How to Prepare Corporation Income Tax Return for Business in Canada Watch Video
Allan Madan, CPA, CA
If you need to prepare your corporation income tax return and plan to do so by yourself, Read More…
Disclaimer
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.
ABOUT THE AUTHOR
ALLAN MADAN
CPA, CA
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.
I like this post, enjoyed this one thanks for putting up.
Hi, my corporation hold some trust income investment that had foreign income and also foreign tax paid. I read that I can’t take income minus tax paid and the T2209 form was confusing cause it refer to S1 line 405 but that same line is refer to S10.
Is it worth to reclaim back the $22 foreign tax paid?
Hello Allan,
Part of cash I held in the company (MyCorp. is CCPC), I invested some cash assets in shares of a publicly traded Canadian corporation (let us call it Corp. A). Corp. A was taken over by Corp. B this year. As part of the conditions of the takeover, shareholders of Corp. A (transferee) and Corp. B (transferor) (joint election) could elect to defer taxes on capital gains by filing T2057, which we did. MyCorp. received cash (non-zero) and shares from Corp. B and it turns out that in this transaction MyCorp. has zero ($0) capital gains essentially because the way elected amount is calculated (Note 4 on page 3 of T2057).
My questions:
Accounting: How do I treat the income (cash received) as capital gains and at the same time treat it as non-taxable income?
Income tax: Is there a CRA T2 schedule or line # where I can declare capital gains as non-taxable income (cash received)?
I appreciate it if you can offer me some guidance. Thanks.
Hi Balvant,
Thanks for your question. If the cash that MyCorp received was equal to or less than the elected amount (i.e. the agreed upon transfer price on form T2057), then there won’t be a capital gain. In this case, the cash received by MyCorp is treated as a reduction of the ACB and PUC of the shares in Corp. A.
However, if the cash received was more than the elected amount, the following occurs:
1) The cash received up to the elected amount is treated as a reduction of the ACB and PUC of the shares in Corp A.
2) The cash received in excess of the elected amount is treated as a capital gain.
I hope that this answers your questions.
I was just wondering how come I can’t just send CRA a copy of my balance sheet and Income statement instead of filling out their version?
Hi Wilson,
Unfortunately CRA requires your to complete their format of your financial statements. The reason is they have different calculations for tax purposes than IFRS or ASPE allows. Calculating items such as depreciation are done differently for accounting and tax purposes which is why you must complete it CRA’s way
My corporation paid charitable donations this year. I was wondering where I would report this?
Hi Rob,
Schedule 2 will be where you calculate your corporations deduction for your charitable return. You can find the schedule here “http://www.cra-arc.gc.ca/E/pbg/tf/t2sch2/README.html”
I was wondering I have a small incorporated business. I am having trouble making my monthly tax installments from last year. Is it possible to request to make quarterly installments instead of monthly?
Yes you can but you must meet several criteria including being in perfect compliance history and having taxable income of $500,000 or less in current or previous years. for more info check out the CRA’s view of this issue here: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/crprtns/pymnts/nstlmnts/rqrmnts/lgbl-eng.html
I have a small business employing one person with salary, where can I report this (on which schedule).
Thanks.
If you are a sole proprietor, then you will report salaries expense on Form T2125, Statement of Business Activities. If you are incorporated, then you will report salaries expense on the GIFI Schedule 125 – Income Statement.
Thanks,
Allan Madan, CPA, CA & Team
Where can I find a template for how to complete a sole proprietor return?
Hi Logan,
As a sole proprietor you will need to fill out form T2125. We have an article on everything you need to know to fill out the form. Here is the link provided http://madanca.com/blog/tax-on-real-estate-sales-in-canada/
I recently incorporated my business and I have made no money this year. I have a substantial amount of business expenses that i would like to claim but I have no income to offset them. Can I still claim business expenses this year even though don’t have enough income to offset them?
Hi Cole,
You can still claim business-related expenses even though you earned no income this year. By doing so you will create a non-capital loss which can be applied to offset taxes paid in the past or future tax when you do earn income(up to three years back).
