T2 Schedule 1: add back 50% of meals and amortization, deduct CCA

T2 Schedule 1 (2023 and later tax years) starts with net income after tax from line 9999 of Schedule 125, adds back what the Income Tax Act doesn't allow, such as the tax provision, book amortization, 50% of meals and entertainment, club dues and fines, then deducts CCA from Schedule 8. The result goes on T2 line 300.

Which Schedule 1 lines does a typical corporation use?

Schedule 1 reconciles the net income on the financial statements with net income for tax purposes. The current form is version 25, for 2023 and later tax years, as of October 2026 canada.ca. Amount A is net income after taxes and extraordinary items from line 9999 of Schedule 125. You add lines 101 to 199 (total on line 500), deduct lines 401 to 499 (total on line 510), and amount C, net income for tax purposes, goes on line 300 of the T2 canada.ca.

The CRA calls lines 101 to 132 and 401 to 418 the most common additions and deductions canada.ca. These are the ones a small corporation's file hits year after year.

Line	What it is	Direction	Why
101	Provision for income taxes, current	Add	Income tax is not deductible
102	Provision for income taxes, deferred	Add	Same, for the deferred provision
103	Interest and penalties on taxes	Add	Paragraph 18(1)(t)
104	Amortization of tangible assets	Add	Book amortization is replaced by CCA
106	Amortization of intangible assets	Add	Book amortization is replaced by CCA
107	Recapture of CCA from Schedule 8	Add	Recapture is income
111	Loss on disposal of assets	Add	The tax result comes from Schedules 6 and 8
112	Charitable donations from Schedule 2	Add	Deducted later on T2 line 311
113	Taxable capital gains from Schedule 6	Add	Half of a positive net capital gain
114	Political contributions	Add	Paragraph 18(1)(n)
120	Club dues and fees	Add	Paragraph 18(1)(l)
121	Meals and entertainment, the 50% not allowed	Add	Section 67.1
122	Automobile expenses over the limits	Add	Vehicle costs over the allowed amounts
123	Life insurance premiums not allowed	Add	Premiums the Act does not allow
126	Reserves on the financial statements, end of year	Add	Paragraph 18(1)(e)
128	Fines and penalties under section 67.6	Add	Section 67.6
401	Gain on disposal of assets per the statements	Deduct	Replaced by line 113 and recapture
402	Capital dividends under section 83 from Schedule 3	Deduct	Received tax free
403	CCA from Schedule 8	Deduct	Paragraph 20(1)(a)
404	Terminal loss from Schedule 8	Deduct	Computed on Schedule 8
414	Reserves on the financial statements, start of year	Deduct	Reverses last year's add back

Line 403 takes the total CCA claim from column 21 of Schedule 8, line 404 takes terminal losses from column 20, and line 107 takes recapture from column 19 canada.ca. For the classes and rates behind those numbers, see the CCA classes table.

$120,000 of book income becomes $137,200 on line 300

Say your client's Schedule 125 shows net income after taxes of $120,000 on line 9999, after a current tax provision of $18,000. The books also carry $14,000 of amortization, $6,000 of client meals, $2,500 of golf club dues, $1,000 of donations, $300 of parking and speeding tickets, and $400 of interest the CRA charged on late instalments. Schedule 8 gives CCA of $22,000.

Line	Item	Amount
A	Net income after taxes, Schedule 125 line 9999	$120,000
101	Current income tax provision	$18,000
103	Interest on late instalments	$400
104	Amortization of tangible assets	$14,000
112	Donations expensed in the books	$1,000
120	Golf club dues	$2,500
121	50% of $6,000 of meals	$3,000
128	Traffic fines	$300
500	Total additions	$39,200
B	Amount A plus line 500	$159,200
403	CCA from Schedule 8	($22,000)
510	Total deductions	$22,000
C	Net income for tax purposes, to T2 line 300	$137,200

The additions add up to $39,200 ($18,000 + $400 + $14,000 + $1,000 + $2,500 + $3,000 + $300). Amount B is $120,000 + $39,200 = $159,200, and taking off the $22,000 of CCA leaves $137,200 for line 300.

The $1,000 donation doesn't disappear. It comes back as a deduction on T2 line 311, which is capped at 75% of line 300, so here the cap is $102,900 and the full $1,000 goes through canada.ca. With no losses or dividends to deduct, taxable income on line 360 is $136,200. The trial balance mapping that produces line 9999 is on the GIFI codes page.

Why only half of meals and entertainment comes back on line 121

Subsection 67.1(1) deems an amount for food, beverages or entertainment to be 50% of the lesser of the amount paid and an amount that would be reasonable in the circumstances laws-lois.justice.gc.ca. The books expense 100% at GIFI item 8523, so line 121 adds back the other half. If part of the bill wasn't reasonable, that part comes back in full before you halve the rest.

