Corporate Tax (T2)

Universe Business and Tax Consultants Inc. specializes in corporate tax returns.

A Corporation is a separate legal entity. It can enter into contracts and own property in its own name, separately and distinctly from its owners. Since a corporation has a separate legal existence, it has to pay tax on its income, and therefore must file separate corporate income tax returns. The taxpayer can set up a corporation by filing articles of incorporation, with the appropriate provincial, territorial, or federal authorities.

Corporation must also register for the GST or HST if its taxable world-wide annual revenues (including those of associates) are more than $30,000. Un-like, sole proprietor and partnership, corporations are taxed separately. Corporations can choose non fiscal year ends. Corporations have six months after the fiscal year end to file the federal and provincial tax returns. However, any balance owing must be paid within three months of year-end.

A Corporation must file a corporation income tax return (T2) within six months of the end of every taxation year, even if it doesn’t owe taxes. It also has to attach complete financial statements, GIFI and the necessary schedules to the T2 return. A Corporation pays its taxes in monthly instalments.

The following are the characteristics of a corporation business:

• Corporation is separate legal entity;
• Corporation has choice of keeping any fiscal year end;
• A Corporation must file a corporation income tax return (T2) within six months of the end of every taxation year;
• Any tax owing must be paid within three month of year end.

Companies and corporations pay tax on profit income and on capital. These make up a relatively small portion of total tax revenue. Tax is paid on corporate income at the corporate level before it is distributed to individual shareholders as dividends. A tax credit is provided to individuals who receive dividend to reflect the tax paid at the corporate level. This credit does not eliminate double taxation of this income completely, however, resulting in a higher level of tax on dividend income than other types of income. (Where income is earned in the form of a capital gain, only half of the gain is included in income for tax purposes; the other half is not taxed.) Corporations may deduct the cost of capital following capital cost allowance regulations.

Starting in 2002, several large companies converted into “income trusts” in order to reduce or eliminate their income tax payments, making the trust sector the fastest-growing in Canada as of 2005. Conversions were largely halted on October 31, 2006, when Finance Minister Jim Flaherty announced that new income trusts would be subject to a tax system similar to that of corporations, and that these rules would apply to existing income trusts after 2011.

Capital Tax is a tax charged on a corporation’s taxable capital. Taxable capital is the amount determined under Part 1.3 of the Income Tax Act (Canada) plus accumulated other comprehensive income.

Effective January 1, 2006, capital tax was eliminated at the Federal level, however some Provinces continued to charge corporate capital taxes. In Ontario the corporate capital tax was eliminated July 1, 2010, though it was eliminated effective January 1, 2007, for Ontario corporations primarily engaged in manufacturing or resource activities. In British Columbia the corporate capital tax was eliminated as of April 1, 2010.