Schedule 23 (agreement among associated corporations)
Schedule 23 is the T2 schedule on which associated Canadian-controlled private corporations allocate the business limit for the small business deduction among themselves. Under subsection 125(3) of the Income Tax Act, the agreement assigns a percentage to one or more of them.
Owners with several companies, and buyers who already own one, meet this form when the corporations are associated. The CRA form page says associated CCPCs use it to allocate the business limit for the small business deduction. The T2 guide says all associated CCPCs have to file Schedule 23, and that only one of the associated or related corporations needs to file it for a calendar year.
Why the agreement matters
Under subsection 125(2), a corporation associated with one or more other CCPCs has a business limit of nil, except as otherwise provided in section 125. If all the associated CCPCs file the agreement in prescribed form, subsection 125(3) sets each corporation’s limit by its assigned percentage, but if the percentages assigned add up to more than the whole, the limit is nil. Subsections 125(3.1), 125(5) and 125(5.1) can then adjust the limit. Under subsection 125(4), if an associated corporation fails to file an agreement within 30 days after the Minister’s written notice, the Minister allocates the amounts. The guide adds that the CRA will ask for one if none is on file when it assesses a return.
What to ask
- Which corporations the owner controls, and whether they are associated corporations
- Whether an agreement is on file for each year in question
- Whether the buyer’s own companies would share the limit after closing
A larger group may also face a taxable capital reduction.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Canada Revenue AgencyGovernmentT2SCH23 Agreement Among Associated Canadian-Controlled Private Corporations to Allocate the Business Limit
- 02Canada Revenue AgencyGovernmentT2 Corporation – Income Tax Guide – Chapter 2: Page 2 of the T2 return
- 03Government of CanadaGovernmentIncome Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
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