T2 Tax Form: The Corporation Income Tax Return Demystified

Filing taxes can be complicated for any Canadian, but for corporations and small businesses, it involves an additional form – the T2 Tax Form. Whether your company is active or inactive, profitable or not, you must file this return annually with the Canada Revenue Agency (CRA) to comply with your tax obligations.

This guide will explain everything you need to know about T2 corporate tax returns, including who needs to file, deadlines, required information, schedules, and how to submit your return.

What is a T2 Tax Form?

The T2 corporation income tax return is the mandatory filing that incorporated businesses in Canada use to declare their taxable income and calculate the corporate income tax they owe. This form reports their net income, expenses, and corporate taxes payable.

The T2 return serves a dual purpose:

• As the federal tax return is submitted to the Canada Revenue Agency (CRA).
• As the provincial or territorial tax return, with the exception of Québec and Alberta which have separate provincial forms.

The standard T2 form is eight pages long, but some smaller corporations may qualify to complete the simplified 2-page T2 Short Return. Either way, corporations must also submit supplementary schedules providing financial details.

Which Types of Businesses Must File a T2 Return?

With very limited exceptions, all corporations incorporated and operating in Canada must complete a T2 corporation income tax return form annually. This encompasses:

• Canadian resident corporations that are either publicly traded, privately held, or Crown corporations.
• Non-resident corporations that conduct business activities within Canada or earn capital gains on Canadian assets.
• Non-profit organizations, amateur athletic associations, and other tax-exempt entities.
• Inactive or dormant corporations with no income.

Even holding corporations and completely inactive companies must file a T2 return declaring their lack of revenue. The only exceptions are specific entities like registered charities, Hutterite colonies, and mutual fund corporations.

Partnerships and joint ventures do not file T2 returns as their income flows directly to the individual partners to report on their T1 personal tax returns. However, corporate partners may need to report partnership allocations on their T2.

Requirements for Non-Resident Corporations

Foreign corporations are only required to file a T2 return if they meet specific conditions, most commonly:

• Carrying on business in Canada. Any commercial activity renders a non-resident company subject to Canadian income tax.
• Selling or disposing of taxable Canadian property, including real estate and assets used in business in Canada, creates a capital gain.
• Earning other Canadian-sourced income, like royalties, rentals, timber royalties, or dividends from Canadian companies.

As non-resident filing rules can be complex, foreign corporations are advised to consult the CRA to ensure full compliance with Canadian tax obligations.

When Are T2 Tax Returns Due?

One key difference between personal and corporate tax filings relates to fiscal periods and deadlines. While individuals report on a calendar year, each corporation can choose its own fiscal year-end when it incorporates.

Regardless of the fiscal year selected, the deadline for filing the T2 return is six months from the end of the tax year. Specifically:

• If the fiscal period ends on the last day of a month, the T2 return must be filed by the same date six months later. For example, a December 31 year-end means filing by June 30.
• If the fiscal year ends mid-month, the return is due on that same date six months following. A November 23 year-end necessitates filing by May 23.

Corporations operating in Québec must be vigilant regarding deadlines, as Revenu Québec is strict in imposing penalties for late filing of a Québec corporate tax return.

Late filing will result in financial penalties from the CRA:

• Penalty of 5% of unpaid taxes owed, plus 1% for each additional month of delay, up to 12 months
• Increased penalties for repeat late filers

Meeting the filing deadlines is critical to avoid penalties. Corporations in Québec must be especially mindful of deadlines, as Revenu Québec imposes strict late-filing consequences.

What Information Must the T2 Return Include?

Corporations must gather substantial information and documentation to accurately complete the T2 tax return and schedules, such as:

Required T2 Information	Details
Company identification details	Legal name, addresses, BN, tax year
Shareholder names and addresses	Includes directors, officers, and affiliated corporations
Complete financial statements	Balance sheet, income statement, bank records
Income sources	Business, investment, foreign operations
Dividends, asset transactions	Paid or received dividends, disposals
Corporate structure changes	Ownership, activities, share structure

Additional requirements include disclosing operations in multiple provinces or outside Canada. Consulting a tax professional can help ensure you compile everything needed for a compliant return.

Thoroughly gathering this information according to the T2 requirements helps minimize the risk of errors, incomplete entries, or omissions that could lead to filing issues or reassessments later on.

What are the Key T2 Tax Schedules?

In addition to the core T2 form, corporations must submit schedules providing supplementary financial information:

Mandatory Schedules:

These include schedules that must be completed as part of the required reporting process.

