T2 return: A complete guide for businesses

What is a T2 tax return?

In Canada, Form T2 is the official form used to prepare a tax return for corporate income and to report it to the federal government. It is the Corporate Income Tax Return (T2) specific to businesses. Every business is required to file a corporate income tax return (T2) for each tax year. The Canada Revenue Agency offers two different types of T2 forms that businesses can choose from to file their returns, which are part of the Calculating Business Taxes.

The T2 corporate tax return

The company’s T2 corporate income tax return, which is 8 pages long, is a document that can be used by all businesses. However, in addition to the T2 form, there are several other required documents. It is important to understand that simply filing the T2 corporate tax return is not enough to fulfill your business’s obligations to the Government of Canada. It is also necessary to submit other financial statements, along with the appropriate schedules, in the General Index of Financial Information (GIFI).

What is a short T2 return?

The second type of return, commonly referred to as the “short T2” in tax jargon, is an abbreviated version of the T2 form consisting of only 2 pages and 3 schedules. However, it is important to note that not all businesses are eligible to use the T2, Abbreviated Return. Before completing this form, it is recommended that you consult Guide T4012, T2 Guide, Corporate Income Tax, to verify your eligibility, and review this advanced guide on the Mastering the T2 Return and the CO-17 Form.

What information is needed to file a T2 tax return?

• Whether you’re responsible for preparing your business tax returns or you use an accountant, you’ll need the following information:
• Business name and address.
• Canada Revenue Agency business number.
• Names (first and last), addresses, and countries of residence of all the company’s shareholders.
• Names (first and last), addresses, and countries of residence of all authorized signatory corporate shareholders.
• Complete Financial Statements, including income statements and balance sheets, filed using the General Index of Financial Information (GIFI).
• Detailed description of the business’s main activities.
• Identifying the business’s various sources of income, such as investment income, etc.
• Disclosure of any shares held by shareholders in other companies, or of the company’s ties or affiliations with other businesses.
• Declaration of any business activities or foreign assets held by the business.
• Clarification on conducting business in other Canadian provinces.
• Reporting any receipts or payments of dividends by the company.
• Notification of Acquisitions or Disposals of Fixed Assets (see the CCA and depreciation classes).

This list is not exhaustive, but it gives you a good idea of the type of information needed to file a T2 return in Canada.

Who is required to file a T2 tax return?

All businesses established in Canada are required to file a T2 return with the Canada Revenue Agency. The law is strict and applies to all businesses, even in the following cases:

• The business has no tax to pay.
• The business is inactive, with no business activity or income.
• The business is a non-profit organization.
• The business is exempt from tax.

It is therefore essential to take the responsibility for your corporate income tax very seriously. Certain exceptions apply to certain types of companies; you can contact the tax authorities for more information.

In certain situations, non-resident corporations may also be required to file a T2 return in Canada. For example, a non-resident corporation that has carried on business in Canada, realized a taxable capital gain, or disposed of taxable Canadian property. For more information, see our guide on Corporate Taxation for Businesses in Quebec.

How do I file my T2 tax return?

Hiring an Accountant:

The easiest way to file our business’s tax return in Canada is to hire an accountant who specializes in preparing tax returns. They will ask you for the required documents and information mentioned above. Once the work is complete, they will have you sign the T183 CORP authorization form. Form T183 CORP is a business tax return intended for electronic filing. After reviewing your tax return and signing the T183 CORP, your accountant will be able to electronically file the T2 tax return with the Canada Revenue Agency.

Using Software Solutions:

You can file your T2 return using a T2 software and submit it either online or using a printed form. If you prefer, you can still fill out the return on a paper PDF form. However, we do not recommend filing directly on the government’s website, as there is a risk of Calculation errors or omissions of important schedules is too high.

Please note that if your business has gross revenue exceeding $1 million, it is not permitted to file a paper tax return. The Canada Revenue Agency imposes a $1,000 penalty on businesses that fail to file their returns online. Here’s how Avoid Penalties and Optimize Your Compliance.

What are the deadlines for filing T2 tax returns?

Every business in Canada is required to file the T2 tax return form within six months after the end of each tax year. The tax year ends on the last day of a given month.

If your business has chosen a tax year ending on the last day of a given month, you must file the T2 tax return no later than the last day of the sixth month following the end of the tax year. Here are a few specific examples:

• If your business’s tax year ends on December 31, the filing deadline is June 30.
• If your business’s tax year ends on July 31, the filing deadline is January 31.
• If your business’s tax year does not end on the last day of a given month, you must file the T2 tax return no later than the same day of the sixth month following the end of your business’s tax year. For example, if your business’s tax year ends on September 14, the filing deadline will be March 14.

It is essential to meet the filing deadlines for your T2 tax return, as the Canada Revenue Agency has various legal means to impose penalties and interest on your business. To properly prepare the fiscal year-end close or your Year-End, follow our practical guides, and don't forget your tax instalments.