Subsection 67.1(2) switches the 50% rule off in specific cases laws-lois.justice.gc.ca:

Situation	Paragraph	Deductible share
The business sells food, drinks or entertainment to customers	67.1(2)(a)	100%
Fundraising event mainly for a registered charity	67.1(2)(b)	100%
The client reimburses the cost and the charge is identified in writing	67.1(2)(c)	100%
The meal is a taxable benefit to the employee	67.1(2)(d)	100%
Food at a remote work site or a construction work camp	67.1(2)(e) and (e.1)	100%
Up to six events a calendar year open to all employees at a place of business	67.1(2)(f)	100%
Long haul truck driver food during an eligible travel period	67.1(1.1)	80%

The six event exception is the one owner managed corporations use: a holiday party open to every employee at the location is fully deductible, while a dinner for the owner and two managers isn't. The CRA guide repeats the 80% rule for long haul drivers and the full deduction for temporary construction work camps canada.ca. For the full rules, see the meals and entertainment page.

Fines go on line 128, interest and penalties on tax go on line 103

Section 67.6 bars a deduction for any fine or penalty, other than a prescribed one, imposed under a law of Canada, a province or territory, or another country by a body with authority to impose it laws-lois.justice.gc.ca. Traffic and parking tickets, regulatory fines and similar amounts go on line 128 canada.ca.

Interest and penalties the CRA charges are a separate line. Paragraph 18(1)(t) denies a deduction for any amount paid or payable under the Income Tax Act, so arrears interest, instalment interest and late filing penalties all go on line 103 laws-lois.justice.gc.ca. The rates themselves are on the instalment interest page.

Three other add backs come straight from section 18: club dues under 18(1)(l), which covers dues in any club whose main purpose is dining, recreation or sport (line 120); political contributions under 18(1)(n) (line 114); and reserves under 18(1)(e) unless another provision allows them (line 126) laws-lois.justice.gc.ca.

How do gains, dividends and reserves move through Schedule 1?

A sale of a capital asset shows up twice. Deduct the book gain on line 401 (or add the book loss back on line 111), then add half of the positive net capital gain from Schedule 6 on line 113 and any recapture from Schedule 8 on line 107 canada.ca. A net capital loss doesn't reduce line 300; it carries over, as set out on the net capital loss page.

Dividends split two ways. A capital dividend received under section 83 is deducted on Schedule 1 line 402. A taxable dividend from a Canadian corporation stays in net income, and the section 112 deduction comes off later, on T2 line 320 canada.ca. The mechanics are on the intercorporate dividends page.

Reserves run as a pair. Add the end of year book reserve balance on line 126 and deduct the start of year balance on line 414; the reserves the Act does allow come from Schedule 13 on lines 125 and 413 canada.ca. For SR&ED, add back what the books expensed on line 118 and deduct the claim from line 460 of Form T661 on line 411 canada.ca.

What goes on pages 3 and 4 of Schedule 1?

Page 3 holds the less common additions, lines 201 to 254, such as capital items expensed (206), non deductible advertising (226), legal and accounting fees not allowed (228), sales tax assessments (234) and share issue expense (235). Their total, amount D, goes to line 199 on page 1. Page 4 holds the less common deductions, lines 300 to 350 plus the resource deductions on 340 to 345, such as bad debt (304), and their total, amount E, goes to line 499 canada.ca.

Watch the numbering. Page 4 of Schedule 1 has its own line 300 (accounts payable and accruals for cash basis, opening) and line 311 (an advertising expense line for broadcasting). Those aren't T2 line 300 or T2 line 311, which are net income for tax purposes and the donations deduction canada.ca.

Anything without a line goes in other additions (description in column 605, amount in column 295, total on line 296) or other deductions (705, 395, total on 396) canada.ca. Since January 1, 2024, expenses of a short term rental that doesn't comply with the local rules are disallowed, and the CRA says to enter the nondeductible amount on line 295 canada.ca. See the short term rental rules for who is caught.

On the T2 itself, after line 300. Previous year non capital, net capital, restricted farm, farm and limited partnership losses are deducted on lines 331 to 335 on the way to taxable income on line 360 canada.ca. See the noncapital loss page for the carryover periods.

Yes. The current provision goes on line 101 and the deferred provision on line 102, because Schedule 1 starts from income after tax and income tax is never a deduction canada.ca.

No, as long as the client reimburses it and the charge is reasonable and specifically identified in writing to the client, under paragraph 67.1(2)(c) laws-lois.justice.gc.ca. The client paying the bill is then the one subject to the 50% limit.

Each adjustment goes on its own numbered line, and only items with no line of their own go in the other additions or other deductions boxes with a description canada.ca. Lumping known items into line 296 makes the return harder to review and invites questions.