Schedule 100: Balance Sheet Information

This schedule discloses the company’s financial position at year-end, including assets, liabilities, and equity. The CRA uses it to assess the corporation’s solvency and consistency of reporting. Mandatory details include:

• Current assets like cash, accounts receivable, and inventory
• Fixed assets, including land, buildings, and equipment
• Intangible assets like goodwill, patents, and trademarks
• Current liabilities, such as accounts payable and taxes owed
• Long-term debt from loans and other borrowings
• Equity accounts like share capital and retained earnings

Schedule 125: Income Statement Information

The income statement outlines the corporation’s revenues and expenses for the fiscal year. It is used to calculate the company’s pre-tax net income, which is adjusted for tax purposes. Key components are:

• Sales and other operating revenues
• Investment income, such as interest and dividends
• Salaries, benefits, and other labour costs
• Material, administrative, rent, utilities, and other expenses
• Depreciation expense for capital assets

Schedule 141: General Index of Financial Information

This schedule provides standardized details on the company’s operations and governance as mandated by GIFI requirements. Information disclosed includes:

• Corporate structure, such as subsidiaries and affiliated companies
• Fiscal period start and end dates
• Primary business activities and industry codes
• Key accounting policies and methods
• Reporting currency used in the financial statements
• Name and contact details of the person certifying the return

Other Common Schedules:

• Schedule 50 – Shareholder details
• Schedule 7 – Investment/small business income
• Schedule 8 – Capital cost allowance (CCA)
• Schedule 42 – Unused tax credits
• Schedule 6 – Capital gains/losses

These schedules allow the CRA to verify financial data and apply relevant deductions when assessing the company’s tax position. Additional schedules may be required provincially.

How Should I File the T2 Tax Return?

While paper filing remains an option for smaller corporations, electronic filing is mandatory for most and highly recommended for all.

EFILE

To file online directly with the CRA using certified tax preparation software or through representation by an accountant.

EFILE provides faster processing, immediate receipt confirmations, and the avoidance of paperwork. Most corporations with over $1 million in annual sales must file online.

Paper Filing

Downloading the T2 return and schedules from the CRA website to complete manually, then mailing the forms and attachments to the appropriate CRA tax center based on your corporate address. Disadvantages include slower processing and an increased risk of errors.

Webforms

Completing the forms online through the CRA website. However, the online forms have significant limitations in terms of attached schedules and taxation complexities. Best suited only to very small inactive corporations.

How Do I Amend or Correct a Filed T2 Return?

Errors do occasionally occur even when great care is taken to file compliant T2 returns. So in these cases, to amend a T2 filing, you should use CRA Form T2CORP along with corrected schedules to make revisions or provide additional information.

Reasons to file an adjustment include:

• Incorrect amounts reported.
• Missed deductions or tax credits.
• Changes required after a CRA reassessment.
• Errors identified following an audit.
• Omitted information that becomes available after filing.

Voluntary disclosures to the CRA of incorrect filings are recommended to avoid potential penalties and interest if caught during audits. Filing corrections promptly also speeds up the processing of amended returns.

Avoiding Major Mistakes on T2 Tax Returns

Meticulous care should be taken when you’re preparing and filing T2 returns to avoid issues with CRA compliance. Some key measures to prevent errors include:

• Start early – Rushing close to the deadline increases mistakes.
• Review CRA checklist – Ensure all required schedules are completed.
• Verify shareholder information – Cross-check names, addresses, and ownership.
• Ensure tax instalments align – Avoid installment interest penalties.
• Confirm bank transfers match claimed remittances.
• Support all amounts with documentation – Keep a paper trail for potential audits.
• Double-check carry forward amounts – Ensure unused balances are correctly claimed.
• Review restricted losses – Apply limits to capital and non-capital losses.
• Scrutinize executive compensation – Identify taxable benefits.

For complex corporations, retaining professional accounting assistance can add an extra layer of review to eliminate errors and validate full compliance prior to submission.

The bottom line

Submitting taxes for your corporation does not need to be an intimidating process. While T2 forms include complex schedules and strict filing timelines, a bit of preparation and organization goes a long way.

By understanding the key requirements, leveraging software tools, and seeking guidance when needed, you can file your returns accurately and on time.

FAQs related to the T2 Tax Form

Article Sources

• T2 Tax Form: A Guide for Small Business Owners – webtaxonline.ca
• T2 tax form: A guide for small business owners – xero.com
• Getting a corporation income tax (T2) return – canada.ca