To determine your business’s tax year:

• For a business that is not in its first year of operation: If your business has already filed a T2 tax return in the past, you must use the same end date for your business’s tax year. If you wish to change this date, you must send a letter to your business’s tax office explaining the reason for the change. Without the tax authority’s approval, you must strictly adhere to the established end date.
• For a business in its first year of operation: If your business is in its first year, you can choose the end date of the tax year. However, please keep the following rules in mind:

A company’s tax year cannot exceed 53 weeks or 371 days.

In the first year, you must choose the date the business was incorporated as the start date of the tax year and calculate the 371st day from that date.

You are free to choose the end date of your business’s tax year; you are not required to use the calendar year or December 31. It is recommended that you choose a tax year-end date that falls during a period of reduced activity for your business. If you own multiple companies, it’s more convenient to choose the same end date for all of them. For a smooth transition, see also The 7 Key Steps to a Stress-Free Year-End.

What other schedules do I need to complete on my T2 tax return?

The list of schedules required with Form T2 is too long to be posted on this site. However, we will provide you with a short list of the most important ones.

In addition to Form T2, you must complete the following schedules related to the financial statements:

• T2SCH100: Balance Sheet Information
• T2SCH101: Information on the Opening Balance Sheet
• T2SCH125: Information on the Income Statement
• T2SCH141: Notes and Checklist

In addition, businesses must also complete the following schedules:

• T2SCH1: Net Income (Net Loss) for Income Tax Purposes
• T2SCH50: Information for Shareholders

Schedule 50, which covers information for shareholders, is relatively straightforward. However, Schedule 1, which covers net income, is more complex. It aims to reconcile accounting profit and taxable income, a task that is not suitable for a non-specialist. In fact, accounting profit is not necessarily the taxable income used to calculate the corporate tax rate. First, there are non-deductible expenses (tax penalties, personal expenses, golf, accounting depreciation, etc.), followed by expenses that are 50% deductible, such as entertainment expenses, not to mention numerous other exceptions.

Next, here are the schedules most commonly used by businesses:

• T2SCH2: Donations and Charitable Contributions: This schedule applies to businesses that have made donations to charities or political contributions. See also the Management of Taxable Benefits.
• T2SCH3: Dividends Received, Taxable Dividends Paid, and Part IV Tax Calculation: This schedule applies if you have paid dividends to your shareholders or if you have received dividends from other corporations. See also Salaries vs. Dividends.
• T2SCH4: Continuity and Application of the Company’s Losses: This schedule is used to calculate the history of losses incurred by the company over time. See How to Make the Most of Losses.
• T2SCH5: Tax Calculation Supplementary – Corporations: This schedule is used to allocate income among the provinces where the business has a permanent establishment, so that it can be properly taxed by the relevant provinces. To coordinate with GST/QST Management and Tax Registration.
• T2SCH6: Summary of Dispositions of Fixed Assets: This schedule is required if you have sold or disposed of assets such as stocks, real estate, bonds, etc. Please refer to the CCA and Categories.
• T2SCH7: Total Investment Income and Income from an Actively Operated Business: This schedule is used to distinguish your investment income from your operating income, since the tax rates and small business deductions differ. See the Accounting and Tax Alliance.
• T2SCH8: Capital Cost Allowance (CCA): This schedule is used to calculate the tax depreciation of eligible expenses. As mentioned earlier, depreciation is not tax-deductible, but you are entitled to tax depreciation calculated according to pre-established rates by asset category, in accordance with tax laws. See our CCA Guide.
• T2SCH9: Related and Associated Corporations: To consider when building a Solid Corporate Structure.
• T2SCH10: Cumulative Deduction of Eligible Capital: To be reconciled with Investment Tax Credits.

Here is the link to the Canada Revenue Agency website, where you will find most of the forms needed to file the T2 tax return: http://www.cra-arc.gc.ca/formspubs/clntgrp/bsnss/crprtn-fra.html

Where should paper T2 forms be sent?

If your business is not required to file its return online because its gross revenue is less than $1 million, you have the option to mail your paper return to the Canada Revenue Agency.

It is important to file your return with the tax centre corresponding to your company’s registered office address. You can visit the Canada Revenue Agency website to find the tax centre that applies to your business.

Here is a list of the various penalties associated with the T2 tax return, with links to the Canada Revenue Agency website for more information:

• Penalty for Failure to File
• Penalties on Payments
• Penalties for Large Businesses
• Penalties for Failure to File a Tax Return
• Penalties for False Statements or Omissions
• Penalties for False Tax Returns Filed by Third Parties
• Penalty for Nonresident Corporations
• Penalty for Failure to Comply with the Requirement to File Electronically
• Other Penalties

You can find more details about these penalties by following the corresponding links on the Canada Revenue Agency website.

Bankeo: A platform that helps you find the ideal accountant to file your T2 in Quebec and across Canada

In conclusion, finding a competent and experienced accountant to help you prepare your T2 tax return in Quebec and Canada can be made easier by using a platform such as Bankeo to Easily Find the Ideal Accountant that will meet your specific needs. Also check out our Accounting Services, Support for Your Business Taxes and bookkeeping.

By working with a qualified professional, you can ensure that your tax return is prepared accurately and in compliance with current tax laws. Feel free to use these resources to find a reliable accountant and get expert support with your business’s tax obligations.

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