T2 tax form: A guide for small business owners

All corporations in Canada must complete a T2 tax form to file their business taxes. This form, along with the accompanying schedules, serves as a federal and provincial or territorial income tax return. The exceptions are if your business is located in Alberta and Quebec.

What is a T2 tax form?

The T2 corporation tax return is also called a "declaration of corporate income," which Canadian corporations must use to report their income and file taxes.

The T2 form also acts as the tax file form for provinces and territories. If your business has an office in Alberta or Quebec, you will also have to report using an additional form. This is because the Canada Revenue Agency (CRA) doesn’t collect provincial corporate taxes on their behalf.

The form itself is 8 pages long, although some businesses may be eligible to complete the T2 short return, which is two pages long. In either case, you will also need to attach schedules with some extra details.

Corporations must file their income tax forms within six months of the end of their tax year. The exact date varies because corporations can choose their own fiscal years when they first incorporate.

All tax forms and supporting documents are provided in English and Français.

Under the Canadian Income Tax Act, corporations must pay their taxes in instalments. These are generally paid monthly or quarterly.

Failure to file by the deadline will result in penalties. There are also penalties for errors and omissions of information. Given the complexity of the forms and schedules, it’s best to have a tax professional help you prepare your taxes. They can ensure you file the correct supporting documents accurately.

Who has to file a T2 tax return?

As part of the Income Tax Act, all corporations based in Canada must file a T2 tax form. This includes:

• non-resident corporations that do business or sell property in Canada. The rules are complex for non-resident corporations
• non-profit organizations
• tax-exempt corporations, such as charities and sports associations
• corporations that are idle and earn zero income

What information do you need?

Any corporation preparing its taxes will require a lot of information and documents to file its taxes correctly. You’ll have to provide basic information such as the company name and registered address, business number, and main activities. You’ll also need to include:

• names and addresses of company shareholders
• details about whether shareholders hold shares in other companies. This also includes whether the company is bound or associated with other companies
• articles of incorporation
• complete year-end financial statements filed with the General Index of Financial Information (GIFI). This includes the balance sheet, income statement, and bank and credit card statements

If your company has different sources of income, such as investments, those must also be included. Additionally, you’ll need to share whether your company paid or received dividends and whether it bought or disposed of fixed assets.

Include information about the locations where your company performs its activities. This includes both inside and outside Canada and in provinces and territories. CRA also needs to be informed of any changes to the corporation in the past 12 months, such as changes to shareholder names.

T2 tax return deadlines

Corporations must file their tax returns within six months of the end of their tax year.

If your tax year ends on the last day of a month you must file the T2 on the last day of the month six months later. For example, for a tax year ending December 31, you must file by June 30.

If your tax year ends on a different date, such as December 15, you must file the T2 on the same date six months later. In this case, it would be June 15.

Companies in Quebec must be careful to file on time – Revenu Québec can impose penalties.

T2 short return

The T2 Short Return Form is a simpler version of the regular T2 Corporate Income Tax Return Form. Companies that are eligible to file the T2 short return must meet strict guidelines.

• They must be Canadian-controlled private corporations (CCPC) that have no net income (or a loss) for income tax purposes, or
• They are exempt from tax under the Income Tax Act, such as in the case of a non-profit.

And they must:

• be based in a single province or territory
• not be claiming any refundable tax credits
• not pay out or receive any taxable dividends
• must do its financial reporting in Canadian dollars
• can’t have either an Ontario transitional tax debit or an amount calculated under section 34.2

Schedules

In addition to the T2 tax form, you’ll need to file Schedules. These are additional documents about a corporation’s finances and activities.

There are some mandatory schedules and some that will depend on a corporation’s business activities.

Mandatory schedules:

• Schedule 100: Balance sheet information
• Schedule 125: Income statement information
• Schedule 141: GIFI additional information

Other common schedules (may be mandatory for some corporations):

• Schedule 50: Shareholder information
• Schedule 7: Aggregate investment income and active business income. This also includes details about small business deductions
• Schedule 8: Capital cost allowance (CCA)
• Schedule 42: Calculations of unused Part 1 tax credits
• Schedule 6: Summary of dispositions of capital property if you have any capital gains (or losses)

Some schedules must also be completed for provincial and territory corporate tax filing.

Filing your T2 tax forms

Once you complete the T2 forms, there are several ways to file them.

Most corporations are expected to file electronically. You’ll need an Efile number and password. You can apply to the CRA for the Efile number.

Non-resident companies must file a T2 return if they meet certain conditions. Those conditions include conducting business in Canada, having a taxable capital gain or disposing of taxable Canadian property during the year.

FAQs

Should you use an accountant to file your T2 tax forms?

Generally, yes. There are many benefits to working with an accountant on your T2 tax forms. If your business is highly complex, you’ll want an accountant to ensure the form is filled out correctly. If you aren’t comfortable working with numbers or aren’t familiar with accounting rules, it’s a good idea to have an accountant fill out the form for you. They are also aware of changes in tax laws and will alert you to deductions or credits you may have missed.

How are T1 and T2 tax forms different?

The T1 form is for individual taxpayers to report their annual income, claim credits, and calculate the taxes owed. A T1 reports income from the calendar year and is typically filed by the following April 30. Individuals using a T1 form include personal income details, such as employment and investment income.

The T2 form is for incorporated businesses to report their corporate income and expenses, and to calculate taxes owed. The T2 form must be filed annually, but the deadline varies based on the corporation’s fiscal year-end. Corporations must file within six months of the end of their fiscal year.

What schedules should I fill out with my T2 tax form?

This depends on your business and its circumstances. All businesses must complete:

• Schedule 100: Balance sheet information
• Schedule 125: Income statement information
• Schedule 141: GIFI additional information

This means you must fill them out no matter what your business circumstances are. Other schedules may be mandatory, depending on your business. Consult with the CRA or an accountant to determine which schedules you should fill out with your tax return.