Corporation Tax Filing in Canada

Corporations with operation in Canada have to file a corporation income tax return or T2 tax returns each year, even if it has remained inactive and has no tax to be paid in that financial year. Corporation tax filing has to be done every year within a period of six months of the fiscal year end.

Managers of business corporations are aware that one of the biggest advantages of getting the business incorporated is that you do not need to have a fiscal year that relates to a calendar year. The business can be incorporated with its fiscal year beginning in any fixed month and then ending after twelve months.

If your business corporation’s fiscal year ends on 30th September, the T2 corporation tax filing will have to be done by 30th March of the next year. If the filing deadline, that is, 30th March, falls on a Saturday or a Sunday or a statutory holiday, CRA will accept the return if it is filed on the first business day after the deadline.

Corporation tax filing can also be done electronically with the use of the internet. The condition for electronic filing is that you have to use the tax preparation software which has been certified as suitable for Corporation Internet Filing by the CRA.

It is mandatory for some corporations to have their corporation tax filing done electronically as per the instructions of the CRA. These corporations fall into the category of returning an annual gross revenue of more than a million dollars. The exemption to this category would be insurance corporations and non-resident corporations. The corporations who are reporting in functional currency and those who are exempt from tax amounts payable under Section 149 of the Income Tax Act are also exempt.

Corporation tax filing has to be done within six months of the taxation year end and the payment of the amount can be done within two or three months after the taxation year end. All resident corporations in Canada have to do the corporation tax filing and this includes non-profit concerns, tax-exempt organizations and inactive corporations.

For non-compliance of corporation tax filing, the penalty for late filing of the T2 tax return is five per cent of the unpaid tax amount which is due on the filing deadline and the interest is charged at one per cent of this unpaid tax amount for every completed month that the return is late, up to a maximum period of twelve months.

If the CRA demands a corporation tax return to be filed or assesses a failure to file in any of the three previous tax years, the penalty becomes ten per cent of the unpaid tax amount when the return fell due and an additional interest of two per cent of the unpaid tax amount is charged for every completed month that the return is late, up to a maximum period of twenty months. These penalties apply to resident corporations. A non-resident corporation has to do its corporation tax filing if at any time of the current year, it has done business in Canada or it had a taxable capital gain. It also applies to those corporations that disposed of taxable property in Canada.