How to Prepare GIFI – Tax Financial Statements for T2

Oct 31, 2013

Are you a do-it-yourself kind of person, and want to prepare the T2 Corporate Tax Return on your own? If yes, then watch this video on “How to Prepare the GIFI (i.e. tax financial statements) for the T2 Corporate Tax Return.”

This video starts from where we left off at the end of my previous article, titled, “How to Prepare Financial Statements“.  Make sure to download the accompanying Financial Statements, GIFI Schedules and Slides used in this video tutorial.

Getting Started:

The first step in learning how to prepare GIFI, or how to prepare tax financial statements, is to prepare an income statement. In my previous article I discussed preparing a company income statement and balance sheet that I prepared using excel. Let’s go through a quick recap before we go through how to prepare the GIFI.

Income Statement:

In the given company’s income statement the total sales are \$100,000. The expenses are broken up into various categories like

• Depreciation
• Car
• Operating expenses
• Home office

The total expenses for this company are \$12,859. Income taxes total to \$13,600. As you know, income taxes can be obtained from your accountant or by using corporate tax return preparation software. The net profit is equal to the sales minus the operating expenses, less income taxes, and in this case it is \$73,541.

Now that we’ve reviewed the income statement, let’s go to the next step in how to prepare tax financial statements, and prepare Schedule 125, the GIFI version of the income statement.

How to Prepare GIFI Schedule 125?

This is the GIFI version of the income statement. These figures are obtained from the excel-based income statement. You’ll notice that the codes highlighted in black represent GIFI codes for various financial statement items.

For example, ‘total sales of good and services’ has a GIFI code of 8089, and the amount is \$100,000 based on the excel income statement. Likewise, ‘total operating expenses’ are \$12,859, and ‘income tax expense’ is \$13,600. This gives us a net income of \$73,541, which tallies exactly with the given excel based income statement.

Let’s take a closer look at the operating expenses and the associated GIFI codes that make this up. In the given ‘Operating Expenses’ schedule, I have taken the excel based income statement and entered the expenses on each line item within the schedule. For example, advertising has a GIFI code of 8521 and an associated amount of \$144. All other expenses are listed below along with their associated GIFI codes; and the total operating expenses equal \$12,859, which is a perfect match with the income statement based in excel.

Balance Sheet:

The next step in How to Prepare the GIFI is to prepare the balance sheet. In my previous article I showed you how to prepare a balance sheet in excel. Let’s quickly recap this balance sheet so we can learn how to prepare tax financial statements appropriately.

This balance sheet is broken up into three sections; assets, liabilities, and equity. Under each section I have listed the relevant account and the balance. The total assets of this company are \$26,902; total liabilities are \$23,157; and total equity stands at \$3,745. We will use this excel based balance sheet now to prepare the GIFI Schedule 100.

These figures are obtained from the excel based balance sheet shown previously. Like the income statement, the balance sheet in the GIFI has shaded codes which are shown in black. These codes can be obtained from the Canada Revenue Agency’s website.

Let’s look at a particular line item. ‘Total current assets’ has a GIFI code of 1599 and an associated balance of \$25,855, which ties to our excel based balance sheet.

‘Total tangible capital assets’ represent:

• Equipment
• Furniture
• Cars, and
• Other long lasting assets

Components of Balance Sheet

• The ‘total tangible capital assets’ are valued at \$1,399, with an associated accumulated depreciation balance of \$352.
• The ‘total assets’ of \$26,902, GIFI code 2599, tie with the excel based balance sheet.
• ‘Total liabilities’ are \$23,157, and
• ‘Total shareholder equity’ is \$3,745.

Other Associated GIFI Schedules

When learning how to prepare tax financial statements one needs to know of other GIFI schedules as well. In going further with how to prepare the GIFI, let’s look at the associated GIFI schedules that tie up to these larger balances shown on Schedule 100, the Balance Sheet.

Current Assets

Current assets total to \$25,855 and it’s made up of two balances; cash, at \$15,855 with associated GIFI code 1001, and account receivable for \$10,000.

Tangible Capital Assets

Tangible Capital Assets: The tangible capital assets are broken into different categories.

• For our company we have \$700 related to machinery, equipment, furniture, and fixtures, and the related deprecation is \$70.
• Likewise, we have computer equipment and software for a total of \$699, with associated depreciation of \$282.
• The total cost of the tangible assets is \$1,399, and the total depreciation is \$352 for all capital assets.

Total Current Liabilities

Total current liabilities are \$23,157 and this is broken into two balances; GIFI code 2620 for accounts payable in the amount of \$3,256, and GIFI code 2680 for taxes payable in the amount of \$19,901. Taxes payable generally comprises of income taxes payable and GST or HST payable, depending on the province you are in.

Retained Earnings

Retained earnings totals to \$3,745. This is calculated as the net income for the year, \$73,541, with GIFI code 3680, less the cash dividends paid during the year, \$69,796, represented by GIFI code 3701. In our example retained earnings is also equal to shareholder equity.

