Corporations that operate multiple businesses or rental properties often prefer to amalgamate the income statement of the various entities to get a big-picture overview of how the corporation is performing.
When presenting formal financial statements, income statements for each business and property are attached as schedules. The Statement of Income, which follows the Balance Sheet, shows combined income and expenses as a single enterprise. The separate income statement schedules makes it easier for owners or managers to analyze operations and make strategic planning decisions.
But income and expenses from different types of business activities may be treated differently by the Canada Revenue Agency (CRA), and must be reported individually. When preparing the General Index of Financial Statements (GIFI), income from each of the various businesses is reported on its own Schedule 125. Most corporate tax software will accommodate this, and automatically calculate a summary in a GIFI 140 schedule.
Separating the various types of income – active business income, personal services business income and investment income – ensures that they’re easily identified and entered into the right areas of the tax calculation and tax credit areas of the T2 return, and that the correct amount of tax owing is calculated.
As with many tax processes, the CRA has a very specific methodology, and understanding that upfront can prevent a great deal of work later on.