Like individuals, Canadian corporations need to file income tax returns each year to the CRA. However, unlike personal tax returns, corporations are subject to a much more stringent documentation and filing process. Additionally, the tax return looks much different than the personal tax return that you might be familiar with. If you’re feeling uneasy about the process, don’t worry, you can learn the basics in this article.
What Do I Need to File Business Taxes?
Regardless of the size of your company, you will need to submit a profit and loss statement to the CRA showing how much your business earned for the year. It is crucial for businesses to keep diligent records to document all accounting and financial information. This is for the CRA’s benefit, but also for your benefit to ensure you’re paying the correct amount of tax.
In addition to submitting income statements to the CRA, businesses must be able to support revenues and expenses with invoices and receipts. Although companies may not be required to submit supporting documentation for revenue and expenses right away, it is recommended that invoices and receipts are kept for at least six years in the event of an audit.
Commonly Used Tax Credits
There is a list of tax credits that Canadian corporations can claim against their earnings to reduce their taxable income. Below are some of the most commonly used tax credits:
- Small Business Deduction. The small business deduction entitles privately controlled Canadian corporations with taxable capital of $15 million or less to pay a reduced tax rate for a maximum limit of $500,000. Each province has their own reduced tax rates for qualifying small businesses as well.
- Charity Tax Credit. Corporations can claim a tax deduction for any charitable donations they have made. Donations can be carried forward for up to five years and the maximum claim for a charity tax credit is up to 75% of a corporation’s annual net income.
- Manufacturing and Processing Profits Deduction. For companies that have at least 10% of their annual gross revenue earned from manufacturing or processing goods in Canada can claim the Manufacturing and Processing Profits Deduction. This credit applies only to the portion of taxable income that represents manufacturing and processing revenues.
Resources for Filing Taxes
Businesses have to deal with more components than individuals when filing tax returns. Payroll, dividends and foreign entities are all factors that can complicate the process. Let’s take a look at some helpful resources to ensure your business receives all the credits that it is entitled to.
The Canada Revenue Agency has a list of publications that provide greater clarity and instructions on tax related issues for corporations. This includes everything from payroll slips to downloadable forms to filing trust income taxes. A landing page for commonly requested services and information can be found here, while the most recent copy of the T2 Corporation Income Tax Guide can be found here.
For any other queries, search the CRA website or contract the CRA.
For corporations, tax and payment deadlines are based on the fiscal year. A fiscal year is the twelve month period which a company operates, for example, May 1 to April 30. The deadline for filing corporate tax returns is six months after the end of the fiscal year and tax refunds are only eligible to companies that file a return within three years after the end of a fiscal year.
As a result of the COVID-19 pandemic, the deadline for filing 2019 tax returns has been extended to June 1, 2020 for corporations that otherwise would have a filing deadline between March 18 and May 31, 2020. For businesses that would normally have a filing deadline between May 31 and August 31, 2020, the deadline has been extended to September 1, 2020. The due date for any amounts payable has been extended to September 1, 2020 for balances and instalments which would have fallen due between March 18 and September 1, 2020.
Ways to File Taxes
Methods for filing taxes for corporations differ from those available to individuals. As a separate legal entity, every corporation is required to complete and file a T2 Corporate tax form each year even if they were inactive.
Most businesses will have to prepare financial statements using the General Index of Financial Information (GIFI) and may file their returns either electronically or on paper using CRA issued forms. Below are some details on these filing methods.
- General Index of Financial Information (GIFI). The GIFI is a standard set of codes that are used in the preparation of financial statements. Apart from insurance corporations, all companies should prepare their financial documents using GIFI codes.
- Tax Preparation Software. There are several services available for companies to file their tax return electronically: the Corporation Internet Filing service, My Business Account (Corporation version) or Represent a Client (for authorized representatives or employees).
- CRA Issued forms. Corporations with annual gross revenues of $1 million or less may choose to file their tax return on paper. When submitting the completed forms, be sure to include any supplementary documents, schedules and financial statements.
Filing Corporate Taxes
Corporate income taxes can get very complicated depending on the size of your business and the scope of its operations. For complex businesses, it is recommended that you consult an accountant or certified tax professional to fully realize all the possible credits and benefits that your company is entitled to.