Disclaimer

The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.

Related Resources

1. Daniel Stewart says:

Hey Allan.

I am a business owner looking to submit my own T2 form. Can you explain the difference between a few GIFI code numbers? What is the difference between 1126 and 8320? How are 1121, 1122, and 1126 different from 8500? To me, they are asking for the same thing but only in different levels of detail.

1. superAmin says:

Hello.

GIFI code 1126 refers to Raw Materials, which are ingredients that go into making a finished project. These undergo a physical transformation in order to become a good. Let’s use an example. In a shoe factory this would be the leather, cloth, and resin used to make the shoes. On the other hand, 8320 is a calculation that represents the total cost of goods sold during the year. It’s calculated by taking your opening inventory, adding it to the cost of raw materials, and subtracting your ending inventory. In this case, all inventories represent finished goods.

Let’s say the shoe factory starts the year with \$20,000 in finished goods (i.e. sneakers, boots, etc.). During the year, it purchases additional raw materials totalling \$10,000. At the end of the year (Dec. 31), the shoe factory had \$12,000 worth of inventory. Therefore, the shoe factory would put \$18,000 under GIFI code 8320.

GIFI code 1121 is an asset, and represents finished goods in your stock room. Code 1122 is used to track parts and supplies used in the manufacture of finished goods. Going back to our example, a part for a shoe would be the laces and clasps. GIFI code 8500 is closing inventory, which is the total amount of finished goods you have in your stockroom at the end of the year.

Regards,
Allan Madan and Team

1. Tarkan says:

Hello,
If it starts with an inventory of \$20,000, does it not have to be entered as GIFI 8300 as well? It looks like Opening Inventory 8300 is a mandatory field for the income statement. But if GIFI 8320 accounts for it, is it not redundant? Would you please complete your example case and elaborate what would be GIFI 8300, 8301, 8500, 8501,1120,1121 as applicable? The program I use also enters previous years values and giving en error when I enter a positive number for closing inventory…

And how is inventory write down GIFO 8458 used if we had some food items and went bad and thrown away?

Thanks,
Tarkan

2. AAz says:

My previous account didn’t enter the taxes paid in line 9990 on Sch 125 and therefore my retained earning shows higher than actual. Is there way to adjust that in this year’s return?

I would encourage you to take the correct approach and amend the prior year corporate tax return.

3. Janet Ma says:

Hello,

I am a sole shareholder of my corporation in Alberta. I have a contraction business, and a few buildings that generate rental income. I sold one of the buildings during the year at a loss. Is this a capital loss? Is there something I need to do for the T2?

1. superAmin says:

Hello Janet,

A loss incurred on the sale of real property (i.e. buildings) results in a terminal loss for tax purposes. The entire loss is deductible in computing taxable income. The terminal loss is deducted on schedule 1 of the T2 tax return. Non depreciable capital property sold for less than its purchase price results in a capital loss. Only half of a capital loss is deductible against capital gains.

Regards,
Allan Madan and Team

4. Ziya Faizel Ahmad says:

Hello.

I am responsible for preparing the GIFI for my company. As we have incorporated in the last couple years, we always used the long form. Can we use the T1178, General Index of Financial Information – Short? How detailed does my reporting need to be? Do I have to include my corporation’s financial document when I file my T2?

1. superAmin says:

Hello,

The GIFI short can only be used by corporations that do not use income tax preparation software, and that have both gross revenue and assets of less than one million dollars. As for detail, you should be as detailed as is necessary. There is no minimum or maximum number of GIFI codes and entries that the CRA expects to see.

Using the GIFI means that you already sent your financial information to the CRA. You will want to keep your copy for six years, as the CRA may want to see them again.

5. Sophia says:

Hello Allan,

I am in the process of doing my T2 corporate balance sheet however I have run into a problem. It is not allowing me to enter my accounts receivable on the sheet because it is a negative number. Why am I not allows to do this? Does everything on the GIFI have to be a positive number?

Thank you,
Sophia

1. superAmin says:

Hello Sophia,

It’s not possible for the balance of Accounts Receivable to be negative. A/R represents the amount due from customers for services / products sold.

A quick fix is to classify the negative A/R balance is an “other current liability” on the GIFI.

Thank You,

6. Charles says:

I am preparing my T2 and have a question regarding the income statement, Schedule 125. What GIFI code would I use for corporate tax expense paid? This fiscal year the company paid \$1000 in corporate tax owed as a result of filing for the previous year. How do I expense that payment in this years return? Thank you.
Keith

1. superAmin says:

Hi Charles,

Record the income tax payment on GIFI line 9990, Current Income Taxes.

7. Chris says:

Hi Allan,

I have a corporation that has had a net loss in the 2014 year, and claimed a refund from the 2011 return.

This year again I have a net loss, but the refund value is bigger than what I paid for 2012+2013. so I can’t recover all of it using T2 Schedule 4. I’m wondering how I handle this.. do I apply whatever I can to lines 901-903, and then the calculation of what loss is help to carry forward is automatically saved for the current year non-capital losses that can be carried back for 20 years?.. I’m using Cantax T2, and this seems to be the case.

