What is a T2 tax return?

In Canada, the T2 is the official form used to report corporate income to the federal government. This is the corporate income tax (T2) return specific to companies. Every business is required to file a corporate income tax (T2) return for each tax year. The Canada Revenue Agency offers two different types of T2 forms for businesses to choose from to complete their return, which are part of the business tax calculation.

T2 Corporation Income Tax Return

The company's T2 corporation 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 additional elements. It is important to understand that just completing the T2 corporate income tax return is not enough to meet your business's obligations to the federal government of Canada. It is also necessary to submit additional financial statements, along with the appropriate appendices, in the General Index of Financial Information (GIFI).

What is a T2 short return?

The second type of return, known as a "T2 court" in common tax parlance, is a shortened version of the T2 form that consists of only 2 pages and 3 schedules. However, it is essential to note that not all businesses are eligible to use the T2 Short Form Return. Before completing this form, it is recommended that you consult Guide T4012, T2 Corporate Income Tax Guide, to verify your eligibility, and to review this advanced guide on mastering the T2 and CO-17 return.

What information is needed to prepare a T2 tax return?

• Whether you're responsible for preparing your business tax returns or hiring an accountant, you'll need the following information:
• Name and address of the company.
• Canada Revenue Agency Business Number.
• Surnames (first and last name), addresses and country of residence of all shareholders of the company.
• Names (first and last name), address and country of residence of all authorized signing corporate shareholders.
• Complete financial statements, including income statements and balance sheet, filed in the General Index of Financial Information (GIFI).
• Detailed description of the company's main activities.
• Identification of the different sources of income of the business, such as investment income, etc.
• Indication of any shareholder ownership of shares in other companies, or of the company's links or associations with other companies.
• Reporting of any foreign activities or possessions by the company.
• Clarification on the conduct of activities in other Canadian provinces.
• Indication of any receipt or payment of dividends by the company.
• Notification of acquisitions or disposals of capital assets (see CCA and depreciation categories).

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 has 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 rigorous and applies to all businesses, even in the following cases:

• The company does not have to pay any taxes.
• The company is inactive, with no activity or income.
• The company is a non-profit organization.
• The company is tax-exempt.

It is therefore essential to take the responsibility for your corporate tax very seriously. Some exceptions apply to certain types of companies, and you can check with 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 carried on a business in Canada, realized a taxable capital gain, or disposed of taxable Canadian property. To go further, consult our guide on corporate taxation in Quebec.

How do I file my T2 tax return?

Hire an Accountant:

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

Use of Solution Software:

You can file your T2 return using T2 software and send it either over the Internet or using a printed form. If you wish, you can always complete the return in paper PDF format. However, we do not recommend filing directly on the government website, as the risk of calculation errors or omission of important schedules is too high.

Please note that if your business has gross revenues greater than $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 online. Here's how to avoid penalties and optimize your compliance.

What are the deadlines for filing T2 tax returns?

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

If your business has elected a tax year that ends on the last day of a given month, you must file the T2 tax return on or before the last day of the sixth month following the end of the tax year. Here are some concrete examples:

• If your business's tax year end is December 31, the filing deadline will be June 30.
• If your business's tax year end is July 31, the filing deadline will be 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 on or before the same day of the sixth month following the end of your business's tax year. For example, if your business's tax year-end is September 14, the filing deadline will be March 14.

It is essential to meet the deadlines for filing your T2 tax return, as the Canada Revenue Agency has a variety of legal avenues to impose penalties and interest on your business. To prepare for the end of the fiscal year or your end of the year, follow our practical guides, and think about instalment payments.

To determine your business's tax year:

• For a business that is not in its first year of existence: If your business has filed a T2 tax return in the past, you must keep the same end date for your business's tax year. If you wish to change this date, you must send a letter to your company's tax centre explaining the reason for the change. Without the agreement of the tax authorities, you must strictly adhere to the established end date.
• For a business in the first year of existence: If your business is in its first year, you can choose the end date of the tax year. However, please note the following rules:

A corporation's tax year cannot exceed 53 weeks or 371 days.

