in the financial statements or in box 33 of your T5013 slip.

Receipts - If you are filing a paper return, include your documents, such as official receipts, that show the foreign taxes you paid, and a note showing your calculations. Also include Form T2209, if you use it. 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 filing electronically, keep all of your documents in case we ask to see them.

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