Corporate tax preparation in Canada
Corporate tax preparation is a pain but every corporation in Canada has to do it, even if it doesn’t owe any tax that year!
Corporate tax returns are substantially more difficult to properly prepare than personal taxes because individual taxpayers are only required to report income, whereas corporations are required to report their balance sheet, income, owners, distributions to owners, payroll, and indirect tax (GST). In order to comply with tax laws and regulations, it’s strongly recommended to seek professional advice from an accounting agency to ensure your tax returns have been filed correctly.
Who has to file corporate tax returns?
All corporations that are resident in Canada are required to file T2 corporate tax returns.
Generally, all non-resident corporations have to file a T2 corporate tax return in Canada if they have carried on business in Canada, had a taxable capital gain, or disposed of taxable Canadian property. If you have a non-resident corporation, check with an experienced cross-border accountant to determine if you need to file in Canada.
When should you file your corporate tax return?
Corporate tax returns are due to be filed on or before the date that is 6-months after the corporation’s year end. Not filing on time will result in a penalty being levied by the CRA.
When is your corporate tax payment due?
Corporate taxes for most companies are due to be paid on or before the date that is 2-months after yearend.
If the company qualifies as a Canadian Controlled Private Corporation that has active business income the deadline to pay taxes is extended to the date that is 3-months after yearend.
What is your company’s fiscal yearend?
A company’s year end drives most of its tax deadlines. Prior to getting professional advice, lots of business owners assume that their year end has to be December 31, and they set up their tax accounts with the CRA, which sets out their deadlines.
Since it is not necessary to have a December 31 year end, many business owners opt for a different year end after they have set up their CRA accounts, creating the requirement for us to rectify their tax account registrations after the fact. Please consult with a tax accountant prior to selecting your corporate year end.
New corporations can choose any date for their tax year end as long as it falls within 365 days of the company’s date of incorporation. So, if a company is incorporated on April 30, it can choose a year end on any day up to April 29 of the following year.
We recommend choosing a year end that lands in a slower time of year for your business, typically the last day of a month. There may be some tax deferral opportunities for off-calendar year end dates. Your accountant can help you determine which year end is best for you.
Corporate members of professional partnerships, such as accounting, legal, or medical partnerships, must have a December 31 year end. These corporate partners are typically referred to as Professional Corporations, for which special rules exist.
Professional Corporations are corporations that are incorporated provincially and are subject to special rules that regular corporations are not subject to. In Alberta, for example, professional corporations:
- May not have voting shareholders that are not members of the particular profession under which they are registered
- Do not limit the liability of the owners / shareholders of the corporation, unlike most regular corporations, which limit the owner’s liabilities to the amount they have invested in the corporation
- Are regulated by some provincial bodies, such as Alberta CPA, in order for practitioners to operate within the profession
While many benefits of a typical corporation do not exist for professional corporations, they can still, generally, realize the same tax benefits of non-professional Canadian Controlled Private Corporations.
If a Professional Corporation is a member of a professional partnership, it must have a December 31 year end.
Corporate Income Tax Rates & Filing Requirements
In general, there is only one tax rate for Canadian corporations. However, Canadian controlled private corporations (CCPCs) are eligible for the small business deduction on taxable income below a certain threshold. Most privately owned Canadian businesses fall under the CCPCs category.
Corporate tax returns for CCPCs must be filed within six months of their fiscal year end to avoid penalties. More importantly, the taxes owing must be paid within three months of their fiscal year end or you will be subject to interest charges that are not tax-deductible expenses.
Corporate tax returns by province
In Alberta and Quebec, the provincial government directly collects provincial corporate taxes itself rather than having the Government of Canada collect on its behalf. This means you must file a separate provincial return. This return is prepared at the same time as your federal corporate tax return.
In contrast, in all other jurisdictions, the federal government manages the collection of provincial corporate taxes.
Corporate Tax Credits & Deductions
There are various corporate tax credits and deductions businesses can use to reduce the amount of tax they have to pay. Some notable credits include the Investment Tax Credit and the Scientific Research and Experimental Development (SR&ED) credit. Additionally, there are several deductions a business can use to reduce the amount of tax it has to pay, including standard business deductions, the small business deduction, charitable donation and gifts deductions, and capital cost allowance.
It can be difficult for a business to know which tax credits and deductions they are eligible for. Your accountant will be able to assess your eligibility to claim any of these credits and use of deductions. Working with your accountant can help maximise your tax benefits and stay compliant to tax laws and regulations.
Benefits of our corporate tax accountant service
Using a corporate tax return service can offer several benefits to businesses, such as:
- Expertise and knowledge of complex tax laws and regulations
- Assess eligibility for deductions and credits to minimize tax liabilities
- Time saving by freeing up your time to focus on your business goals
- Reduce errors and minimize potential penalties for incorrect information
- dvise on tax planning to reduce future tax liabilities
- Help you maintain organized financial records for future tax returns.
Have peace of mind during tax season by using a professional corporate tax return service to reduce stress, navigate complex tax laws and minimise your corporations tax liability.
Easily prepare for corporate tax returns
At Achen Henderson, we will also oversee your bookkeeping so we know it’s being done correctly. This makes tax time easier for us and for you because we don’t have to spend time repairing incorrect record keeping. Further, we already have most, if not all, of the required information so we don’t need to ask you a ton of questions, which limits the amount of time you need to spend running around looking for information
To learn how we can help you with accurate bookkeeping and expert corporate tax return preparation, contact us today.Contact Us