All Canadian corporation whether it be a business for profits or non-profit organization, must file their T2 Income tax return (T2 Corporate Income Tax Return) for every tax year. Like T1 Income Tax Return in the case of individuals, the Corporates must file their income tax return in Form T2 i.e. T2 Corporate Tax Return.
T2 Corporate Tax return is a ‘9 pages’ main Income Tax Return and is supplemented with numerous schedules / forms. Besides other lot of information, T2 Corporate Tax Return contains the basic information about Corporation and it business activities, the financial statements of the corporation which is popularly known as GIFI Schedules, the different sources of its income, the information about dividend received and declared, Capital cost Allowances (CCA) etc. Based on the information, the taxes payable / refund is calculated as per the prevailing income tax rates and depending upon the nature of the corporation.
Flexibility to choose Tax Year – Unlike individuals, who have to file their tax return on calendar year basis, the Corporations can choose their own tax year which is also called fiscal year or fiscal period.
Due date of filing the Tax Return – The corporation must file their income tax return within six months from the end of its fiscal year / tax year. So suppose, the tax year of the corporation is from 1st April to 31st March, then the corporation must file its return on or before 30th September. However, in case the last due date of t2 tax return filing falls on a holiday (like Saturday or Sunday or a public holiday) then the return must be filed by the next business day falling immediately the due date of t2 corporate tax return filing.
Payment of Taxes –
A corporation may have to pay in instalments during the year based on its last year taxes. If the Corporation’s tax liability under Part I, Part VI, Part VI. 1 and Part XIII.1 is more than $3,000, then it may be required to pay its taxes on monthly or quarterly instalments.
If after making the payment of taxes in instalments, if any amount of taxes still remains unpaid, then the same must be paid within either two or three months immediately after the end of the tax year.
In general, all the corporations are required to make the payment of its taxes within two months after the end of the tax year except a CCPC which is claiming the small business deduction.
Penalties for delay in filing the T2 Tax Return
The delay in fling of your Corporate Tax Return may lead to levy of huge penalties. Section 162(1) and 162(2) lays down that if a person, including corporation, fails to file its return within the due date then it shall be liable to pay penalty as per the following:
- 5% of the taxes which remain unpaid until the due date of filing plus
- 1% of the unpaid taxes for every completed month after the due date of filing subject to a maximum for 12 months.
Subsection 162(2) deals with the Repeated Failure to file the tax return on time. As per the provisions of 162(2) if a corporation who is assessed for late filing penalty in the preceding 3 years and repeats the delay in filing then it shall be charged almost double the penalties like:
- 10% of the taxes which remain unpaid until the due date of filing. Plus
- 2% of the unpaid taxes for every completed month after the due date of filing subject to a maximum for 20 months.
Assessment and Reassessments
The CRA assesses the T2 Corporate Income Tax Return filed by the corporations and issues the ‘Notice of Assessment” after reviewing the income tax return. If the corporation has any questions in respect of the Notice of assessment, it may contact the CRA by calling on their telephone number or online at enquiry service.
The Canada Revenue Agency (CRA) possesses the authority to reevaluate corporate income tax filings within either a three-year or four-year timeframe subsequent to the initial Notice of Assessment, contingent upon the specific characteristics or grounds for reassessment pertaining to the corporation. This ensures adherence to tax regulations and facilitates adjustments as necessitated by evolving circumstances or compliance discrepancies.
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