Thanks
Allan
Hi Allan,
My corporation suffered a capital loss this year when I sold some equipment. I was wondering if I could carry back this loss to my previous tax returns and if so how would I go about doing this?
Thanks
Hello Howard,
Yes you can carry back your capital loss to previous years but you need to complete a T1A form. In order to carry back a loss you suffered this year, you should make sure your tax returns for the previous 3 years include capital gains which the loss can be applied against. Also determine which year it would be most beneficial to carry the loss back. Last, go to the T1A form, and indicate which year you choose to carry the loss back to and then submit the T1A form with your tax return to apply the loss.
Thanks
Allan
Hello Allan,
Regarding requesting a carry back via the T1A form, the Company hasn’t files since 2008 , in order to claim a carry back from 2010 to 2009, they first need to file 2009 then request carry back once 2010 completed correct?
Hi Scott,
Yes, first complete the 2009 return and wait to receive the Notice of Assessment. Then file the 2010 corporate tax return and request a loss carry back on Schedule 4 of the return.
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
Hi there Allan,
It is my first year incorporated in my electrical business. I usually do my own tax returns and this guide is very helpful. I was just wondering if there are any additional forms I am required to submit to the CRA in my first year of incorporation.
Thanks
Brock
Hi Brock,
Yes there is one additional form you will have to fill out because it is your first year incorporated. This form is the T2SCH24 first time filer after incorporation form. You will be required to inform the CRA of the name and type of business you have incorporated.
Thanks
Allan Madan
Can you post or email the Example forms used in the video for Tech Consulting Company Inc. (TCCI)?
I would like to open them up side by side with mine and make sure I did not miss anything and expect other people would as well.
Thank you for helping small business owners save money and learn new skills!
Hi Mike,
I will email these forms to you shortly.
Allan Madan, CPA, CA
Tel: 905-268-0150
Hi Allan,
my business is in Quebec, what are the forms I am required to submit to the Quebec revenue agency.
thanks
ibrahim
Hi Ibrahim,
Corporations with a permanent establishment in Quebec must file a Quebec Corporate Tax Return (Form C0-17). This is in addition to the Federal Corporate Tax Return.
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
I’m so glad I found this site. Thank you. My siblings and I started a corporation if and when we receive mineral rights income. To be able to psy expenses & mineral taxes, my mother put in funds each year to keep money in account. She did not loan it nor want payment back. I don’t know what to call this or where to put these deposits on T2.
I guess she gifted it to us in the corp.
How to I record this for balance sheet
Thank you
Hi Di,
Gifts are not taxable and are not considered business income. For tax purposes, you could categorize the donated capital as “Contributed Surplus.”
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
Hi Allan, just wondering if my first year filing had zero income ( was a partial year and not active ) I don’t think I need to include income statement or balance sheet because they are zero. But I think I have to file an opening balance sheet as well as shareholders sch and schedule 24? Correct?
Hi Scott,
You should complete the following schedules:
– GIFI schedule 101 (opening balance sheet, showing share capital and and any opening balances)
– GIFI schedule 100 (closing balance sheet)
– Schedule 50 for shareholder information
– Schedule 24 for first time filers
– T2 Return
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
You would have had expenses, such as your incorporation costs, in your first year.
Hi. We incorporated our company in 2013 and only two activity we had were incorporation cost & a courier cost for sending sample (even bank a/c was opened in 2014). So, should we just put these two transactions in our return? Thanks.. Ali
Hi Ali,
You should report these transactions on the GIFI, General Index of Financial Information. Note: Incorporation costs are classified as an eligible capital expenditure (i.e. an intangible asset) and should be reported on Schedule 10 of the corporate tax return and on the GIFI. Only 3/4 of the incorporation costs qualify for depreciation per Schedule 10, and the depreciation rate is 7% per year.
Finally, you should also complete the T2 Return, Schedule 1 for calculating Net Income for Tax Purposes, and Schedule 50 to report shareholders’ information.
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
Hi Allan,
Great work first of all.
question about T2:
This is my 10th year of T2 filing. First time doing myself.
