Corporate Tax Returns (T2) in BC

A corporation files its own income tax return, the T2, separate from the personal returns of the people who own it. That holds even in a year when the company earned nothing and owes nothing.

Who has to file

Every resident corporation has to file a T2 for every tax year, even if there's no tax payable. That includes non-profit organizations, tax-exempt corporations and inactive corporations. The exceptions are tax-exempt Crown corporations, Hutterite colonies and registered charities. A corporation's tax year is its fiscal period.

BC corporate income tax is administered together with the CRA, so a corporation with a permanent establishment in BC doesn't need a separate provincial account number. The BC portion is worked out on a schedule that goes in with the T2.

Most corporations now have to file the T2 electronically. The exceptions are insurance corporations, non-resident corporations, corporations reporting in a functional currency, and corporations exempt from tax under section 149 of the Income Tax Act. A corporation that has to file electronically and doesn't can be charged a $1,000 penalty.

Filing and payment deadlines

When the year ends on the last day of a month, the return is due on the last day of the sixth month after. Otherwise it's the same day of the sixth month, so a September 23 year end is due March 23. If a due date lands on a weekend or a public holiday the CRA recognizes, the next business day counts.

The three-month payment date only applies if the corporation was a Canadian-controlled private corporation (CCPC) for the whole year, claimed the small business deduction for this year or last year, and had taxable income last year no higher than its business limit. If it's associated with other corporations, their combined taxable income is what's tested. Paying late is a separate problem from filing late, so it helps to know which date applies before the year end comes around.

Instalments

Corporations generally pay their tax in monthly instalments through the year. A CCPC can pay quarterly instead if it has a perfect compliance history and, together with associated corporations, had taxable income of $500,000 or less and taxable capital employed in Canada of $10 million or less for the current or previous year.

No instalments are needed in the first tax year after incorporation, or when tax payable is $3,000 or less for either the current or the previous year. Whatever is owed still has to be paid by the balance-due date. Our post on CRA instalments covers how the amounts are worked out.

The small business deduction and current rates

The small business deduction lowers the tax a CCPC pays on income from an active business carried on in Canada, up to its business limit. That limit is $500,000 a year, and associated corporations share one limit. The limit starts to shrink once the group's taxable capital employed in Canada goes over $10 million and is gone at $50 million. It also shrinks once the group's passive investment income (adjusted aggregate investment income) goes over $50,000, and is gone at $150,000.

• Federal: the net rate is 15% in general, and 9% for a CCPC on income eligible for the small business deduction.
• BC: the small business rate is 2% (in effect since April 1, 2017) on active business income eligible for the federal deduction, up to BC's $500,000 business limit. The general rate is 12% (since January 1, 2018) and applies to income over $500,000 and to income that isn't eligible, such as investment income.

What goes in the return

The T2 is a main return plus the schedules that apply to the corporation. For BC, the province says that means either Schedule 427, British Columbia Corporation Tax Calculation, or Schedule 5, Tax Calculation Supplementary (Corporations). The province also points you to the CRA's Corporation Income Tax Guide (T4012) for filling it out. All of it depends on clean books, which is where year-end bookkeeping comes in.

Paying yourself

If you own the company, you can pay yourself a salary, dividends, or some of each. Our post on salary versus dividends compares them. A salary goes through payroll, with T4 slips due by the last day of February. When the corporation pays dividends to a Canadian resident, it has to report them on an information return, due by the last day of February after the calendar year the dividends were paid. See T-slip filing for more.

How we help

We handle the year end, the corporate return, and the planning that goes with it. Every business is priced individually based on its needs and the complexity of its books and filings, and cleaner books mean less work at our end, which shows in the quote. If you're still deciding whether to incorporate, that's one of the questions our consulting covers.