Corporate Tax (T2) Guide for Canadian Businesses
Understand Your Corporation’s Tax Obligations, Filing Requirements, and Deductions
Every incorporated business in Canada — whether a Canadian-Controlled Private Corporation (CCPC), Personal Services Corporation (PSC), or professional corporation — must file an annual T2 Corporation Income Tax Return with the Canada Revenue Agency (CRA).
At Sunrise Chartered Professional Accountant, we help businesses across Winnipeg and Manitoba meet their corporate tax obligations, maximize deductions, and stay fully compliant with CRA requirements.
Who Must File a T2 Return
All resident corporations in Canada must file a T2 Corporation Income Tax Return for every taxation year, even if they:
- Have no taxable income or operated at a loss
- Were inactive during the year
- Are holding companies or Personal Services Corporations (PSCs)
Filing ensures your corporation remains in good standing with both the CRA and your provincial corporate registry.
Key Corporate Tax Deadlines
- T2 Filing Deadline: Six (6) months after your corporation’s fiscal year-end.
(Example: A corporation with a December 31 year-end must file by June 30.) - Balance Due Date: Taxes payable are due two or three months after year-end, depending on eligibility for the Small Business Deduction (SBD).
- Installments: Required if your corporation’s total tax payable exceeds $3,000 in the current or previous year.
Late filing or late payment may result in penalties and daily interest.
Special Considerations for CCPCs
A Canadian-Controlled Private Corporation (CCPC) is a private corporation controlled by Canadian residents. CCPCs enjoy several tax advantages:
- Small Business Deduction (SBD): Reduces the federal corporate tax rate on the first $500,000 of active business income
- Investment Tax Credits: Enhanced SR&ED credits for research and development activities.
- Deferral Opportunities: Lower tax rate on active income retained within the company for future growth or dividend payouts.
To maintain CCPC status, your corporation must not be controlled, directly or indirectly, by non-residents or public corporations.
Common Corporate Deductions and Credits
- Operating Expenses: Rent, salaries, insurance, utilities, and professional fees
- Capital Cost Allowance (CCA): Depreciation on vehicles, tools, and office equipment
- SR&ED Credits: For eligible research and development costs
- Charitable Donations: Deductible within CRA limits
- Professional Fees: Accounting, legal, and business advisory costs
Personal Services Corporations (PSC) – Key Tax Rules
A Personal Services Corporation (PSC) typically provides services through an incorporated entity but is functionally equivalent to an employee relationship under CRA rules. Common examples include IT consultants, engineers, financial professionals, and independent contractors working primarily for one client.
Key compliance points include:
- Income earned by a PSC does not qualify for the Small Business Deduction (SBD).
- Most expenses are limited to direct employment-related costs, such as wages, benefits, and certain operating expenses.
- Income is often taxed at the highest corporate tax rate (known as “PSB rate”), since the CRA views it as incorporated employment income.
- Reasonable salary must be paid to the incorporated individual to reduce double taxation.
- CRA audits for PSCs often focus on control, integration, and dependency — the same tests used to determine if a worker is an employee or independent contractor.
Sunrise CPA provides expert advice on identifying PSC risk, structuring your contracts, and ensuring compliance to avoid CRA reclassification or penalties.
Do’s and Don’ts for Corporate Tax Compliance
Do:
- Keep accurate, year-round bookkeeping for all corporate transactions.
- File the T2 return on time to avoid penalties.
- Claim eligible business deductions and CCA for equipment, vehicles, and technology.
- Make tax installment payments if required.
- Review your structure annually with a CPA to ensure continued CCPC eligibility.
Don’t:
- Mix personal and business expenses — maintain separate accounts.
- Delay filing or payments — CRA penalties start at 5% of the unpaid balance.
- Assume contractor status without confirming CRA definitions (PSC risk).
- Overlook GST/PST registration and filings if your revenue exceeds $30,000.
- Ignore inactive corporations — they must still file a T2 return annually.