Question: Coporation had couple of common stocks and sold them. So realized Capital Gain of $100,000. When I fill up Schedule 1 in Deduct section line 401 (Gain on disposal of assests per financial statement) should I put $100,000 OR $50,000? Since Capital Gain is taxable @1/2. Last year an accountant has put @1/2. But this year when I used ready made software (for trial – webtax4b) it deducts full amount. So confused about the correct way.
Thanks for your help and time,
Vijay
Hi Vijay,
Thanks for your question. If you included the full gain ($100,000) in the company’s financial statements that you prepared, then you should subtract the full gain ($100,000) on line 401 of Schedule 1. On line 113, add back the taxable portion of the gain (i.e. $50,000).
Thank You,
Allan Madan, CPA, CA
Tel: 905-268-0150
I have recently incorporated my company, and as such have invested a significant amount of money into my business. How do I best protect my investment?
Hello. To best protect yourself, you should aim to become what’s known as a “secured creditor” of your business.
First, you should classify a minimal amount of your investment as your purchase of shares of the corporation. Let’s say your first $100 goes to purchase 100 common shares of your corporation. Then, you would treat the rest of the money you’ve invested as a loan to your company. This should be documented properly, with a promissory note between you and the corporation. There is no requirement for you to charge interest on this loan.
Once you have had your lawyer register the note under your province’s personal security act, you will have made yourself a secured creditor of the corporation. If something should happen to your business, it is usually the secured creditors who get paid first.
Are all Canadian corporations eligible for the federal tax abatement. Line 608 on T2 form
With thanks,
Hello Allan.
Thank s for posting your video about corporate tax filing! It was very helpful and informative.
Occasionally, I work as a contractor if I cannot find a permanent position. My question is regarding the filing of corporate tax with no activities. I wish to carry over the losses from the previous year. Can I file my tax return using the T2 short form, or do I need to go with the T2 regular form? Are there any other tax forms I need to submit?
Regards,
Markus
Hello Markus,
If you are a CCPC and have no taxes payable, you can use the T2 Short Form Return (which you can find http://www.cra-arc.gc.ca/E/pbg/tf/t2short/t2short-13e.pdf) to report a loss to your company during the year. You should also complete schedule 8 (for fixed assets), schedule 50 (shareholder information), and schedule 4 (losses).
Hi Allan,
Thanks for this great post which helps me a lot.
i paid about 400 CAD from my personal fund when registering my corp, it seems to me this should go into the balance sheet as “incorporation costs”, Does this count as “eligible capital property”? If it does, I’d have to fill in schedule 10 (which doesn’t look quite straightforward to me), right?
Hi Fox,
Thanks for your question. The $400 you paid for incorporation costs on behalf of your corporation should be treated as eligible capital property on Schedule 10 of the T2 Corporate Tax Return. Only 3/4 of the $400 of incorporation costs can be amortized at a rate of 7% each year.
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150 x 2
Hi Allan, I am the president of a small corporation. I am thinking of making a loan to an employee who is also a shareholder. I am giving her the loan in order for her to buy a car to be used for business. How can I do this in a way that avoids the loan being included in the employee’s income?
Hello,
When the recipient of the loan is also an employee, there are a few situations that can exclude them from income inclusion. Luckily, buying a car for business is one of these. The other two are as follows.
The loan was made to an employee to purchase shares of the company from the corporation itself and not another shareholder
The recipient of the loan cannot own more than 10% of the company.
Additionally, there are three conditions must be met. First, the loan must have been available as a result of the employee working at the company, not because they are a shareholder. The second is that there must be clear repayment terms, which you have done.
Regards,
Allan Madan and Team
Hi Allan.
I own a small incorporated business, which I have opened in the last six months. So far, I have not made any money from it. I live off of my spouse’s income for now. When I file my income tax, the software asks if I am self-employed. What do I answer? Do I need to report income from the corporation on my personal income tax? There has been little activity on the corporation, so I would rather do this myself than hire an accountant.
When I start to make money, should I take salary or dividends? I am planning to have my spouse as a shareholder. Are there any other matters I should consider?
Hello,
A corporation is a separate legal entity. Therefore, you do not need to report your corporate income with your personal income tax return. If you are paid salary or dividends from your corporation, the income needs to be reported. When your business starts to make money, it may be beneficial to take a combination of both salary and dividends. Dividends may sound attractive, but they don’t provide RRSP contribution room. This is because they do not count as earned income.
