Corporate Tax Returns Explained Simply

If you own an incorporated business, you’ve probably heard the term “corporate tax return” more times than you’d like to admit. But what exactly is involved in preparing one?

A corporate tax return can sound complicated, especially when you’re faced with financial statements, tax schedules, and CRA terminology. The good news is that you don’t need an accounting degree to understand the basics.

Here’s a simple breakdown of what goes into a corporate tax return and what you can expect throughout the process.

What Is a Corporate Tax Return?

A corporate tax return is how an incorporated business reports its income, expenses, and other financial information to the Canada Revenue Agency (CRA). Most Canadian corporations file a T2 Corporation Income Tax Return each year, even if the corporation has no tax payable.

Unlike a personal tax return, a corporate return focuses on the corporation as its own legal and tax entity. This means the business's finances need to be kept separate from the owner's personal finances.

What Goes Into a Corporate Tax Return?

The process starts with your company's financial records. Your bookkeeping provides the foundation for preparing the return, which is why keeping accurate books throughout the year is so important.

Your accountant will generally review information such as revenue, operating expenses, payroll, assets, liabilities, and shareholder transactions. They may also review items such as depreciation and other tax adjustments that affect how your business income is calculated for tax purposes.

Your financial statements are then used to determine the corporation's accounting income and make the necessary adjustments to arrive at its taxable income.

It's important to remember that accounting income and taxable income aren't always the same. Certain expenses may be treated differently for accounting and tax purposes, which is one reason corporate tax preparation involves more than simply entering numbers into a form.

What About GST/HST and Payroll?

Your corporate tax return is only one part of your business's tax responsibilities.

Depending on your business, you may also have GST/HST filings, payroll remittances, and other CRA reporting requirements throughout the year. These are separate from the T2 corporate income tax return and may have their own deadlines.

Keeping these obligations organized throughout the year can help prevent missed deadlines, interest, and penalties.

When Is a Corporate Tax Return Due?

For most corporations, the T2 return is due within six months of the end of the corporation's tax year.

However, the deadline for paying any corporate income tax balance is generally earlier. For many corporations, any balance owing is due two months after the end of the tax year, although certain Canadian-controlled private corporations may qualify for a three-month payment deadline if specific conditions are met.

Because your corporation's tax year-end may not necessarily be December 31, your deadlines can vary. Your accountant can help you determine exactly when your return and any balance owing are due.

What Should You Expect During the Process?

A smooth corporate tax return starts with organized records. Your accountant will typically need your bookkeeping records and financial information, along with supporting documentation relevant to your corporation.

Once the information has been reviewed and the return prepared, your accountant can explain the results, including whether your corporation has a balance owing or a refund.

This is also a good opportunity to ask questions. If your business experienced significant changes during the year—such as purchasing equipment, taking on debt, paying dividends, or changing how you pay yourself—make sure your accountant knows.

Make Corporate Tax Season Less Complicated

Corporate tax returns may involve technical details, but the basic process is straightforward: your business's financial activity is organized, reviewed, adjusted for tax purposes, and reported to the CRA.

The best way to make the process easier is to stay on top of your bookkeeping throughout the year and work with your accountant before tax season arrives.

Need help with your corporation's tax return? Our team can help you understand your corporate tax obligations, prepare your T2 return, and keep your business's finances organized throughout the year. Contact us today to learn how we can help.