How to Survive Your First Corporate Income Tax Return
Wouldn’t it be great if tax season was as easy as pie? Like – what if we could just float through the tax season without heart palpitations and endless phone calls and coordination? What if we pulled up our socks and prepared for this unavoidable obligation to the Canada Revenue Agency? I’ll be honest with you, it’s very possible with the right preparation and the right help.
Canadians rush to gather everything every year to complete their individual tax returns on time, but what about your corporate income tax return? That’s where it gets even more complex.
Corporate tax season will be a breeze if you've been keeping up with your bookkeeping tasks all year long. Suppose you're completing a return with a new corporation for the first time, and you’ve done the bare minimum to keep everything in check (and we highly recommend keeping everything in check). In that case, you'll have some work to do before you send everything over to your tax preparer.
Preparing for Your Corporate Income Tax Return
When it comes to preparing what’s required for your Corporate Income Tax Return, we highly recommend hiring a professional to manage your corporate taxes, as it can become very complicated depending on the nature of your business.
Regardless of which route you choose, it’s still very beneficial to understand the basics of how corporate income tax returns are prepared, as this will help you feel at ease during the year and throughout your tax season.
We’ve put together some items that will help you navigate the waters of your First Corporate Income Tax Return. This way, you'll be prepared to give your tax preparer everything they need to complete your Return – and more importantly, you'll provide it to them on time.
How to File Your Corporate Income Tax Return
In Canada, all corporations (including inactive corporations) must file a T2 return for every tax year, even if there’s no tax payable (exceptions to this rule include Crown corporations, charity corporations, etc.). The T2 harmonized Return now covers both the Federal and Provincial returns for corporations (since 2009).
When to File Your Corporate Income Tax Return
The first thing to determine is when your tax year occurs as, more times than not, it doesn't line up with a regular tax year and calendar year. This may be used to your advantage as it’s less to worry about when your individual tax return is due.
It’s possible that you may even have more time than you anticipated to file your Corporate Income Tax Return. On the flip side, if you haven't given this much thought, you may be already due for a corporate income tax return, depending on your defined tax year.
So, how do you determine your corporate tax year? You can declare your tax year on your first T2 return after incorporation if you have a new corporation. Your tax year is your fiscal period and cannot be longer than 53 weeks (371 days).
On your very first T2 return, you would use the date of incorporation as the start of your tax year. After your first return, your tax year start will be the day after your tax-year end date.
For example: If you incorporated on February 11th, 2022 and chose to have a tax-year end date of November 10th, 2022 – your first tax year would be from February 11th, 2022 to November 10th, 2022 and the second tax year would be from November 11th, 2022 to November 10th, 2023.
The one exception to this is when a professional corporation is incorporated as a partnership, as the tax year-end date will always fall at the end of the calendar year. Therefore, a partnership's first tax year could be from February 11th, 2022 to December 31st, 2022, and the second tax year would start on January 1st, 2023 and end on December 31st, 2023.
Your Corporate Income Tax Return Deadlines
Every corporation must file its T2 return no later than six months after the end of its tax year. The balance of tax payable is due two or three months after the end of your tax year, depending on your balance-due day.
What You’ll Need for Your Corporate Income Tax Return
There’s a number of records and information that you’ll want to have available for your tax preparer to make this process as smooth as possible, the details of which are as follows:
Basic Business Information
Your basic business information will be required to file your return, especially if you've never previously worked with the tax preparer. You'll want to provide the following:
Business Number assigned by the Canada Revenue Agency
Date of Incorporation (including the province of incorporation)
Legal Name of Corporation
Incorporation Certificate Number
Type of Business Activities
Contact Information (addresses and telephone numbers of directors and the signing officer, SIN numbers of shareholders, etc.)
Bookkeeping Records
If you have not taken the time to organize your bookkeeping throughout the year, you can also hand this over to your tax preparer at this time. Be sure to include the following:
All bank records (statements, credit card statements, etc.)
All cancelled cheques
All receipts and invoices for your income and expenses
Business Records
You’ll also want to gather all the applicable business records to avoid a back-and-forth scenario with your tax preparer. Those things include:
Notice of Assessment for the previous tax year (if applicable)
Payroll records
GST/HST reports filed for the year
Tax Installment payment information
Bank Statement for the last month of the tax year
New Year, New Start
After completing your tax return and paying your taxes, you might think about how to improve the process when your next corporate tax deadline rolls around.
Perhaps you want to ensure that you keep all the required business records and information easily accessible for tax time.
Perhaps you’ll set a reminder to complete specific bookkeeping tasks every month so that you don’t have to incur the expense of having someone else do it during the year.
Perhaps you may even see the value in hiring a bookkeeper to perform your bookkeeping tasks throughout the year instead of waiting until the very end. If that's the case, not only can we assist with your corporate tax return, but we can assist with your bookkeeping tasks throughout the year as well.
Contact us today to find out how we can make your life easier for your next corporate tax year!