T2 tax returns, corporate income tax returns in Canada
At T2inc, we have in-depth expertise in corporate taxes. We are therefore familiar with the intricacies of preparing a T2 tax return.
Our goal is to make life easier for entrepreneurs and so we have developed this section that contains a wealth of information and tools to help you better understand what is involved in preparing a T2 tax return in Canada.
What is a T2 tax return?
The T2 is the mandatory corporate income tax return form for the federal government of Canada. The exact term for this statement is "declaration of corporate income."
Each company must file a corporate income tax (T2) for each taxation year. Companies can complete one of two types of T2 statements proposed by the Canada Revenue Agency.
T2 Corporation Income Tax Return (8 pages)
The 8-page T2 corporate income statement that can be used by any company. However, in addition to the T2, there are several schedules. It’s not enough to simply complete the T2 corporate income tax returns to complete your company’s obligations to the federal government of Canada. There are other financial statements to file your with the General Index of Financial Information (GIFI) with appropriate schedules.
T2 Short Return
The second type, the T2 Short Return is only 2 pages and 3 schedules. In common tax jargon it is often called the "Short T2". However, it is important to know that not all companies can use the T2 - Short Return. You should refer to the Guide T4012, T2 Guide - Income Tax companies, to ensure that you can use it before filling it out.
What information is needed to prepare a T2 tax return?
Whether you’re preparing your own business tax reports for your company or having them do by an accountant, you must have the following information:
- Company name and address
- Business Number from the Canada Revenue Agency
- Names (first and last), addresses, and country of residence for all company shareholders
- Names (first and last), address, and country of residence for all authorized corporate signatory shareholders.
- Complete financial statements (statements of income, balance sheet) filed with the General Index of Financial Information (GIFI)
- The company's main activities
- The different sources of income for the company (investment income, etc.)
- Whether shareholders hold shares in other companies or if the company is bound or associated with other companies
- Whether the company performs its activities or owns property abroad
- Whether activities are held in other Canadian provinces
- Whether the company received or paid dividends
- Acquisition or disposal of fixed assets
This list is far from exhaustive, but it gives a good indication of the type of information you need to file a T2 in Canada.
Who must file a T2 tax return?
All companies residing in Canada must file a T2 return with the Canada Revenue Agency. The law is very strict, all companies must do so, even if you company
- Does not have to pay tax
- Is idle with no activity (no income)
- Is a non-profit organization
- Is exempt from tax
Sometimes, according to several situations, non-resident corporations must file a T2 in Canada. For example, a non-resident company that carried on business in Canada or achieved taxable capital gain or disposed of taxable Canadian property.
How do I file my T2 tax return?
Hiring a tax accountant
The easiest way to file our company’s tax return in Canada is to do business with a tax preparation accountant. they will request the above-mentioned required documents and information. Then, once the work is completed, they will make you sign the authorization T183 CORP. The T183 CORP form is corporate return for electronic transmission. Once you have reviewed your statement and signed the T183 CORP, your accountant will be able to electronically send the T2 tax return to the Canada Revenue Agency.
Using a software solution
You can file your T2 via a T2 software and send it to the via Internet or printed form. If you are determined, you can still complete the declaration by PDF paper from. However, we do not recommend filing directly on the government site as there is too great a risk of calculation errors or omission of important schedules.
Know that if your company has gross revenues exceeding $ 1 million, it can not file a paper tax return. Here is a link for more inform of the subject: Mandatory Internet filing for corporate tax returns. The Canada Revenue Agency imposes a penalty of $ 1,000 to those companies that fail to file their returns online.
What are the deadlines to produce T2 tax returns?
Every company in Canada must file the T2 tax return form within 6 moths following the end of each taxation year.
Taxation year that ends on the last day of a given month
In the case your company has choses a taxation year that ends on the last day of a given month, you must file the T2 tax return by the last day of the sixth month following the end of the taxation year. The following are concrete examples:
- The end of the taxation year for your company is December 31st, the deadline for filing will be June 30th
- The end of the taxation year for your company is July 31st, the deadline for filing will be January 31st
Taxation year that does not end on the last day of a given month
If your company has determined that the taxation year does not end on the last day of a given month, it must file the T2 tax return no later then the same day of the sixth month following the end of the taxation year for your company.
Here is an example:
- The end of the taxation year for your company is September 14th, the filing deadline is March 14th.
It is very important to file your T2 tax return on time as the Revenu Québec agency has several legal means to impose penalties and interest to your company.
