Inactive Corporation T2 Return: What Are Your Obligations?

Have you incorporated a company in Canada but had no activity during the year? Many entrepreneurs assume that if no income was earned, nothing needs to be filed. This is a common mistake that can become costly.

Even an inactive corporation must file a T2 corporate tax return with the Canada Revenue Agency (CRA). For a complete overview of corporate tax obligations related to the T2 return, consult our guide to T2 corporate tax returns in Canada.

Ignoring this requirement can quickly result in penalties, often higher than the cost of filing your return. The good news is that there are simple, fast and affordable ways to remain compliant without wasting time or energy.

In this article, we explain what an inactive corporation is, why you must still file a T2 return, which forms and documents are required, and how to complete the filing efficiently, including electronically.

What Is Considered an Inactive Corporation?

A corporation is considered inactive if it has carried out no business activity and generated no taxable income during its fiscal year. Typical situations include:

• A newly incorporated company that has not yet started operations,
• A corporation that has ceased operations but has not been dissolved,
• A holding company (Holdco) with no transactions during the year,
• A business put on hold while awaiting financing or future projects.

Even without significant revenue or expenses, an inactive corporation remains a legal entity as long as it has not been dissolved. As long as it is registered, it must file a T2 corporate income tax return, just like any active corporation.

This also applies to a newly incorporated company that has not yet started operations. It must still file a first T2 return. If that is your case, see our dedicated guide on filing your first T2 corporate tax return.

Image

Why Must an Inactive Corporation File a T2 Return Every Year?

The Canada Revenue Agency (CRA) requires all resident corporations in Canada to file a T2 corporate tax return annually, even if no income was generated.

Main reasons:

• To maintain an administrative record of all incorporated businesses,
• To ensure fiscal transparency,
• To prevent abuse (such as dormant or “shell” corporations),
• To confirm that reported taxable income is truly zero.

Limited exceptions:
Only certain entities, such as registered charities, are exempt. For all other incorporated businesses, a T2 filing is mandatory.

In summary: as long as your company has not been formally dissolved, you must file a T2 corporate income tax return, even if your taxable income is zero.

Filing a CO-17 Return for an Inactive Corporation in Quebec

Corporations registered in Quebec have an additional obligation: filing the CO-17 provincial corporate income tax return with Revenu Québec, even if no activity took place.

This means two separate returns must be filed every year:

• Federal → the T2 return to the CRA,
• Quebec → the CO-17 return to Revenu Québec.

Both corporate tax returns are mandatory, even for inactive corporations.

Example: A company incorporated in Quebec in January with no activity during the year must still file both a T2 and a CO-17 return for its first fiscal year. At T2inc.ca, we guide you through the filing of your corporate tax returns (T2 and CO-17), even inactive ones, entirely online.

What Forms and Documents Are Required for an Inactive T2 Return?

The good news: an inactive T2 corporate tax return is simpler than an active one.

Here are the key documents and forms:

Even if the filing seems simple, choosing the wrong form or making an error can lead to rejection or delays. To simplify the process, T2inc.ca offers an online service to file your inactive corporate tax return, helping you gather only the required documents without unnecessary complications.

What Are the Penalties for Not Filing a T2 Return?

Failing to file a T2 return, even for an inactive corporation, automatically triggers late-filing penalties:

• $100 per month late, up to 12 months (maximum $1,200),
• Penalties apply even if no corporate income tax is payable,
• Repeated late filings increase the risk of audit,
• Dissolution is impossible until all returns are up to date.

Example

An inactive corporation fails to file its T2 for 8 months:

• 8 × $100 = $800 penalty.

This is already more than the cost of an online inactive T2 filing with a specialized service like T2inc.ca. Filing your inactive corporate tax return is always cheaper than paying penalties.

How to File an Inactive T2 Corporate Tax Return?

Today, the T2 must be filed electronically in almost all cases. Here are your options:

1. Use CRA-certified software

This option lets you complete your T2 return yourself and submit it online.

• Advantage: full control, guided interface, electronic submission.
• Limitation: software cost ($100–$300), learning curve.

2. Hire an accountant or online service (e.g. T2inc.ca)

This option ensures a complete, secure, and compliant electronic filing.

• Advantage: time savings, peace of mind, guaranteed compliance.
• Limitation: professional fees, but usually less than penalties.

Our recommendation: Unless you are fully comfortable with tax software, entrust the online filing of your T2 return to a professional. This helps you avoid errors, rejections, and costly penalties.

Trust T2inc.ca With Your Inactive T2 Filing

Even without income, an inactive corporation must file a T2 return every year (and a CO-17 in Quebec). Skipping this requirement quickly leads to unnecessary penalties.

The good news: filing an inactive T2 return is simple, fast, and affordable when handled by specialists.

Avoid penalties and let T2inc.ca handle your inactive T2 return. 100% online, secure, and at a fixed price.

FAQ – Inactive T2 Corporate Tax Returns

💬 Does an inactive corporation need to file a T2 return?

Yes. The CRA requires all corporations to file a T2 annually, even without income.

💬 Do I also need to file a CO-17 if my corporation is inactive in Quebec?

Yes. Any corporation registered in Quebec must file both a CO-17 and a T2.

💬 Which forms do I need to complete for an inactive T2 return?

The T2 Short return may be sufficient if your corporation qualifies. Otherwise, the full T2 return is required.

💬 What documents are needed for an inactive T2 return?

A simplified balance sheet, bank statements, and the appropriate T2 form.

💬 Can I file my T2 return electronically?

Yes. The CRA requires electronic filing in most cases, either through certified software or an online service like T2inc.ca.

💬 How much does it cost to file an inactive T2 return?

With T2inc.ca, your inactive T2 return is filed online at a fixed price, often cheaper than penalties.

💬 What happens if I don’t file my inactive T2 return?

$100 per month late-filing penalty, up to 12 months, even with no tax payable.

💬 Can I dissolve my inactive corporation without filing T2 returns?

No. All outstanding T2 returns must be filed before dissolution is accepted.