accounting profit is compiled according to GAAP or IFRS. Its basic principle is income-cost-expense = profit, but the international standards are stricter in accounting treatment. Therefore, when we calculate the accounting profit, we take the accounting thinking.

however, due to the different purposes of enterprise accounting and national taxation, the tax authorities (CRA, IRS) have formulated slightly different regulations in tax calculation to measure the income and profits of enterprises. (In fact, it's not "slightly" t _ t at all)

The above is the theoretical basis of the difference, and the specific embodiment of the difference is mainly the difference of deduction.

here are some representative examples and a brief explanation.

1. Differences caused by different calculation methods:

Amortization) vs Capital Cost Allowance (here ... I really don't know how to translate T_T...)

From the income statement, the most important non-cash item is depreciation and amortization, where enterprises are allowed to choose their own depreciation calculation methods, such as the straight-line method.

However, all those who have studied accounting know that depreciation is easy to be tricky, and different calculation methods have great influence on Net income. Therefore, in order to prevent enterprises from manipulating profits in this project, the tax authorities have formulated their own calculation methods to determine the depreciation ratio according to different asset types, which is the process of CCA.

for this kind of difference, we only need to add the items in the income statement back to the net profit, and then subtract the calculation results for tax purposes, and we can complete the adjustment.

2. Non-deductible welfare expenses, such as catering and entertainment (51%), motor vehicles, warranty fees, various fines and interests, are well understood. In accounting, these are expenses and need to be deducted from the total income.

But for tax authorities, they don't think this is a normal business cost/expenditure, so it is forbidden to deduct it from income, so as to avoid enterprises manipulating profits. When we encounter expenses that are forbidden to be deducted, we just need to add them back to the net profit.

3. Difference caused by different tax rates: profit or loss from selling assets.

accounting: other income exists in the income statement, which affects the net profit.

tax: it is considered as capital gain/loss, and only 51% is taxable.

4. The same project is in different stages of processing: charitable donations.

from the tax perspective, because this kind of expenditure is not used to generate income, it cannot appear in the calculation process of Net Income for Tax Purpose, but is placed in the calculation process of Taxable Income.

The differences between deduction items and the reasons behind them are complicated. The above are just a few simple examples. Actually, in the calculation of corporate income tax in Canada, there are nearly 81 kinds of deduction methods. It is difficult to remember all of them. In the study and operation, it is mainly to understand the nature of various expenses and their conflicts with tax purposes. As long as you understand these, the complicated deduction items are actually self-evident.

when we get the Net Income for Tax Purpose, we have to convert it into Taxable Income before we can calculate the enterprise income tax.

There are far fewer items we should pay attention to here, including dividend income, various losses carried over from the previous year, charitable donations, and business investment losses (ABIL).

through the above adjustments, we get the Taxable Income of the subject.

this income can be multiplied by the corresponding tax rate to get the tax payable, and then it can be deducted through various policies, such as small business deduction (SBD) and manufacturing deduction (M & P), general tax deduction (GRR) and so on, you can get the actual Tax Payable.