It may also be wise to evaluate whether a corporation is necessary. You may not experience many benefits from incorporation until your income reaches over $100k. There are also the obligations of annual meetings and filing obligations with the CRA. With such a small business, the limited liability you experience may also be thinner than you think.
One clear advantage of a corporation is dividend sprinkling. Here, each spouse can split the dividends and be taxed according to their own class. With that, you can distribute dividends to whichever class works out best tax wise. Corporations can be tough to understand, especially when starting out. Feel free to contact me if you have any questions.
Regards,
Allan Madan and Team
I just got back my company reassessed notice back. The gov’t changed my tax amount with no detail. I phoned and all they said was my Federal Tax Abatement was incorrect. How does one calculate line 608 on the corp tax return. Cannot find any information for an explanation. The company is based in Alberta.
Thank you for your response.
Hi Glenn,
The Federal Tax Abatement is calculated as 10% of the taxable income reported on line 360 of the T2 Return.
Thanks,
Allan Madan, CPA, CA
Tel: 905-268-0150
Hello, Allan.
I have recently started a new corporation with two equal shareholders. I was wondering if there is any way of reducing my taxable income for the current year. I was working this year, and i am in the highest tax bracket. Would a lump sum loan work? The loan would be used as a start-up capital for the business, and be from myself to the corporation.
Hello.
I would have to know more about your situation before making recommendations. I can say that interest from a loan you provided to the company would result in extra tax for yourself personally. However, you are not required to charge interest on that loan.
If you have a significant amount of personal employment income and less corporate income, there is most likely no way of using the corporation to reduce your personal tax bill. If you have some extra money available, you can always contribute to your rrsp to reduce your personal tax bill. There are also recommendations to help save on corporate tax. If you have not filed your corporate tax return already, one thing you should do is purchase capital assets that are eligible for CCA.
There are also things that you can do to reduce your personal income, such as donating to charity and paying investment management fees. Please contact me so that we can come up with a strategy that works best for your unique situation.
Regards,
Allan Madan and team
Hello,
In Schedule 3, there is a section called “publicly traded shares”. Does the first column, numbers, mean the quantity of stocks? The third column is “the year of acquisition”. If I bought stock in years 2012 and 2013, and sold them all in 2014, how do I declare the year of acquisition?
Hello.
The first column means the number of shares sold. For the third, you should put the latest date of purchase for the whole thing. That way, the CRA can tell if there is no superficial loss. You should also consider keeping track of your transactions, and the ongoing adjust cost base on a spreadsheet, so that you have a summary if the CRA ever questions.
Regards,
Allan Madan and Team
I am a sole proprietor and am trying to fill out my T2 form. I have put a lot of personal funds into the business and so has my spouse. Where do I put this amount on the form?
This would actually go on the T2125 Statement of Business or Professional Activities because you are a sole proprietor. The amount that you and your spouse put into the business would be included as earnings during the year for which you are filing. For more information on how to fill this form out, click on the following link: http://madanca.com/learn/articles/entry/how-to-complete-form-t2125-for-a-sole-proprietor/.
This is my second year filing a T2 return. Where on the balance sheet, do I record the corporate income tax that I paid in May 2013 for the tax year 2012?
Hi Andrea,
In your 2012 tax year, you should’ve accrued the income tax expense and payable. When you paid this amount in May 2013, you will simply DR income tax payable and CR bank to remove the payable.
In other words, the payable would’ve been record on the balance sheet in 2012, and when you finally pay the amount, you simply remove the payable from the balance sheet.
Hello,
I have a question regarding the loss carry-forward transfer from a subsidiary to parent. In my case, both the subsidiary and the parent have a June 30 year end. The subsidiary started dissolution on May 15, 2014 and was dissolved on June 11, 2014. The loss carry-forward of the subsidiary should be transferred to the parent and increase its age by one year. My question is how this is reflected on the T2 Schedule 4. Should the transfer of loss show up on the Schedule 4 of June 2014 T2 on the row of Year 2013-06-30 (increase age by one year), or should it show up on the June 2015 T2 on the row of Year 2014-06-30?
