Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.
There are various reasons why you have to file your corporate taxes in Canada. Maybe you just started a small business, or it's time for the annual tax return. Whatever your reason is, this article will help you navigate how to file business taxes in Canada.
We'll go over what is required before filing, how to calculate your income and expenses by using simple formulas, how to file corporate taxes online in Canada, and finally, how to prepare an accurate T2 Corporation Income Tax Return.
The Income Statement and Balance Sheet
The income statement and balance sheet must be accomplished before you prepare the forms needed for income tax returns.
An income statement is a document that records the revenue, expenses, and profits of a business over a period of time. This document can be used to help business owners make calculated decisions about the status of their company. A balance sheet is a document that displays the assets, liabilities, and shareholders' equity on a specific date. It is utilized to determine the net worth of a company.
There are three simple formulas that can be used to compute the income statement:
| Gross Income = Sales + Other IncomeTotal Expenses = Operating Expenses + Non-Operating ExpensesNet Income = Gross Income - Total Expenses |
The first step in computing the income statement is to gather all the required information. It includes total sales, other incomes, operating expenses, and non-operating expenses for the year. Once all the information has been obtained, it can be plugged into one of the three formulas above to calculate the gross income, total expenses, and net income.
Computation of the balance sheet comes next. Compared to the income statement, the main difference with the formula is that it starts from a zero amount to calculate all assets and liabilities.
| Assets = Liabilities + Shareholders' EquityTotal Assets = Total Current Assets + Total Non-Current Assets |
In computing for the balance sheet, all information needed must be obtained first before plugging into one of the formulas above. It includes total current assets and total noncurrent assets as well as total liabilities and shareholders' equity. Once again, using any of the simple formulas will allow you to obtain your company's net worth or stockholder's equity at a specific date in time!
If you want to know more about the importance of bookkeeping, read Facts About Bookkeeping Services Calgary Businesses and Startups Should Know, written by one of our CPAs here in Unloop.
Once both the income statement and balance sheet have been completed, it's time to start preparing your T2 Corporation Income Tax Return!
T2 Corporation Income Tax Return and Other Related Documents
All the documents you need to prepare your corporate tax return are available on the Canada Revenue Agency (CRA) website. Once you are on the CRA website, find "T2 Returns and Schedules" using the search field for a faster and accurate result. When you click the top result, you are redirected to the T2 Returns and Schedules page that contains the listing of all the forms you need to prepare your company’s tax return.
These are the schedules or forms you have to accomplish for the preparation of your business tax return:
- Schedule 100 - Balance Sheet Information
Schedule 100 includes the assets, liabilities, and shareholders' equity as of a specific date. When completed, Schedule 100 should show the complete financial position of the company as well as its ability to pay off liabilities when they become due through liquidation value (assets to liabilities).
- Schedule 125 - Income Statement Information
Schedule 125 is a form that has the total sales, other income, operating expenses, and nonoperating expenses for the year. This document will help compute the net income for the company.
- Schedule 50 - Shareholder Information
Schedule 50 holds the individual shareholders and corporations. This form is simple because you just need to declare the name and address of each shareholder, as well as their percentage of shares.
- Schedule 8 - Capital Cost Allowance (CCA)
Schedule 8 contains the cost of the assets, the date of acquisition, and the disposition date. This document computes the total CCA for your company.
- Schedule 1 - Net Income (Loss) for Income Tax Purposes
Schedule 1 - Net Income (Loss) for Income Tax Purposes comes with information about your company's net income or losses for income tax purposes. The schedule contains detailed information about total revenues and expenses and the resulting net income or loss.
- Schedule 200 - T2 Corporation Income Tax Return
Finally, Schedule 200 - T2 Corporation Income Tax Return is the main document you need to complete to file your company's tax return. This schedule will require all the information from Schedule 125, Schedule 100, and Schedule 50, as well as any other relevant documents.
Once all these forms have been filled out accurately, it is time to submit your corporate income tax return!
Submission to CRA
One very important thing is to know how to file business taxes in Canada online properly. The CRA accepts both paper and electronic submissions of corporate tax returns. However, if you are filing electronically, the CRA approves only specific software programs you can use.
When filing a paper return, ensure to attach all required schedules and supporting documents. If anything is missing or incomplete, it may result in delays in processing your return.
It is important to note that the T2 Corporation Income Tax Return is due within six months after your company's tax year ends. If you are filing late, there will be a penalty fee of 5% per month for up to 12 months where your return is filed beyond the deadline.
If both forms 100 and 125 have been completed correctly, CRA offers an automatic calculation of Schedule 50 as well as Schedule 200. Once these schedules are complete, do not forget to submit them with all other required documents to file your corporate taxes!
Final Thoughts
Now that you know how to file corporate taxes in Canada, don't forget to consult with a tax professional if you have any questions. With the right help and guidance, filing your company's tax return should be easy! If either form 100 or 125 has been completed incorrectly, CRA will charge penalties up to 12 months after the due date of the T2 Corporation Income Tax Return (Schedule 200) as per tax law. Don't let this happen! Hire an accountant who can guide you through these steps so that your business meets all regulatory requirements on time.