Understanding the T2 Corporation Income Tax Return: A 500-Word Guide

Filing your taxes is such a critical part of business, and if you have a corporation in Canada, then you will surely not be a stranger to the T2 Corporation Income Tax Return. But what is this form, and how do you know you filled it in right? All that needs to be known about the T2 return in just 500 words.

What is the T2 Corporation Income Tax Return?

A Canadian corporation uses the T2 Corporation Income Tax Return to report income, compute the amount of the taxes owing, and claim deductions and credits where applicable. Every corporation conducting business in Canada, whether active or inactive, is obliged to file a T2 return every year. This form is important if one is to keep his business in line with Canadian tax laws. And, besides everything, this will keep you clean with the Canada Revenue Agency.

Who Should File a T2 Return?

Every business incorporated in Canada is required to file a T2, from CCPC’s to non-profits and even inactive corporations. Even if your corporation doesn’t owe any taxes, or your business hasn’t conducted transactions for the entire year, you’re still under the obligation to file your T2.

Due Date for T2 Return

The deadline to file your T2 return varies depending on your corporation’s fiscal year-end. As a general rule, the T2 return should be filed within six months after the end of the fiscal year. For example, if your fiscal year ends December 31, your T2 return will be due on June 30 of the following year.

Note that any taxes payable must be settled two months following the year of assessment to avoid an interest charge.

What Information is Required?

The overview of each of your corporation’s financial activities is necessary. The following are some of the details you will often need to provide:

– **Income**: Indicate all earned income sources the corporation had during the course of the fiscal year.

Deductions: Explain each and every type of business expense that can legally be deducted from your income to reduce your income that is subject to tax, for example, salaries, rent, utilities, and cost of goods sold.

**Tax Credits**: Claim any other associated federal or provincial tax credits, which could involve the Small Business Deduction and Scientific Research and Experimental Development (SR&ED) tax credit.

– ** Taxable Income** : Work out your corporation’s taxable income after considering all deductions and credits.

**Net Income/Loss**: State the net income or loss of the corporation for the year.

How to File a T2 Return

There are two ways to submit your T2 return: by electronic transmission and on paper. The CRA recognizes electronic filing transmitted through a My Business Account is fast, secure, and safe. Or you can file your return on paper through mail. Fill in a T2 and send it by mail to your local CRA office. In many instances, businesses use tax software or business tax professionals so the return can be filed correctly and on time.

Late Filing Penalties

It is very important to file your T2 return on time because the failure to file the return on time carries a heavy penalty. Basically, for regular cases, the penalty charged is 5% of the unpaid tax by the filing due date, plus 1% of unpaid tax for each month the return remains late, for a maximum period running to 12 months. Repeated late filings can lead to even steeper penalties. 

Conclusion

Filing the T2 Corporation Income Tax Return is one of the elementary wants regarding corporations in Canada. You need to be filing it to keep your business intact without being penalized with high penalties, once you know more about drafting this form. Whether it needs to be accomplished by you alone or by experts, you should put the proper effort to stay up to date with regards to your duties according to the T2.

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