Thank you for your response!
Dear Jason,
My name is Francis and I am a senior at Madan CA.
To answer your question, first of all, you cannot transfer the losses from
your subsidiary to the parent if the subsidiary was simply dissolved.
Perhaps you mean the subsidiary was wound up (wind-up) or amalgamated with
the parent and the subsidiary was 100% owned by the parent.
If that is the case, first of all, you will report the total available loss
carryforward available by the subsidiary on box 105 of schedule 4.
Then, on the Non-Capital Loss Continuity Workchart, you would record the
losses incurred by the subsidiary under the ‘Adjustments and tranfers’
column. With respect to what to put for ‘Year of origin’ column, you will
need to review the subsidiary’s prior year tax returns to segregate the
losses incurred in different tax year. Then, you will need to report each of
these losses in appropriate year of origin under the ‘adjustments and
tranfers’ column.
If you have questions on this, let me know.
Sincerely,
Francis Do
First, this is great site thanks for your efforts.
I was working as a full time employee and recently opened an incorporation. My question are
1. I have earned over 60k while I worked as full time 2014. I am planning to start giving salary to myself and my other director (who is my spouse) starting from January to keep my tax bracket low. Is it a good Strategy ? FYI, my corp tax filling month is aug/sep 2015.
2. I am expecting to make over 100K by my corporation, and looking to minimize the tax what would be the best strategy (in terms of salary % and dividend like how much salary I should give to myself and my spouse and how much should be given via dividend to keep the overall tax low).
My spouse has no income other than what ever she will get from the corporation. Same goes to me my only income would be through the corporation.
Hope to hear back from you soon.
Thank you.
-Imran
Hi Imran,
Salary should be reasonable and reflective of the amount of work done by the employee. Paying a salary from your corporation may reduce your corporate taxes, however it is important to consider the impact on your personal taxes. The salary paid from your corporation may put you into a higher personal tax bracket. We can offer services in analyzing the overall tax impact.
Dividends are taxed at a lower rate than salary however, there are disadvantages such as, not paying CPP premiums and RRSP room is not created with dividends.
For further details on advantages and disadvantages of salary and dividends, please refer to our article link: http://madanca.com/blog/should-i-pay-myself-salary-or-dividends-from-my-corporation-as-a-business-owner/
Allan Madan
Hi,
Your explanations (text and video) are excellent and I am now encouraged to start filing my own T2. I am confused about one detail. The Income Statement (Schedule 125) is required to complete Schedule 1 with then flows into the main T2 return that calculates the tax owed. However, the Income Statement includes “current income tax” (line 9990) which according to my previous accountant-prepared returns in the exactly the value calculated in the main T2 return. How can I include the current income tax in the Income Statement when it has not yet been calculated in the main T2 return? There is probably a simple explanation but I can’t see it.
Thanks for your response!
Hi,
After you input your income statement on to Schedule 125, ensure there is no value under “Current
Income Tax”. On line 770 of your T2 Corporation Income Tax Return, your taxes payable will be
displayed. Insert this amount on to Line 9990. I hope this answers your question.
I am US citizen now working in CANADA. The TEKsystems Canada pay my US corporation for the service I provide, however, it withholds 15% of the payment as tax submitted to CRA. I was told I can get the 15% Tax back. I don’t know how to do it.
Hi Brandon, In order to recover the taxes withheld, a T2 Corporation Tax Return must be filed. Along with this return, schedules claiming an exemption from income tax will be submitted. So long as your company did not maintain a fixed place of business in Canada, and the contract was for less than 6 months, your company can claim an exemption from Canadian income taxes on the profits earned pursuant to the Canada-US tax treaty.
Hi Allan,
This is a great example. Thank-you very much for taking the time to set this up.
I was wondering if you could also email me the completed T2 forms for your Tech Consulting Company Inc. (TCCI) example. I would like to take a look in order to reference my corporations T2 return.
