T2 Tax Return: All the Information You Need to Know
The process of preparing your T2 corporate tax return can be intimidating. The requirements and tax forms for filing a T2 return can be overwhelming, whether you are a newly incorporated company or expanding your current business operations.
Employing a CPA (Chartered Professional Accountant) with experience in T2 corporate tax returns is always advised if your company does not have an internal accountant or accounting team. Maintaining compliance with these obligations is crucial as your corporation's tax obligations increase.
The T2 tax returns for Canadian corporations are the area of expertise for the CPAs (Chartered Professional Accountants). Utilize our T2 tax return guide to find answers to some questions regarding the filing of T2 corporate tax returns.
Contact a (corporate) tax accountant for more comprehensive instructions that apply to your corporation.
A T2 Tax Return is what?
Similar to how people are required to pay income taxes on their earnings, Canadian corporations are also required to do so. The mandatory general return form that must be used in order to file corporate taxes is the T2 Corporation Income Tax Return. There is also the T2 Short Return, which is a shorter return form as its name implies. The T2 Short Return is available to only a select group of corporations.
In addition to the T2, there are other corporate tax forms that need to be completed. This includes the Schedules and the GIFI (General Index of Financial Information).
Corporations are required to submit a T2 for each tax year in order to avoid financial penalties.
Who is required to submit a T2?
The Canada Revenue Agency (CRA) requires that all corporations with Canadian addresses submit a T2 form.
Among them are businesses that:
- Not required to pay taxes
- Has no activity or income and is idle
- Is a nonprofit corporation.
- Has a tax-free status.
Non-resident corporations might additionally be required to submit a T2 corporate tax return in some circumstances. Even if it is not a Canadian corporation, it must file a T2 with the CRA if it carried on business in Canada, realized taxable capital gain, or sold taxable Canadian property.
What Details Are Required For A T2 Income Tax Return?
The T2 return for a corporation must contain a lot of details in order to be properly filed. To make the process easier, gather all necessary data and pertinent documents before filing.
The most typical details and records needed to submit a T2 corporate return are as follows:
- Name, location, and business identification number of the organization
- All shareholders' names and addresses
- Whether the company is bonded or affiliated with other businesses, whether shareholders own shares in other businesses, or both
- Articles of Incorporation
- Complete financial statements, including income and balance statements as well as bank and credit card statements, that have been submitted to the General Index of Financial Information (GIFI)
- Prior-year financial statements, T2 return and Notice Of Assessments, if applicable
- The company’s main activities - products and services provided in percentages
- Different sources of income for the corporation (investment, real estate, etc)
- Where the company performs its activities - inside or outside Canada—which province or territory
- Whether the company paid or received dividends
- Acquisition or disposal of fixed assets
- A list of changes to the corporation from last year (I.e. shareholders or addresses)
- Any carry-forward information of prior years, if applicable
- Any relevant government correspondence relating to the corporation
A large portion of this data will already be on file if you use web-based filing software or work with a tax accountant. If additional information is needed from you before filing, your accountant will let you know.
Corporate Income Tax Return T2 Guide
An 8-page form specifically for corporations doing business in Canada is called the T2 Corporate Income Statement. It is to be filed with relevant schedules and the GIFI.
This tax form includes all necessary details about your company's operations during the specified tax year. The sources and amounts of income are disclosed, and tax credits and deductions, such as the small business deduction, refundable Part I Taxes, general tax reductions, and other tax credits pertinent to your business, may be claimed.
Your T2 tax return's data you enter also provides guidance on the Schedules you must submit with your filing.
The certification portion is the final and most significant step. You or another company representative in a position of authority must attest that all information provided is accurate and true.
It should be noted that since Quebec and Alberta have their own individual corporate tax systems, businesses earning income in those provinces are required to file separate provincial corporate tax returns. The T2 is used by businesses that have permanent establishments in any other province or territory to record all applicable income taxes.
How does the General Index of Financial Information work?
Along with their T2, corporations must also submit a General Index of Financial Information. You use this list of codes consistently when creating financial statements. The income statement, balance sheet, and statement of retained earnings are reported by the GIFI.
There is also a short-form GIFI available to corporations that qualify.
You can finish this by filing online. It offers broad financial data about your corporation, which is then supplemented by the Schedules that you submit.
Short Return T2
Some Canadian corporations have the option of filing the T2 Short Return rather than the longer T2 Corporate Income Tax Return form. Only 3 additional schedules—Schedules 100, 125, and 141—are needed for this 2-page document. A corporation is not required to attach Schedule 100 if it is inactive. Please be aware that depending on the business activity of your corporation during that year, you might also need to attach other Schedules that are not required.
Not all businesses can utilize the T2 Short return. Companies that fall under one of these categories are qualified:
- They have no net income or a loss for the entire year and are a Canadian-controlled private corporation (CCPC).
- They belong to a corporation that is exempt from taxes under Section 149 of the Income Tax Act and are a non-profit organization of that corporation.
To use the CRA T2 Short Return, a corporation must still fulfill all of the following requirements even if it satisfies one of these two criteria:
- It only has a permanent presence in a single province or territory.
- A refund of previously paid instalments is the only refundable tax credit it is claiming.
- No taxable dividends were received or distributed by it.
- The reporting currency is Canadian dollars.
- It has no Ontario transitional tax debit.
- There is no amount determined in accordance with section 34.2 of the Income Tax Act.
- A tax-exempt corporation with only one province or territory as its permanent establishment may also use it.
