Build the tax provision and post the year-end entry
The Income taxes worksheet is a balancing machine: it starts from the opening balance, adds notice-of-assessment adjustments, subtracts payments, adds the year's provision (federal and provincial), subtracts instalments, and shows you the gap against the TB. It then generates the adjusting entry ready to post.
The core convention: owed = positive
The whole worksheet turns on one simple convention: a balance payable is a positive number, a refund receivable is a negative number. That's the opposite of the usual accounting sign on the balance sheet (where “payable” is a credit, so negative in the TB columns). Ledger does the flip for you: in the worksheet, everything owed to the governments is positive, and anything receivable is in parentheses.
Most lines have two entries: a federal amount and a provincial amount. The total is calculated for each section. The worksheet keeps the two worlds separate until the entry, where they both debit the same expense account, “Current income taxes”.
Enable the worksheet and start the configuration
Enable the worksheet from Worksheets (it is suggested automatically when the TB has a balance or tax activity). The first time you open it, go to the Configuration tab and map the seven TB accounts that match the worksheet's columns: federal and provincial taxes payable, current income taxes (income statement), RDTOH, dividend refund, capital tax, and interest and penalties on taxes. The REQ fees account is chosen in the Entry tab.
Before you start, the tax instalments paid during the year must already be in the federal and provincial taxes payable accounts. If the client keeps them in a separate account (“Tax instalments”), do the reclassification first.
When you open the following year's file, Ledger automatically carries over the seven accounts from the prior year. A message invites you to check them before saving, in case your chart of accounts has changed.
Worksheet tab: understanding the A → M skeleton
The worksheet reads from top to bottom, section by section:
Each section automatically calculates the ones that follow. Section H, Balance for the year, equals Provision − Instalments: it is the year's balance on the return (T2, and CO-17 line 441 in Quebec). The worksheet then shows the expected trial-balance amount, that is, the prior balance (E) plus the year's balance (H), and section K, Trial balance status, compares it to the balance sheet balance (J): “Balanced” or “Difference”, with the signed amount.
Section M names the client's returns: “T2 / CO-17” in Quebec, “T2 / AT1” for an Alberta corporation, “T2” elsewhere, where provincial tax is calculated in the T2.
Until the entry is posted, the TB doesn't have the year's provision: K shows differences. Submit the entry (step 6): K should then read “Balanced” in every column. If a difference remains, look on the TB side (a tax account missing from the configuration?) and on the worksheet input side (a missing adjustment or payment?). A column with no linked account shows a dash: there's nothing to compare.
The provision (section F) in detail
Section F has nine fixed lines. The amounts come from the return prepared in your tax software: the T2 (line 700 for Part I, 712 for Part IV, 784 for the dividend refund) and, in Quebec, the CO-17 (line 437 for total taxes, 441b for registration fees). For an Alberta corporation, the provincial amounts come from the AT1; in the other provinces, from the provincial tax calculated in the T2 (Schedule 5). The REQ fees line only appears for a Quebec client.
- Part 1 tax: Federal + Provincial; the sum forms the current income taxes.
- Deduct: Refundable portion: enter a negative amount in Current income taxes; RDTOH = positive mirror.
- Capital tax: Provincial only. Capital tax column = mirror (same sign).
- Part IV tax: Federal only. RDTOH = mirror (same sign).
- Dividend refund: Federal only (negative). Dividend refund column = positive mirror.
- REQ fees: Provincial only.
- Non-deductible interest: “Interest & pen.” column only.
- Other 1 and Other 2: open lines for special cases.
Under each line, a reminder gives the sign and the mirrors to respect. The instalments paid during the year then go in section G.
Notice-of-assessment adjustments (B) and payments (D)
Section B takes the adjustments from the CRA and the provincial administration (Revenu Québec, or Alberta Tax and Revenue Administration for the AT1): reassessments, interest, penalties, refunds. Click Add an adjustment, then enter a free-form description (“2024 reassessment: deduction denied”, “Part 1 interest”, etc.), the federal amount and the provincial amount.
A notice's interest is noted in the Interest & pen. column. It's a note for follow-up: the entry doesn't propose it. The client records it themselves.
Section D lists the payments made during the year on prior assessments. Each line has a cheque/payment reference, a date, and the federal and provincial amounts. The total reduces the assessed balance to arrive at subtotal E.
A payment is always entered as a positive number: the worksheet does the subtraction itself (E = C − D). If you type a negative amount in D, the cell refuses it. A refund received from the government is not a negative payment: it goes in section B, as a negative, like any credit the notice of assessment applies to your account.
Subsequent remittances (L) and balance on tax returns (M)
Section L captures the remittances made after year end on the current provision (for example, the March instalment for a fiscal year ending in December). These amounts reduce the balance to be reported on the returns (section M).
Section M calculates itself: Provision − Instalments − Subsequent remittances. It's the amount that goes on the tax return. Ledger also uses it to pre-fill the “Send the FS to the client” email (federal and provincial income tax payable amounts).
