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!
In general, non-resident corporations also have to file 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.
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 are CCPCs.
Corporate tax returns for CCPCs must be filed within six months of your fiscal year end to avoid penalties. More importantly, the taxes owing must be paid within three months of your fiscal year end or you will be subject to interest charges that are non-deductible expenses.
Provincial Corporate Tax Returns
In Alberta and Quebec, the Province 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 all other jurisdictions, the federal government manages the collection of provincial corporate taxes.
Corporate Tax Credits & Deductions
There are various corporate tax credits businesses can use to reduce the amount of tax they have to pay such as the Investment Tax Credit and the Scientific Research and Experimental Development (SR&ED) credit. There are also 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.
Your accountant can help you determine if you are eligible to claim any of these credits and use any of the deductions and show you how they impact the amount your corporation owes in taxes.
Determining the Tax Year End for Startups
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.
Better Bookkeeping, Easier Corporate Tax Return Preparation
At Achen Henderson, we oversee our clients’ bookkeeping as part of our service packages so we know it’s being done correctly. This makes tax time easier for us and for the corporations we serve 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 our clients a ton of questions, which limits the amount of time they need to spend running around looking for information.