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Every corporation that is a resident of Canada (with some exceptions, such as Crown corporations) must file a corporate tax return (T2 return) every year, even if they have no tax payable. This requirement includes
- Non-profit organizations
- Tax-exempt corporations
- Inactive corporations
To meet the above tax filing requirement, each corporation must file a corporate tax return, also known as a T2 return, within six months of the fiscal year-end. Preparing returns requires careful attention to the CRA’s specific T2 form. However, corporate tax returns extend well beyond the T2 form, and the return package includes various schedules filled with supporting calculations, deductions, credits, and other relevant information.
Here is a quick guide to the key forms and schedules that must be submitted as part of the corporate return package in Canada.
1) The T2 Corporation Income Tax Return: T2 form is the primary tax return form for Canadian corporations and serving as both federal and provincial income tax return. However, corporations operating in Quebec and Alberta must file additional provincial tax return forms. The T2 form captures essential information, including basic corporate details, taxable income, tax calculations, and final tax liability (payable or refundable).
Additionally, the T2 acts as an umbrella form, consolidating various schedules into one comprehensive return, as calculations from these schedules flow directly into the T2.
2) T2 Schedule 1: Net Income for Tax Purposes. Schedule 1 converts accounting income into income for tax purposes. Simply put, financial statements are prepared using accounting standards rather than tax laws and may include certain deductions or sources of income that should not be included for tax purposes. In this schedule, we adjust for these income and expense items from the financial statements. Common examples include meal expenses, depreciation and amortization, charitable donations, and others.
3) T2 Schedule 2: Charitable Donations and Gifts. If a corporation has made any charitable donations, these must be reported on Schedule 2 to claim tax deductions. This will reduce the corporation’s taxable income.
4) T2 Schedule 4: Corporation Loss Continuity and Application. Through Schedule 4 of the T2 return, a corporation reports and tracks non-capital, farm, and restricted farm losses. This schedule allows corporations to carry forward or carry back losses to offset taxable income in other years, thereby reducing their tax burden.
5) T2 Schedule 8: Capital Cost Allowance (CCA). According to accounting standards, the cost of long-term assets is deducted over their useful life using a method called depreciation. However, the Income Tax Act of Canada does not recognize depreciation calculated using accounting methods. Instead, it defines its own mechanism, known as the Capital Cost Allowance (CCA) method, for allocating the cost of capital assets over their useful life. Under this method, assets are categorized into different classes, called CCA classes, each with a specific rate at which CCA is charged.
6) T2 Schedule 100: Balance Sheet Information. This schedule presents your balance sheet converted into GIFI codes, reporting business assets, liabilities, owner equity, and retained earnings. Schedule 100 essentially reflects a corporation’s financial position.
7) T2 Schedule 125: Income Statement Information. In this schedule, a corporation reports its profit and loss statements, also known as income statements, using GIFI codes. Income statements reflect the results of a corporation’s operations.
8) T2 Schedule 101: Opening Balance Sheet Information. New corporations must file this schedule to declare their opening balance sheet.
9) T2 Schedule 50: Shareholder Information. A private corporation must report a list of shareholders who own 10% or more of the shares. This schedule is used to report each shareholder’s name, Social Insurance Number (SIN), and ownership percentage
10) T2 Schedule 23: Agreement Among Associated Canadian-Controlled Private Corporations to Allocate the Business Limit. This schedule is used by associated Canadian-Controlled Private Corporations (CCPCs) to allocate the business limit for the purposes of the small business deduction. In simple terms, a corporation or associated corporations pay a lower tax rate on their collective income up to $500,000, known as the small business deduction limit or business limit.
11) T2 Schedule Tax Calculation Supplementary – Corporations 3: Dividends Received, Taxable Dividends Paid, and Part IV Tax Calculation. This schedule allows a corporation to report various non-taxable dividends, deductible dividends, and taxable dividends received or paid by the corporation. Generally speaking, dividends received from a connected corporation are tax-free, while dividends from non-connected Canadian corporations, also known as portfolio dividends, are subject to Part VI tax. In this schedule, the corporation designates dividends paid to shareholders as either eligible or non-eligible (other than eligible) dividends.
12) T2 Schedule Tax Calculation Supplementary – Corporations 6: Summary of Dispositions of Capital Property. If the corporation sold or disposed of any capital assets, these transactions will be reported in this schedule. Examples of capital assets include plants and machinery, offices, buildings, securities or stocks, real estate, and intangible assets.
13) T2 Schedule 7: Tax Calculation Supplementary – Corporations Aggregate Investment Income and Income Eligible for the Small Business Deduction. This schedule is used by the Canadian Controlled Private Corporation (CCPC) to report and aggregate investment income, which is subject to investment income tax rate vs. business income, which qualifies for the small business deduction and is subject to a low business income tax rate.
14) T2 Schedule 5: Tax Calculation Supplementary – Corporations. If a corporation has a permanent establishment in more than one province, claims provincial tax credits, or pays taxes for Newfoundland, Labrador, or Ontario, this schedule must be filed.
