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Corporate Tax Canada Guide

Corporate Tax Rates & How to Prepare & File Corporate Income Tax

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Corporate Tax Canada Guide

A corporate board meets.

Image (c) Nick White/ Getty Images

Corporate Tax Rates Canada

For Canadian-controlled private corporations claiming the Small Business Deduction, the net tax rate is 11%.

For other types of corporations in Canada (see Types of Corporations in Canada and Corporate Tax), corporate tax rates are higher:

  • 18% effective January 1, 2010;
  • 16.5% effective January 1, 2011;
  • 15% effective January 1, 2012.

For more on corporate tax rates, see the Canada Revenue Agency's Corporation Tax Rates, which includes a list of income tax rates for provinces and territories.

Types of Corporations in Canada

Basically in Canada, there are Canadian-controlled private corporations (CCPCs), and then there are the others. Read about all the different Types of Corporations in Canada.

When it comes to corporate tax, Canadian-controlled private corporations (CCPCs) are the Cinderellas at the ball while other types of corporations are the ugly step-sisters. Corporate Tax Advantages of the Canadian-Controlled Private Corporation explains the corporate tax advantages that Canadian-controlled private corporations enjoy.

Reducing Corporate Income Tax

Canadian Corporations have two ways to reduce the amount of Canadian income tax they have to pay; do prescribed things that earn them tax credits or take advantage of income tax deductions.

Corporate Tax Credits

Investment Tax Credits for Canadian Small Businesses explains what federal Investment Tax Credits are available and how to claim these tax credits.

Probably the best known of the tax credits available to corporations are Research and Development Tax Credits.

Corporate Income Tax Deductions

Read about the Small Business Deduction, a corporate tax deduction available to Canadian-controlled private corporations (CCPCs).

My Business Expenses as Tax Deductions Index lists and explains the rules for deducting many other common business expenses, from Accounting and Legal fees through travel expenses.

Preparing & Filing Corporate Income Tax

What Income Tax Form Your Corporation Needs to Use

Corporations are separate legal entities and each corporation must complete and file a T2 Corporate Tax Form each year. This applies to every corporation that operates in Canada, even if that corporation was inactive. The only exception to this rule is a corporation that was a registered charity throughout the year.

A corporation may be able to complete and file a T2 Short Return if:

  • the corporation meets all of the following conditions:
  • it is a Canadian-controlled private corporation (CCPC) throughout the tax year;
  • this year, it has either a nil net income or a loss for income tax purposes;
  • it has a permanent establishment in only one province or territory;
  • it is not claiming any refundable tax credits (other than a refund of instalments it paid);
  • it did not receive or pay out any taxable dividends;
  • it is reporting in Canadian currency; and
  • it does not have an Ontario transitional tax debit.
  • OR
  • if the corporation is a tax-exempt corporation (such as a non-profit organization) that has a permanent establishment in only one province or territory (Canada Revenue Agency).

Otherwise, your corporation, needs to file a regular T2 Corporation Income Tax Return.

Preparing Corporate Income Tax Returns

Because completing a T2 Corporate Income Tax form requires using the General Index of Financial Information (GIFI) and is considerably more complex generally than the T1 Personal Income Tax Return, I recommend having corporate income tax returns prepared by a professional tax preparer.

If you don't have an accountant, How to Find a Good Accountant explains how to go about finding one.

When the time comes, Getting Your Tax Records Ready for Your Accountant is a handy guide for getting the required documents together, with some tips on saving money on your accounting fees.

If you are determined to do your own corporate income tax, there are Canadian Tax Software Programs to help. (You must use Canada Revenue Agency certified tax software if you do this.)

Filing Corporate Income Tax Returns

When to File Corporate Income Tax

Corporate income tax needs to be file within six months of the end of the fiscal year. For instance, if your tax year-end date is March 31st, your corporate income tax return must be filed by September 30th.

(If you want to change your fiscal year end, How Do I Change My Fiscal Year End? explains the procedure.)

There are penalties if you file your corporate income tax return late.

How to File Corporate Income Tax

Almost all Canadian corporations can file their corporate income tax return electronically (EFILE). This includes non-resident corporations and corporations claiming an SR&ED amount.

The Canada Revenue Agency's Corporation Internet Filing page will tell you if your corporation qualifies and how to do this.

Canadian corporations with annual gross revenue of more than $1 million must Internet file their corporate income tax (for tax years ending after 2009).

If you need to file a paper corporate income tax return, where you file it depends on where the corporation is. The T4012 - T2 Corporation - Income Tax Guide provides details on locations for filing paper corporate income tax returns for both resident and non-resident corporations.

Corporate Income Tax Balance Due Dates

If the corporation has a balance owing on its corporate income tax, for most corporations, that tax balance must be paid within two months after the end of the tax year.

However, Canadian-controlled-private corporations have three months to pay their income tax balance if they meet these conditions.

Canada Revenue Agency Payment Options

If the corporation does owe taxes at the end of the year, the balance may be paid the old-fashioned way of course by sending a cheque. You can also pay the Canada Revenue Agency online from your own bank account at a participating Canadian financial institution through their My Payment service or through My Business Account, an online service that allows business owners (including partners, directors, and officers) to access their Canada Revenue Agency accounts via a Web browser.

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