Filing a T1 for Owners of Incorporated Businesses
When you are the owner of a business, you must file a T2 corporate tax return for your incorporated business, as well as a T1 personal tax return. Your incorporated business-related income and expenses are claimed on T2; do not claim them on your T1 personal tax return.
Do You Have to File a T2 Corporate Tax Return?
The tax return you are required to file depends on whether your business is incorporated. If it is, you are required to file a T2 corporate tax return for the business, in additional to a T1 personal tax return. You must file both because a corporation is considered a separate legal entity with the ability to own property and enter into binding contracts in its own name.
Any business losses you incur (known as non-capital losses) cannot be deducted against your taxable income on your T1. However, non-capital losses from your corporation may be carried back three years or carried forward 20 years (for tax years after 2005) to offset business income earned in those years.
Deadline for Filing a Corporate Tax Return
As the owner of an incorporated business, you are required to file a T2 corporate tax return with the Canada Revenue Agency each year within six months of the end of your business's fiscal year. Although its fiscal year may be the same as the calendar year, it does not have to be. If your business's fiscal year runs from April 1 to March 31, you must file your T2 by Sept. 30. If your filing deadline is on the weekend or a holiday, you may file it on the very next business day.
Filing a T1 or a T2 Tax Return
When you are the owner of incorporated business, claim business-related income and expenses on your T2 tax return only. Do not claim business income and expenses on your T1 return. Only owners of sole proprietorships and partnerships can claim business income and expenses on their T1 (by completing Form T2125, Statement of Business or Professional Activities).
If you bought an asset for your incorporated business, such as a computer (not for personal use), you can include it as a capital asset on your T2 tax return. An asset is considered capital property that provides a long-lasting benefit (lasting over a year). Similar to an unincorporated business, tangible assets must be depreciated by claiming capital cost allowance at the rate allowed by the CRA, as opposed to claiming their full value in the year of purchase.
How to File a Corporate Tax Return
The majority of owners of incorporated business choose to file their tax return online electronically. You must use tax software certified by the CRA. Make sure it includes tax forms for filing a T2 corporate tax return.
If your corporation has annual gross revenue over $1 million, you are required to file your tax return electronically. The only incorporated businesses exempt are insurance companies, non-resident businesses, businesses that report functional currency and businesses not required to pay tax under the Income Tax Act, Section 149.