The T2 Short return requires less paperwork to file than the T2 Corporate Income Statement, but it still adheres to the same filing guidelines. You will learn if you qualify to use the T2 Short from your accountant.
Do I Need T2 Returns and Schedules?
Yes, when you file your T2 corporate tax return, you must include certain T2 schedules.
Schedules are additional documents that give specific information about the operations and finances of your company. When you file with the CRA, they must be completed along with your T2. Heavy fines may result from failing to include the proper schedules with your T2 when you file.
There are two groups into which the CRA T2 schedules are divided.
Schedules of information, including both general and transactional information.
Schedules for calculations, such as those used to figure out net income, taxable income, deductions, taxes, and credits.
Schedules 100, 125, and 141 must all be completed in order to submit your T2 electronically. Depending on your business activities, other schedules, such as Schedule 50, Schedule 8, and Schedule 7, might also be necessary.
A comprehensive list of T2 schedules necessary for T2 filing has been compiled by the CRA. You can see them on their website.
What Is the Due Date for T2 Tax Returns?
The T2 filing deadline is determined by the fiscal year of your corporation. When your corporation's fiscal year ends, the tax year also does.
Six months after the end of your corporation's tax year, you must file your corporate tax return. File the return by the last day of the sixth month following the end of the tax year if the corporation's tax year ends on a day other than the last of the month. File the return by the same day of the sixth month after the end of the tax year if the last day of the tax year is not the last day of a month.
If your corporation's tax year ends on March 31, for instance, the T2 filing deadline is September 30. Your T2 must be filed by September 23 if your corporation's tax year ends on March 23.
The return is deemed filed on time if it is sent on the first business day following the filing deadline when the T2 filing deadline falls on a Saturday, Sunday, or CRA-recognized public holiday.
How do T2 Penalties work?
If you file a T2 after the deadline or if your return contains errors or omissions, you could face a number of penalties.
The failure to file penalty, which you will receive if you submit your T2 late, is the T2 penalty that is the simplest to avoid. The maximum penalty period is 12 months, and it is equal to 5% of the unpaid tax that was due at the filing deadline plus 1% of this unpaid tax for each full month that the return was late.
If the CRA issues a demand to file and they determine that the corporation failed to file in any of the three prior tax years, they may assess an even higher T2 late filing penalty. The maximum penalty is 20 months and is equal to 10% of the unpaid tax at the time the return was due, plus 2% of this unpaid tax for each full month the return was late.
Additionally, there are fines for mistakes, omissions, unreported income, late payments, and more.
To learn more about other fines, including the T2 late filing fine, go to the Canada Revenue Agency.
The address for the T2 return
Online filing of your T2 income tax return is advised.
You need a Web Access Code or an EFILE number and password to electronically submit your T2 Corporation income tax return to the CRA. You can directly apply for a Web Access Code by using specific commercial tax preparation software or by getting in touch with the CRA. This is frequently an option for people, accountants, or business owners who are submitting their own T2s.
If you are a tax professional filing on behalf of a client or multiple corporations, you can get EFILE online numbers and passwords. On the website of the Canada Revenue Agency, these numbers can also be requested.
It is required for your corporation to use online filing if it earns more than $1 million in revenue each tax year. These corporations cannot mail paper copies of their T2 tax returns.
The majority of Canadian corporations are qualified to use Corporation Internet Filing to submit their T2. To do this, you must use tax filing software that has been approved by the CRA. On their list are several of the most widely used tax preparation software packages in Canada.
Mailing Addresses for T2 Tax Returns
The T2 corporate tax return can be mailed in paper form if your corporation's gross income is less than $1 million.
There are a number of tax centres across Canada able to receive T2 returns. Depending on where the corporation has its registered office, you must send your completed T2 to that location.
Each and every non-resident corporation must submit their finished T2 tax returns to the tax center in Sudbury, Ontario. Visit the Canada Revenue Agency website to find the mailing addresses for your tax center.
CRA T2 Final Return Filing
You must submit a T2 Final Return if you have made the decision to close your business. Similar to those in a typical fiscal year, a corporation has obligations for its final return. You must still complete the T2, submit the GIFI, and include all necessary schedules. Additionally, you must submit corporate Articles of Dissolution along with your final return, which you requested before submitting your T2.
Checking the box on Line 078 to indicate that this is the final return before dissolution is crucial for your T2 final return.
Even if a corporation is inactive, the CRA will expect T2 returns to be filed in the following years if their T2 final return was not filed correctly.
My T2 Tax Return has been submitted. Now What?
There are no further actions that need to be taken right away after filing your T2, GIFI, and schedules, just like with a personal tax return. Congratulations!
The CRA will then send you a Notice of Assessment outlining any additional steps that must be taken, the amount you must pay, or the amount you are eligible for a refund.
If you owe income tax, you must pay it in full, either all at once or over time in installments. There will be interest and penalties if your income tax is not paid by the due dates for the installments.
Do I require an accountant to submit my T2 tax return?
To submit a T2 corporate income tax return, you are not required to have an accountant. To work with a certified tax accountant is always advised, even by the CRA itself.
An accountant will assist you in gathering all necessary documentation, completing the numerous intricate tax forms, and seeing to it that you adhere to all deadlines. The CRA takes corporate tax compliance very seriously, and any mistakes could result in harsh fines for your company.
Chartered Professional Accountants (CPAs) can offer advice or help you file your corporate T2 because they are authorities in Canadian corporate tax law. We can give you information that is pertinent to your corporation's T2 so you have the right paperwork and meet the deadlines.
For a free consultation, get in touch with us and discover why Canadians choose us to handle the T2 corporate income tax returns.
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