Entry tab: generated adjusting entry
The entry follows the standard accounting logic, locked by convention:
- Income statement accounts (Current income taxes, Capital tax, REQ fees in Quebec, Other): debit, to record the tax expense.
- Balance sheet accounts (Federal and provincial income tax payable): credit, to recognize the liabilities to the governments.
- RDTOH (Equity): always debit.
- Dividend refund (Equity): always credit.
- Future income taxes: the change calculated in the Future income taxes tab, on the balance sheet (LT and ST), and its offset in the income statement.
The debit and credit sides of the RDTOH and the dividend refund are locked by accounting convention; the amounts refresh automatically whenever the provision changes.
Click Submit to adjusting entries. The default description is “Income tax adjusting entry, year-end”. As with the other worksheets, submitting again offers to Replace or Keep both.
Future income taxes tab
For files of the Financial statements with future income taxes type, the dedicated tab calculates the future income tax balance on the balance sheet and the year's entry.
- One item per difference (capital assets, provisions, deferred charges, etc.), classified LT or ST. Enter the carrying amount, the federal and provincial tax values and, if needed, a permanent difference. Amounts follow the debit = positive convention: a liability item, such as a provision, is entered as a negative amount.
- The rate of each level (federal and provincial, in %). A new line takes the rates of the previous one.
- Ledger calculates the temporary difference (tax value − carrying amount + permanent difference) and the line's future income tax: federal difference × federal rate, plus provincial difference × provincial rate, each rounded to the dollar. A positive amount is a future income tax asset, a negative amount a liability.
- The Future income tax balance sheet amounts table shows, for long and short term: the opening (prior-year trial balance of the chosen account), the closing (sum of the items), the change and the spreadsheet balance. The status turns to Balanced once the entry is posted.
- The proof checks the continuity of temporary differences, federal and provincial: the adjusted opening balance of differences, plus accounting amortization minus CCA, plus the loss (gain) on disposal, plus the other lines, must give the closing temporary differences of the items. At the opening, the difference is the tax value minus the carrying amount; leave the cells blank to use the closing of the prior file (tax value adjusted for permanent differences). On the other lines, enter the year's amounts: the difference is the accounting amount minus the tax amount. When the accounting cell is blank, the amortization and the loss (gain) come from the Capital assets worksheet; an amount entered replaces them. Enter the federal and provincial CCA and, if needed, a terminal loss or a (recapture). The status turns to Balanced when the proof agrees with the closing differences to the cent.
- Choose the three entry accounts (Income statement, Balance sheet LT, Balance sheet ST). The year's change, closing minus opening, is added automatically to the entry in the Entry tab, with the offset to future income tax expense. A rate change is therefore automatically included in the expense.
From one year to the next. When the next year's worksheet is created, Ledger carries over the entry accounts and the items with their category, description and rates. Carrying amounts, tax values and permanent differences are entered again: a forgotten value never stays frozen silently. The proof starts fresh, with the opening pre-filled from the closing of the prior file.
Print and send the FS
The Print button produces a PDF with sections A → M expanded, the detailed provision, the generated entry and, when there are items, the Future income taxes tab (items, balance sheet amounts, proof, entry). The firm's branding (logo, font, accent colour) is applied.
The Email the client button (also on the financial statements page, where it reads Send to client) pulls the final federal and provincial amounts to pre-fill the transmittal letter. The Revenu Québec payment code, specific to each return, is entered each time you send. Outside Quebec, the letter follows the client's province: for an Alberta corporation, federal tax (CRA) and Alberta tax (Tax and Revenue Administration), with the payee and the corporation's account number (CAN) to use, and no payment code; in Ontario and the other provinces, a single amount paid to the CRA, since provincial tax is calculated in the T2.
Frequently asked questions
The prior-year balance in section A is wrong. How do I correct it?
Two ways. If the true balance differs from what is in the prior-year trial balance, correct the TB first. If you just want to override it for this file, enter an amount in the Balance payable (receivable) prior years (override) field: the worksheet will use that value instead of the TB balance.
Where does the “Non-deductible interest” line go?
Nowhere on the federal or provincial tax side. It documents the interest and penalties paid to the CRA or Revenu Québec in the accounting calculation, but they go instead to a non-deductible expense account that Schedule 1 will adjust as a permanent difference.
Can I enter Federal only, or Provincial only?
Yes. The lines accept a blank in either column. This is useful for credits or taxes specific to one level (federal Part IV, provincial capital tax, provincial REQ fees).
The worksheet doesn't balance, but I can't see where the difference comes from
Check: (a) do the seven accounts in the configuration really cover all the tax accounts in the TB? (b) does a notice-of-assessment adjustment duplicate a payment for the year? (c) are the subsequent remittances entered as positive amounts (Ledger counts them as a reduction)?