Corporate nonresident T2 return - how is apportionment done??

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sanderson
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Joined: Tue Oct 01, 2019 3:56 pm

Corporate nonresident T2 return - how is apportionment done??

Post by sanderson »

Hello! I'm a CPA in North Carolina. We have a US-resident corporate client who triggered nexus with Canada this year, so we're trying to get a non-resident T2 return filed for them. We've done the reading and know what forms to file and everything seems relatively straightforward except...where the heck is apportionment done??

I see Schedule 5 is used for allocation among the provinces. There's even a line for "outside Canada," but the calculation flow for Part I tax doesn't seem to reference this breakout. By calculation flow, I mean the following:

1. Start with audited US financial statements (USD).
2. Translate to CAD and prepare GIFI income statement (Schedule 125).
3. Figure taxable income on Schedule 1.
4. Figure Part I tax on Form T2.

It's not apparent to me that Schedule 5 is referenced anywhere in this, which results in ALL the income being taxable, rather than just the small portion attributable to Canada (~5%). This seems very odd to me. Almost every US state return I've worked on has a very simple apportionment schedule that figures what % of income is attributable to that state. I see no such method for Canada other than Schedule 5. Other mechanisms, such as a foreign business income tax credit, seem to only apply to Canadian resident corporations and not non-residents.

I've read instructions for all the relevant forms and found no concrete answers. We've read all the "Help" features for our software. They were no help. We've called our software support guys. They were no help. We've called the Revenue Agency. They told us to "ask an accountant," which was completely unhelpful. We're totally at a loss here. Can someone shed some light on this? What are we missing?
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