Filing your taxes, such as your corporate tax return, is always a lot of work. It may seem overwhelming because of a lot of things to consider when doing one.
However, this can be made easier if you have the right resources, proper information, and the help of professionals, such as accountants and corporate tax lawyers.
What is corporate income tax in Canada?
Corporate income taxes are imposed on businesses and companies for their income in a period.
The tax payable is generally determined from the net income of the entity, after deducting certain costs and expenses allowed by law.
In Canada, corporate income tax is administered by the Canada Revenue Agency (CRA), as with any other income taxes, under the Income Tax Act (ITA).
When taxes become due, returns must be filed, as in the case of corporate tax returns.
What are corporate tax returns in Canada?
Corporate tax returns in Canada are filed using the T2 return. There are certain requirements that will tell you if your business or company needs to file a T2 return.
In filing your T2 returns, you must also consider the provincial or territorial corporation taxes that may apply.
Who needs to file a corporate tax return?
There are two types of corporations required to file their corporate tax returns:
- resident corporations
- non-resident corporations
Each type has its own rules when it comes to filing corporate tax returns. Some exceptions may also apply.
Resident corporations
Under Canada’s taxation laws, all resident corporations must file their corporate tax returns every taxable year.
It includes entities even if they’re a non-profit, tax-exempt, or an inactive one. It also includes personal services businesses, although there are other tax implications.
A corporation is a resident of Canada if either:
- it is incorporated in Canada
- its central management and control are exercised in Canada
If your business is a resident corporation, you must file your T2 return every tax year.
All resident corporations (and non-resident corporations if necessary) must file their corporate tax returns even if there is no net tax payable according to the computation.
The only entities exempt from filing their corporate tax returns are:
- tax-exempt Crown corporations
- Hutterite colonies
- registered charities
Non-resident corporations
Rules are different for non-resident corporations. These corporations are not resident of Canada but will still need to file their corporate tax returns if:
- they carried on business in Canada
- they had a taxable capital gain
- they disposed of a taxable Canadian property (TCP) within the tax year
These non-resident corporations must still file their T2 returns even if any of their profits are claimed to be exempt from Canadian tax due to a tax treaty.
There are also other instances that a non-resident corporation will have to file their corporate tax returns, such as when it:
- has filed a Form NR6
- has filed Form T1288
- wants to claim a tax refund
- wants to elect to pay Part I tax under subsection 216(1) or subsection 216.1(1) of the ITA
How to file the T2 corporate tax return
There are two types of T2 forms that you can use when manually filing (printing the form and mailing it to CRA) your corporate tax return:
- T2 Corporation Income Tax Return: a nine-page return which can be used by any corporation, without any distinction
- T2 Short Return: a two-page return or the shorter T2 version which can be used by Canadian-controlled private corporations (CCPCs) and by tax-exempt corporations
Aside from manual filing, there are electronic means that you can use when filing your corporate tax return:
- using a CRA-certified software
- using the returns found on canada.ca
Corporations that have an annual gross revenue of more than $1 million are required to electronically file their T2 returns, except for:
- insurance companies
- non-resident corporations
- corporations reporting in functional currency
- corporations that are tax-exempt under section 149 of the ITA
If your corporation is in Québec or Alberta, you would also need to file additional forms as provided by the province’s tax law.
Electronic filing of your corporate income tax return starts with CRA’s MyAccount. Watch this video to know more:
If you’re a business owner from Alberta, you can also consult with the best corporate tax lawyers in Alberta as ranked by Lexpert to know more about filing your returns.
What is the deadline for filing corporate tax returns in Canada?
Your corporate tax return must be filed within six (6) months of the end of each tax year. The “tax year” of a corporation refers to its “fiscal year”.
There are certain rules to follow when calculating the last day to file your tax return according to its fiscal year:
- if the tax year ends on the last day of a month (e.g. 30th or 31st): the return must also be filed by the last day of the sixth month after the tax year’s end (e.g. March 31 is the end of tax year; return must be filed by September 30)
- if the tax year ends not on the last day of a month (e.g. 5th or 15th): the return must also be filed by the same day of the sixth month after the tax year’s end (e.g. October 2 is the end of tax year; return must be filed by April 2 next year)
- if the filing due date falls on a Saturday, Sunday, or public holiday: the return must be filed on or before the next business day so that it can considered on time by the CRA
What are the common pitfalls in corporate tax returns?
Here are common pitfalls that you must avoid when filing your corporate tax return in Canada:
- Not verifying if you’re required to file a corporate tax return: you must first consult with a corporate tax lawyer to check if you’re required to file one
- Not filing the returns on time: you may incur penalties that can be imposed by the CRA if you do not file your corporate tax returns on time
- Not considering your provincial or territorial income taxes: your federal income tax must be calculated on top of your provincial and territorial income tax
Hear more about corporate tax returns from any of the Lexpert-Ranked best corporate tax lawyers in Canada.