Once that part is done however, there is the GIFI to take care of.
In the GIFI line 9990, do I put the amount that I expect to get refunded?

What happens if I am wrong about the amount that I expect to get back, how does that get adjusted? Due to rounding, I have a few cents difference from last year… I need to adjust by a dollar for now.

Is it line 3720 where I need to put the adjustment if the refund turns out to be less than expected?

Your help would be extremely appreciated. Thank you.

8. Pete says:

I own an incorporated engineering firm. All of my income is fees, for which I have to charge GST. Should I included the GST in the amount I enter in line 8000?

1. superAmin says:

Hi Pete,
Do not record GST/HST collected on line 8000 (sales) of Schedule 100. Instead, record the GST/HST collected on line 2680 (taxes payable) of Schedule 125.

9. Scott says:

Hi Allan. I incorporated last year and have yet to pay any taxes. Is it true that I multiply the corporate income times the corporate tax rate and use that number as an estimated liability for line 2680? Corporate tax is an expense that further decreases my taxable income?

1. superAmin says:

Hi Scott,
Please note that corporate tax is an expense for accounting purposes and is reported on line 9990. Rather than estimating the amount, take the actual corporate tax expense as per Schedule 200 of the T2 return. Remember to also report the corporate tax liability as of the year end on GIFI Schedule 100.

Corporate tax expense for financial statement purposes is added back on Schedule 1 in order to determine Net Income for Tax Purposes. Corporate tax expense does not decrease taxable income.

10. Andy says:

Hi Allan,

If Cash, Accounts Payable and Taxes Payable in the balance sheet are negative numbers. How do you report? Do you file as negative, reverse to positive number or apply to different account?

Thanks

1. superAmin says:

Hi Andy,

Do not enter a negative amount for assets / liabilities. For example, a negative taxes payable balance should be recorded as a positive taxes receivable.

11. Ronald says:

Can you tell me where do I record a gain from selling a depreciable assets on the T2 Corporate return
Thanks

1. Hi Ronald, record the lower of the proceeds from the sale and the capital cost of the asset on Schedule 8 of the T2 return. Proceeds from the sale in excess of the capital cost should be recorded on Schedule 6 of the T2 return.

12. Vahid says:

What is GIFI for owners withdrawal?

1. Hi Vahid, owner withdrawals should either be treated as a reduction to the shareholder payable account (GIFI code 2780, Schedule 100) or as a dividend (GIFI code 3700, Schedule 100).

13. Vahid says:

Hi There,

If an owner of an accounting firm files T2 for his business and want to pay Efiling fee to his business (Pay from his pocket), is it Ok? In other words, can someone invoice a T2 services of his company?

1. Hi Vahid,

Yes, if he is paid a fee from the corporation and an invoice is issued.

14. Mark says:

Question: In cell 8000 (Trade Sales) I enter the amount net of HST. In 9110 (Subcontracts) do I also enter the amount net of HST?

1. If your company is a HST registrant, then enter the amount net of HST in box 9110.

15. René Mayer says:

Hi,
I used accrual accounting. Why is CRA Corporate tax Schedule 1 asking me to add and substract payable and receivable accounts on lines 201, 202 and 300, 301? This seems to convert my results to some kind of cash basis? I did not last year but if I do it this year then I end up paying twice on some…

1. Hi René,
If your company’s financial statements are prepared on the accrual basis of accounting, then ignore lines 201, 202, 300 and 301 of Schedule 1.

16. Raul says:

My actual tqxes paid on last year’s return were higher than the amount stated on the return. Resulting the actual retained earnings being less than stated on last year’s return. The accountant I used last year is telling me that it can be adjusted on this year’s return. is that possible? I am dealing with an accountant that is no longer responding to my messages in a timely matter, and I intend to file my T2 return going forward. Could I ask CRA to make the changes on the retained earnings since they know how much taxes were paid last year? Please help

1. Hi Raul,

Do not re-file and do not amend last year’s tax return and financial statements. The easiest solution is to record an accounting entry in the current year for the under-statement of the tax expense. The current year entries to true-up the tax payable account and make this correction are as follows:

1) Record difference in actual and estimated tax payable
Debit Current Income Tax Expense
Credit Current Income Tax Payable

2) Record payment of tax to CRA
Debit Current Income Tax Payable
Credit Bank (cash)

17. Matt says:

Hi Madan, You talked about how to take care of understatement of taxes. How do you handle ovestatement of taxes, meaning recording refunds from CRA due tax overpaid for previous tax year?

1. Hi Matt,

You can either amend the financial statements of the previous year to which the overstatement relates to or record a current year entry. The current year entry to correct an overstatement of taxes is as follows: Debit Cash and Credit Current Income Tax Expense.

Business & Corporate Tax

U.S. & Cross Border Tax

Personal tax