Corporate Tax Canada Guide

Aug 7, 2023

 

The Small Business Deduction allows Canadian-controlled private corporations to enjoy a net tax rate of 9%, starting January 1, 2019.

In the case of other corporate entities in Canada, the corporate tax rate is 15% after applying the general tax reduction. If the general tax reduction is not applied, the basic rate of Part I tax stands at 38%.

For detailed information about corporate tax rates, refer to the Canada Revenue Agency’s (CRA’s) Corporation Tax Rates, which provides a comprehensive list of income tax rates for provinces and territories.

 

Types of Corporations in Canada

Essentially, in Canada, there exist Canadian-controlled private entities (CCPCs), and then there are the rest. Explore the various categories of companies in Canada.

Regarding corporate taxation, CCPCs are akin to Cinderellas at the grand event, while other corporate structures resemble the unattractive step-sisters. Discover the benefits of corporate taxation for Canadian-controlled private entities in the article entitled “Corporate Tax Advantages of the Canadian-Controlled Private Corporation.”

 

Reducing Corporate Tax

Canadian companies have a pair of options for minimizing the Canadian income tax they owe – performing specified actions that grant them tax credits or leveraging income tax deductions.

 

Corporate Tax Credits

Investment Tax Credits for Small Businesses in Canada elucidates the federal options and procedures for obtaining Investment Tax Credits. While Research and Development Tax Credits are undoubtedly renowned among corporate tax credits, companies can also acquire tax credits for engaging in agriculture or fishing activities in specific regions of Canada, establishing childcare facilities, or employing apprentices.

 

Corporate Income Tax Deductions

Gain insights on the Small Business Deduction, a tax deduction for Canadian-controlled private corporations (CCPCs) in Canada.

Find comprehensive information on the Business Expenses as Tax Deductions Index, which outlines the guidelines for deducting various typical business expenses such as Accounting and Legal fees, as well as travel expenses.

 

T2 Corporate Tax Forms

 

What Income Tax Form Your Corporation Needs to Use

Every year, corporations are required to submit a T2 Corporate tax form, regardless of whether they were active or inactive. This obligation applies to all corporations operating in Canada, except for registered charities.

A corporation may qualify for the simplified T2 Short Return if it meets the following criteria:

– It remains a Canadian-controlled private corporation (CCPC) throughout the tax year.
– It either has no net income or has incurred a loss for income tax purposes.
– It has a permanent establishment in just one province or territory.
– It does not claim any refundable tax credits, except for installment refunds.
– It has not received or issued any taxable dividends.
– It reports its financials in Canadian currency.
– It does not possess an Ontario transitional tax debt.
– It does not have an amount calculated under section 34.2.

Alternatively, if the corporation is tax-exempt, such as a non-profit organization, and has a permanent establishment in only one province or territory, it must file a regular T2 Corporation Income Tax Return.

 

Preparing Corporate Income Tax Returns

Because the T2 Corporate Income Tax form necessitates the utilization of the General Index of Financial Information (GIFI) and is generally more intricate compared to the T1 Personal Income Tax Return, it is advisable to have a professional tax preparer handle your corporate income tax returns.

If you lack an accountant, you can refer to How to Find a Good Accountant to learn the process of locating one.

When the time arrives, Getting Your Tax Records Ready for Your Accountant serves as a useful guide for gathering the necessary documents and offers some suggestions for reducing your accounting expenses.

If you are determined to handle your own corporate income tax, there are Canadian Tax Software Programs available to assist you. (Ensure that you utilize tax software certified by the Canada Revenue Agency if you choose this option.)

 

Filing Corporate Tax Returns

When to File Corporate Income Tax

The deadline to submit corporate income tax is six months after the fiscal year concludes. To illustrate, if your tax year ends on March 31st, you must file your corporate income tax return before September 30th.

(To modify your fiscal year end, refer to the procedure outlined in the article “How Do I Change My Fiscal Year End?”)

Late submission of the corporate income tax return incurs penalties.

 

How to File Corporate Tax

Most Canadian companies have the option to electronically submit their corporate income tax return (EFILE), including non-resident companies and those claiming an SR&ED amount.

To determine if your company is eligible and learn the process, visit the Corporation Internet Filing page on the Canada Revenue Agency’s website.

Canadian corporations with annual gross revenue exceeding $1 million are required to file their corporate income tax electronically.

If a paper corporate income tax return needs to be filed, the submission location depends on the company’s location. The T4012 – T2 Corporation – Income Tax Guide offers specific information on filing paper returns for resident and non-resident corporations.

 

Corporate Tax Balance Due Dates

If a company has a due amount on its corporate income tax, the majority of corporations must settle that tax amount within two months following the conclusion of the tax year.

Nevertheless, Canadian-controlled-private corporations are granted a period of three months to fulfill their income tax obligation, provided they satisfy these criteria.

 

 

Canada Revenue Agency Payment Options

In case the business has outstanding taxes by year-end, there are various options available for settling the amount:

Utilizing My Business Account, an online service provided by the CRA that enables business proprietors (including partners, directors, and officers) to access their accounts with the Canada Revenue Agency via the internet (refer to Canada Revenue Agency Online Accounts for Businesses).
Remitting the payment online from your personal bank account at a participating financial institution in Canada through their My Payment service.
The traditional method of sending a check.

 

CBES is here to assist you; feel free to contact us for expert guidance.

 

 

 

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