Corporate tax is the income tax filed to the federal and provincial sectors by the business corporations based in Canada. According to the Canada tax agency, all resident corporations except crown corporations and registered charities are subject to file a corporation income tax return or T2 every tax year. The T2 is applicable even if there is no tax payable. The corporations include non-profit organizations, tax-exempt corporations, and inactive corporations. As a corporation, you must file your Canadian corporation within six months after the end of every tax year. The tax year of a corporation’s business is its “fiscal period.” This post briefly touches on various aspects of corporate tax filing in Canada.
Who has to file a T2 tax return?
Both Resident Corporation and non-resident corporations have to file a corporation tax return every tax year.
Type of corporations
The corporations in Canada can be classified into two- Canadian-controlled private corporations (CCPCs) and other corporations. The Canadian-controlled private corporations (CCPCs) enjoy various tax benefits compared to other private corporations. The net tax rate for a Canadian-controlled Private Corporation that claims small business deduction is 9%. The 9% rate was effective from January 1, 2019. The Part I tax rate for other corporations is 38 percent, and after federal tax abatement and general tax reduction, it is 15%. The provincial and territorial rates are of two types- a lower rate and the higher rate.
Deadline for corporate tax return
You have to file your tax return within six months after the end of your fiscal period. If your corporation’s tax year comes to an end on the last day of a month, you have to file the return by the last day of the sixth month after the fiscal period. If your budgetary period doesn’t end on the last day of a month, file your return by the same day of your sixth month. For instance, if your tax year ends by March 31, your deadline to file the tax return is September 30. Or if your fiscal period ends on October 2, the last date to file your returns is April 2. Remember that you have to complete corporate tax filing in Canada every year within the stipulated time. You have to file your taxes even if you have not made any money. If you file the tax late, you are subject to late payment penalties.
Requirements for filing tax
You can file your corporate tax online and cut out a lot of hassle. You can use software certified by a Canadian revenue agency to file your taxes. It is mandatory for corporations with annual gross revenue of more than $1 million to file their taxes over the internet. There are some exceptions for insurance and non-resident corporations, corporations reporting in functional currency, and corporations that are absolved from tax payable under section 149 of the Income Tax Act. If you don’t follow online filing instructions, you are subject to a penalty for non-compliant returns.
All the corporations can use the internet filing facility and enjoy faster processing of taxes and refunds. You can attach the supporting documents using the T2 attach-a-doc feature while filing the T2 return. If you send the physical copies of supporting documents, clearly mention your corporation name, type of business, and tax year end.
The T2 return uses a General Index of Financial Information (GIFI) code when you file the tax. The GIFI code system assigns specific codes to items found commonly in an income statement, balance sheet, and retained earnings statement. If you have employed accounting software, all your financial information is aligned automatically to the appropriate GIFI codes.
You can also file your corporation tax return online using Transmit a return service without a web access code. You can do so through my business account (if you are the business owner) or represent a client (if you are an employee or authorized representative).
Some helpful tips for filing
- Proper planning and excessive care is a must to prevent any errors or penalties.
- Keep everything in an ordered manner for simple and easy corporate tax filing in Canada-maintain an up-to-date file with your revenues, invoices, receipts, bank statements, deposit slips, agreements, and letters from the CRA.
- File your taxes on time to maintain a profitable business record
Corporate tax filing is a complex process that needs diligence and strategic planning. Get a professional tax accountant service and manage all your financial statements up-to-date and file your tax returns on time.