15) T2 Schedule 24: First-Time Filer After Incorporation, Amalgamation, or Winding-Up of a Subsidiary into a Parent. This schedule must be filed by corporations in their first year of filing after incorporation or amalgamation, or by parent corporations filing for the first time after winding up subsidiary corporation(s) under section 88 of the Income Tax Act during the current taxation year.
16) T2 Schedule 88: Internet Business Activities. If a corporation earns income from one or more web pages or websites, it is required to file Schedule 88.
17) T2 Schedule 510: Ontario Corporate Minimum Tax. Corporations subject to Ontario Corporate Minimum Tax (CMT) must use this schedule. A corporation is subject to CMT if its total assets are $50,000,000 or more and its total revenue is $100,000,000 or more.
18) T2 Schedule 141: General Index of Financial Information (GIFI) – Additional Information. This set of questions aims to identify the person responsible for preparing the financial statements, assess their level of involvement, and note any reservations they may have expressed. It also clarifies the type of information provided in the notes to the financial statements.
19) Schedule 53: General Rate Income Pool (GRIP) Calculation: This schedule tracks the General Rate Income Pool (GRIP) balance, which represents income taxed at the higher rate for a Canadian-controlled private corporation (CCPC), as opposed to income taxed at the lower rate. If there is a GRIP balance, you can pay eligible dividends and report it in Schedule 53. Eligible dividends qualify for an enhanced dividend tax credit on the shareholder’s personal tax return.
The above is by no means an exhaustive list of T2 return schedules. There are various other schedules a corporation may need to attach depending on the specific situation.
Frequently Asked Questions (FAQs) on the corporate tax filing
Q. Do all corporations need to file corporate tax returns?
All resident corporations need to file their tax returns, including inactive corporations, even if they don’t have tax payable.
Q. My corporation does not have any revenue or expenses. Should I still file a corporate tax return?
Yes, even if you have no revenue or expenses, the corporation must file a tax return. You can use short-form tax returns in such scenarios.
Q. What is the deadline for filing corporate tax returns?
The T2 filing deadline is 6 months after the corporation’s fiscal year ends.
Q. What are the penalties for late filing of a T2 return?
a) For a first-time failure to file, the penalty is 5% of the unpaid tax owing on the filing date, plus an additional 1% for each entire month the return is late, up to a maximum of 12 months.
b) For a second-time failure to file, the penalty is 10% of the unpaid tax at the time the return was due, plus 2% for each completed month the return is late, up to a maximum of 20 months.
Q. What is the corporate tax payment due date?
A corporation’s balance due date is usually two months after its tax year-end. However, some corporations (Canadian-Controlled Private Corporations, or CCPCs) have three months to pay, subject to certain conditions.
Q. Does a corporation need to file a nil T2 return when it had no activities during the year?
Yes, a nil return must be filed even if the corporation has had no activities during the year. A corporation can use the T2 Short Return form for this purpose.
Q. How to File the T2 Corporate Tax Return
Manual Filing: A corporation can file its tax returns by printing, completing, and sending the form to the CRA. For this purpose, the corporation can use either of the following formats:
a) T2 Corporation Income Tax Return: A comprehensive nine-page form that can be used by any corporation, regardless of type.
b) T2 Short Return: A condensed two-page version available for Canadian-Controlled Private Corporations (CCPCs) and tax-exempt corporations.
Online Tax Filing: A corporation can submit its returns electronically by:
a) Using CRA-certified software or by engaging a professional tax filing service.
b) Accessing returns on the Canada.ca website.
Corporations with annual gross revenue exceeding $1 million must file their T2 returns electronically, with certain exceptions.
Q. What information is required to file a corporate tax return?
The records needed for filing a corporation’s tax return depend on factors like business type and financial performance but typically include:
- Incorporation papers, CRA business number
- Financial statements
- Previous year’s tax returns and/or Notice of Assessment
- Backup such as Invoices and receipts
- Payroll information and deductions
- Detail of GST/HST paid or collected
Staying organized is key. Regularly updating your books, securing paperwork, and keeping business and personal accounts separate simplifies the tax filing process and avoids last-minute stress.
Conclusion
Navigating the T2 can be complex and understanding these forms ensures accurate and compliant filings. This allows businesses to concentrate on growth instead of potential tax issues.
Keeping accurate records makes tax preparation easier. It’s important to ensure financial statements are accurate and aligned with tax forms. Working with a tax professional can also be valuable for maximizing tax benefits and preventing penalties.
If you need assistance with tax filing or incorporating your business, get help from our expert by calling 647-930-8130.
Source Accounting Professional Corporation (CPA) is a trusted accounting firm in Mississauga, serving businesses across Toronto and the GTA. We offer corporate tax filing, bookkeeping, payroll solutions, and more. If you’re a business owner or professional—pharmacist, physician, realtor, or consultant—we can help with corporate tax planning and filing. Call us at 647-930-8130 to book a consultation!
Disclaimer: The above contents are provided for general guidance only, based on information believed to be accurate and complete, but we cannot guarantee its accuracy or completeness. It does not provide legal advice, nor can it or should it be relied upon. Please contact/consult a qualified tax professional specific to your case.
