A Canadian Guide to File Corporate Tax: 2021 Edition

A Canadian Guide to File Corporate Tax: 2021 Edition

Businesses operating within Canada are liable to pay corporate taxes to the federal and provincial governments. Different provinces have varying methods of how they take care of provincial income tax, but the Federal government files it as a T2 corporate return.

Canadian dollars on a platform.

What Entities Are Required to Pay Corporate Tax

Even if your organization is an inactive, tax-exempt business or a non-profit, a T2 return is applicable for your corporation. A business that generates no income in a year must file taxes as well. Companies that aren’t based within the country but have either any of the following attributes can be taxed:

  • Carried business within the country
  • Have a taxable capital gain from the country

What Entities Are NOT Required to Pay Corporate Tax?

Different entities, including some crown corporations and Hutterite colonies, have obligations for filings, but otherwise are not required to file and pay income tax.

A corporate tax accountant in Edmonton looking at a financial report on his tablet.

Payment Schemes

As previously mentioned, the provincial tax policies differ, which is one of the factors that determine how much tax you might pay along with the size of your business. Generally, the tax rate is 38% of taxable income and called Part 1 tax. Using a federal tax abatement, you can bring this number down to 28%.

There are other ways to qualify for tax deductions and tax credits, which can help minimize taxable income as well.

Small Businesses Deduction

For businesses making a corporate income of $500,000 or less, the Small Businesses Deduction applies.

For Canadian-controlled private corporations claiming the small business deduction, the net tax rate is:

9% effective January 1, 2019

10% effective January 1, 2018

10.5% before 2018

The Filing Procedure

The CRA provides two options. Business owners can use the My Business Account or representatives can represent their client with the aptly named Represent a Client portal on the CRA’s website.

Paying Taxes

Once you’ve figured out how much you’re paying, here’s how you will be paying it off:

Payment Methodology

Payments have to be made in Canadian dollars. There are several methods of payments, including but not limited to debit cards, credit cards, and wire transfer.

Penalties

Penalties exist for both late filing and payment. These start off with a 5$% on the amount of taxes you owe along with 1% for each month you’re late. Under Section 163.1 of Income Tax Act, you may face an instalment penalty once the instalment interest crosses $1,000.

By working with a full cycle accounting service that deals in bookkeeping, you can ensure that your corporate tax is dealt with thoroughly on time. Reach out to Duggal Professional Corporation for your accounting needs in Edmonton.

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