In the same way individual tax filers have to file their personal income tax returns, all Canadian corporations must do the same.
If you’re burning the midnight oil trying to figure out how to file your T2, this is your sign that help is here! For a basic overview and breakdown on how corporation tax returns work in Canada, keep on reading.
- All resident corporations in Canada must fill out a T2 corporation income tax return when filing their taxes every year.
- A T1 is for your general personal tax return while a T2 is for your corporate tax return.
- Corporations have a choice in setting their tax year— as long as you file your T2 within six months after the end of your business fiscal year.
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What is a T2 corporation income tax return?
A T2 is a form that Canadian corporations fill out when filing their taxes every year. If your company has a filing obligation in Québec, and or Alberta, you’ll also need to file the following tax returns:
In this case, you would file all 3 for your corporation.
Who has to file a T2 corporation income tax return?
All resident corporations in Canada, like non-profits, tax-exempt corporations, a.k.a non-profits that aren’t registered charities such as sports associations, need to file a corporate tax return.
A few exceptions include:
- crown corporations (ie. Bank of Canada)
- registered charities (ie. The Canadian Cancer Society)
Sometimes, corporations that are nonresident corporations must still file their taxes in Canada. For example, if a nonresident corporation sells a property it owns in Canada, it may be required to file Canadian tax returns. But the rules about taxation of nonresident corporations can be complex, so be sure to seek advice from a tax expert if you’re unsure.
What’s the difference between a T1 & T2?
A T1 is for your general personal tax return, while a T2 is for your corporate tax return.
Your incorporated business-related income and expenses are claimed on the T2 return and not on your T1 personal tax return.
If you experience any business losses– known as non-capital losses, they can’t be reported on your T1. Good news is, they can be carried back 3 years or carried forward 20 years for tax years after 2005 to offset your corporate business income on the T2.
For example, if you own a corporation and every year you have more expenses than income, your corporation would likely have non-capital losses for those years. However, if your corporation becomes profitable the following year, you can apply those prior year “non-capital losses” to reduce that year’s profit and reduce your tax bill.
When is the T2 corporate tax return deadline?
Unlike your personal income tax return, corporations have a choice about setting their tax year.
Once you set your fiscal year end–which is dependent on your business incorporation date, you must file your T2 corporate tax return within six months after the end of your business’ fiscal year, and pay any taxes owing within three months.
For example, if your business’ fiscal year runs from April 1, 2022 to March 31, 2023– then you must file your T2 by September 30, 2023. If your filing deadline is on the weekend or a holiday, it can carry over to the next business day. If your corporation owes any taxes, it needs to be paid off before June 30, 2023.
What if I don’t pay my taxes on time?
If you don’t pay the balance owing on time, your corporation could be liable for additional interest on the outstanding amount. As long as you file by the deadline, which is six months after your year end, you won’t get any late filing penalties.
Can I file my federal corporation tax online?
If your company made over $1M in gross revenue, you must file federal taxes online. If not, this is optional.
To file your T2 corporation income tax return online, TurboTax Full Service Business pairs you with a business tax expert who’ll do your taxes for you.
All you need to do is share your tax documents by snapping photos with your phone, meet your tax expert on a video call, and they’ll take it from there.
Where do I send my T2 corporation income tax return?
If you file by paper, you can’t send your corporation income tax return where you’d send your personal income tax. Instead, use the CRA’s list of where to send T2 forms to complete your corporate income taxes.
What are 4 helpful tips for filing my T2?
The last thing you want is to dig frantically through piles of papers during the rigors of tax season. As with any process, careful preparation and planning can help make it easier.
Here are 4 things you can keep in mind when filing your T2 corporate tax return:
- Get Organized: File your expenses, bank, and credit card statement records by month. Try to use bank accounts and credit cards that belong to the corporation to avoid mixing up your personal and corporate expenses.
- Keep track of all your transactions: When in doubt—keep it. Maintain an up-to-date file so that at any point in time, you know your revenues, expenses, and net income numbers. This includes records such as articles of incorporation, invoices, receipts, bank statements, deposit slips, agreements, and letters from the CRA. Using bookkeeping softwares like QuickBooks can keep your books accurate and up to date, automatically.
- File on time to maintain a good record: This will give you fewer reasons to worry about your records being in order. Even if you think you don’t owe money, it’s better to be safe than sorry to file on time and avoid penalties.
- Financial Statements: Put the needle on the record early by having your company’s income statement and balance sheets ready. Not all corporations need audited financial statements, so discuss with your accountant what’s best for you.
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Frequently Asked Questions
You can download and print all the documents you need through the CRA’s website by clicking on T2 Returns and schedules. The link will give you a list of various corporate tax forms and schedules that you may need to prepare your T2 corporation income tax return. Some of the most commonly used schedules are:
- Schedule 200: T2 Corporation Income Tax Return
- Schedule 100: Balance Sheet Information
- Schedule 125: Income Statement Summary
- Schedule 50: Shareholder Information
- Schedule 8: Capital Cost Allowance
- Schedule 1: Net Income for Tax Purposes
- Schedule 24: First-time Filer after Incorporation
- Schedule 3: Dividend Received, Taxable Dividend Paid, and Part IV Tax Calculation
- Schedule 11: Transactions with Shareholders, Officers or Employees