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

You have the freedom to choose the end date of your business's tax year, you don't have to use the calendar year or December 31. It is recommended that you choose a tax year-end date during a period of reduced activity for your business. If you have multiple companies, it's more convenient to choose the same end date for all of your companies. For a smooth transition, also see the 7 key steps to a stress-free end of the year.

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

The list of hours required with the T2 form is too extensive to be posted on this site. However, we will provide you with a small list of the most important times.

In addition to the T2, it is imperative to complete the following schedules for the financial statements:

• T2SCH100: Balance sheet information
• T2SCH101: Opening Balance Sheet Information
• T2SCH125: Information on the Statement of Operations
• T2SCH141: Notes and checklist

Then, companies must also fill in the following annexes:

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

Schedule 50 on shareholder information is relatively straightforward. However, Schedule 1 on net income is more complex. It aims to reconcile accounting profit and tax profit, a task that is not suitable for a non-specialist. This is because the 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.), then 50% deductible expenses, such as entertainment expenses, and many other exceptions.

Next, here are the most common appendices used by companies:

• T2SCH2: Charitable donations and gifts: This schedule applies to businesses that have made donations to charities or political contributions. To be compared with the management of taxable benefits.
• T2SCH3: Dividends received, taxable dividends paid, and Part IV tax calculation: This schedule applies if you paid dividends to your shareholders or received dividends from other corporations. Also read salaries versus dividends.
• T2SCH4: Continuity and Application of the Corporation's Losses: This schedule is used to calculate the corporation's historical losses over time. See how to maximize the use of losses.
• T2SCH5: Supplement to the calculation of tax - Corporations: This schedule is used to allocate income to the provinces where the business has a permanent establishment, in order to properly tax it in the provinces concerned. To coordinate with GST/QST management and tax registration.
• T2SCH6: Summary of Dispositions of Capital Property: This schedule is required if you sold or disposed of assets such as stocks, property, bonds, etc. Refer to the CCA and categories.
• T2SCH7: Total Investment and Active Business Income: This schedule is used to distinguish between your investment income and your operating income, as the tax rates and small business deductions differ. Consult the accounting-tax alliance.
• T2SCH8: Capital Cost Allowance (CCA): This schedule is used to calculate the tax depreciation of eligible expenditures. As mentioned earlier, depreciation is not tax deductible, but you are entitled to tax depreciation calculated according to predetermined rates per property class, in accordance with tax laws. See our DPA guide.
• T2SCH9: Related and Associated Companies: To be considered when having a solid corporate structure.
• T2SCH10: Lifetime Eligible Capital Deduction: To be reconciled with investment tax credits.

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

Where to send paper T2 slips?

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

It is important to send your return to the tax office corresponding to the address of your company's registered office. You can visit the Canada Revenue Agency website to find the tax centre for your business.

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

• Penalty for failure to report
• Penalty on payments
• Sanctions for large companies
• Penalty for non-filing of income
• Penalty for misrepresentation or omission
• Penalties for false tax declarations by third parties
• Penalty for non-resident corporations
• Penalty for non-compliance with the obligation to submit electronically
• Other penalties

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

Bankeo: Platform that allows you to find your ideal accountant to do your T2 in Quebec and Canada

In conclusion, finding a competent and experienced accountant to help you prepare your T2 tax return in Quebec and Canada can be simplified through the use of a platform such as Bankeo to easily find the ideal accountant who will meet your specific needs. Also discover our accounting, business tax and bookkeeping services.

By calling on a qualified professional, you ensure the accurate preparation of your return and compliance with the tax laws in force. Don't hesitate to use these resources to find a reliable accountant and get expert support with your tax obligations as a business.

https://www.bankeo.ca/