How to determine your company’s tax year
For a company that is not in its first year of existence
If it is the case that your company is not in its first year of existence and has already filed a T2 tax return in the past, you will be forced to keep the same end date for your company’s taxation year. If you want to change this end date, there is a way to go about doing this: a letter must be sent to your company’s tax center detailing the reason for this change. Without the agreement of tax authorities, you must continue to strictly adhere to the established end date.
For a company in its first year of existence
If your company is in its first year, you can choose the date of the end of the taxation year. You should be aware of the following rules:
- A taxation year of a company cannot exceed 53 weeks or 371 days.
- You are required in the first year to pick the date of incorporation as the start date of the taxation year for your company. You must calculate the 371st day from this date of incorporation.
You have the freedom to choose the end date of the taxation year for your company; you are not required to use the calendar year or December 31st. It is advisable to opt for a taxation year-end date that occurred where there is less activity for your business. If you own multiple companies, it is easier to choose the same end date for all your companies.
What other schedules should I fill in on my T2 tax return?
The list of schedules that may be required with the T2 is too long to publish on this site. However, we will give you a small list with some of the most important schedules.
You absolutely must, in addition to the T2, completing the following schedules concerning financial states:
- T2SCH100 Balance Sheet Information
- T2SCH101 Opening Balance Sheet Information
- T2SCH125 Income Statement Information
- T2SCH141 Notes Checklist
Then companies must fill out following appendices:
Schedule 50 of the shareholder information is fairly simple. However, Schedule 1 of the net income is more complex. This schedule is to reconcile the accounting profit and tax profit, which is not a task for a non-specialist. Indeed, the accounting profit is not necessarily the taxable income used to impose the tax rate for corporations. First, there are non-deductible expenses (tax penalties, golf expenses, personal, amortization accounting, etc.); and second, spending deductible of 50%, such as expenses representation, not to mention a host of other exceptions.
Next, the most appendices often used by companies are:
- T2SCH2 Charitable Donations and Gifts: Schedule 2 is used for companies that have donated to charities or political contributions.
- T2SCH3 Dividends Received, Taxable Dividends Paid, and Part IV Tax Calculation: schedule 3 is applicable if you paid dividends to your shareholders or if you have dividends received from other companies.
- T2SCH4 Corporation Loss Continuity and Application: Schedule 4 is used to calculate the history of various losses suffered by the company during its existence.
- T2SCH5 Tax Calculation Supplementary - Corporations: Schedule 5 is used for revenue allocation in the provinces where the company has permanent establishment to impose taxable income to the proper provinces.
- T2SCH6 Summary of Dispositions of Capital Property: Schedule 6 is required if you have sold or disposed of assets (equities, property, bonds, property, etc.)
- T2SCH7 Aggregate Investment Income and Active Business Income: Schedule 7 is used to actively distinguish between your investment income and your operating revenue, because the tax rate and access to the small business deduction is different.
- T2SCH8 Capital Cost Allowance (CCA): schedule 8 is used to calculate the eligible expenditure tax depreciation. As mentioned earlier, the depreciation is not deductible at the tax level. However, you are entitled to a tax depreciation that is calculated with pre-established depreciation rates by property category according tax laws.
- T2SCH9 Related and Associated Corporations
- T2SCH10 Cumulative Eligible Capital Deduction
Here is the link to the Canada Revenue Agency bringing together most of the Schedules needed to fulfill the T2 tax return:
Where to send paper T2 statements?
If your company is not required to file its return online because its gross income is less than $ 1 million, you can send your paper return to the Canada Revenue Agency.
You must send your return to the tax center that matches the address of the registered office of your company. Consult the Canada Revenue Agency website to find the tax center that corresponds to your company.
When should I pay taxes on my T2?
Visit the following link to get your answer: When should I pay my corporation’s taxes?
What penalties can be linked to my T2 tax return?
Here is the list of penalties and links to the Canada Revenue Agency website for more information on various penalties:
- Penalty for failure to file
- Penalty on installments
- Penalties to large corporations
- Penalty if you do not declare income
- Penalty for false statements or omissions
- Penalties for misrepresentations of tax matters by third parties
- Penalty for non-resident companies
- Penalty for non-compliance with compulsory production by Internet
- Other penalties
T2inc: Your T2 reporting resource in Quebec and Canada
Do not ignore your tax obligations; the financial and legal health of your company depends on it. Hopefully this article has provided you with a lot of information to help you in your research.
Nevertheless, if you still have any questions about the T2 tax return, simply contact our team of experts. You can benefit from personalised support when completing your tax documents.