Canadian taxation rules have been modified since 2014. In order to file an accurate income tax return, you should always be mindful of the latest procedures established by the two tiers of government, provincial and federal. Here is some advice to help you with your SME T2 return.
Who must file a T2 return?
The T2 return (i.e. the income tax return for corporations) is mandatory for all corporations. Every person operating a business corporation must file one every year. If you are the owner of an enterprise registered to your name, you must fill in the section concerning your enterprise in your T1 return.
As for the T2 return, it is mandatory for all business corporations (i.e. any incorporated companies, even tax-exempt corporations and non-profit organizations). Furthermore, it must be filed even if you do not have any taxes to pay.
Your SME taxation year
To file your SME T2 return, first you must establish the taxation year. This should be done when starting the enterprise. If you are a personal corporation attached to a general partnership doing business in Canada, December 31 is the mandatory starting date for your taxation year. Otherwise, you may choose any date you wish.
When completing your first corporate income tax return, choose your business incorporation date as the starting date of your taxation year. For the following T2 returns, the starting date will be the day after your taxation year ending date.
An error to avoid for new entrepreneurs is mixing the financial statements of one year with those of the next year. Let us say for instance that your financial year runs until October 31. Then, the financial situations of the previous year (i.e. those of the year before October 31) must be kept separate from those of the current year (i.e. from November to October) in your SME T2 return.
When to file the T2 return to avoid any penalties?
The Canada Revenue Agency and Revenu Québec start expecting your T2 return after the end of your taxation year. You have six months to file it. If you do not, penalties shall apply, and they are rather hefty. For a resident company, the penalty is 5% of the overdue taxes plus 1% per month of the overdue taxes.
For non-resident corporations, the penalty is 100$ or 25$ per day, up to a maximum of 100 days, whichever amount is the greater.
Filing your T2 return
For filing your SME T2 return, you may either mail it in hard copy to the tax authorities, or use the certified software NETFILE. You may also file it through your tax accountant. T2inc.ca gives you the possibility of combining both options in order to benefit from both the velocity of the T2 filing software and the reliability of returns completed with the help of a real tax accountant.
The T2 return is mandatory for most Canadian corporations. Do not get caught napping! Be mindful of your taxation needs. To save time and taxes, do not brush off the value of a tax accountant’s advice. Do not hesitate contacting us for a solution suited to Quebec entrepreneurs.
Frédéric Roy-Gobeil
CPA, M. TAX
As President of T2inc.ca and an entrepreneur at heart, I have founded many start-ups such as delve Labs and T2inc.ca. A former tax specialist at Ernst & Young, I am also a member of the Ordre des comptables professionnels agréés CPA and have a master's degree in taxation from the Université de Sherbrooke. With a passion for the world of entrepreneurship and the growth mindset, I have authored numerous articles and videos on the industry and the business world, as well as on accounting, taxation, financial statements and financial independence.