I also wanted to ask a question regarding Schedule 3: DIVIDENDS RECEIVED, TAXABLE DIVIDENDS PAID, AND
PART IV TAX CALCULATION (2004 and later tax years). I am a 100% shareholder of my corporation and am looking to distribute dividends to myself with the after tax income of my corporation (I compensate myself through a combination of salary and dividends and throughout the year I set up a payroll account in order to cover my cash flow needs. I paid 3/4 of the company income through payroll and with the remaining company income I wanted to pay through dividends).
Am I still required to fill out schedule 3 if I proceed to pay myself the reaming income through dividends? What is the difference between Schedule 3 and a T5 form?
Thanks again for your insight and I wish you happy holidays!
Hi Mike,
Thanks for contacting me. Dividends paid to shareholders should be reported on Schedule 3 of the T2 Return. If you own more than 10% of the shares of the company, then Part 4 tax will not apply on the payment of the dividends to you.
A T5 slip must also be prepared by February of the year following the year in which the dividends were paid to you. This is a separate filing from Schedule 3 of the T2 Return.
I do not have the soft copy available of the T2 Return used in this example anymore.
Hope this helps.
Allan Madan, CPA, CA
I have a question on T2 Corporate Return – Schedule 7.
Why do we have to fill it and how do we do that. I use CanTax and it does not have that schedule.
Thanks
Hi Yen,
Schedule 7 is the form you use to report investment income for Canadian Controlled Private Corporations. This is a crucial part in the calculation of your company’s income taxes payable. Your company cannot claim the small business deduction to reduce income taxes payable on investment income.
Most software programs can automatically calculate income taxes payable with respect to investment income, so long as you correctly input the amounts on Schedule 125 of the GIFI, including income from rents, royalties, taxable dividends, capital gains and interest.
We are also here to provide more expert advice should you wish to prepare your tax return with us.
Best Regards,
How much do you charge to prepare corporate returns for a small corporation?
Hi Marion,
Our price starts at $750 for corporate tax. Depending on the size of your business, business activities and net income, it could be higher.
I suggest you give us a call at 905-268-0150 or come in for a meeting so that we can give you a more accurate price after learning more about your corporation.
Thank you,
The accountant who did our books passed away during the last business year. I am trying to imitate his work in order to complete the T2. I know that line 9999 should equal line 3680. Alas, there’s quite a big gap between the two. Please can you suggest where I should look for the error? I’m confident in the calculations for income and expenses, and I have the accountant’s assets and liabilities numbers from 2013. My best guess is that I’ve done something wrong with 2014’s assets and liabilities. The business is incorporated with a sole proprietor and one full-time employee and one part-time employee. Thank you in advance for considering my question.
The only way to troubleshoot the accounting error(s) is to use a bookkeeping software, like wave accounting or QuickBooks. Otherwise, it will be very difficult and time consuming.
Allan Madan, CPA, CA
Hi Allan! I am in dire need of professional advice regarding my sole proprietorship, partnership, and corporation (yes I own different businesses in each category). I also work fulltime for a different company on a salary of $55K a year,
Here’s the situation: The only business so far making money for me is the partnership business, and in the year we made good money (2012), I had to pay a heavy tax on my personal income as it was added to my salary. I didn’t want that to happen again so our accountant advised me to register a corporation to which I can put the partnership income under, but he never explained how to do that, I assumed he would take care of all that come tax season I registered the corporation anyway. Now, fast forward to 2014 tax season, and we made even more money than we did in 2012 (we reported a loss in 2013) and my accountant just told me he CAN’T issue this income under my corporation since it’s under my partnership income. We have now come full circle to where I was in 2012, where I may owe heavy taxes. It really comes down to this, is there any possible way I can declare that partnership income (my portion of it anyway) as my corporate income? I do not want it added to my personal inc! ome whatsoever. Please help!!!
Thank you,
Devon
?Hi Devon,
Thanks for contacting me. A corporation can be a partner in a partnership. To do this, there must be a partnership agreement that specifies your corporation is in fact a partner and ‘units’ in the partnership should have been purchased by your corporation.
If the above steps were taken, you can include the partnership’s profits in the taxable income of your corporation.
Please let me know if you have any questions.
Allan Madan, CPA, CA
Is there any way for an inactive corporation (with a $0 return) to file electronically for free?
Hi LN,
As long as you file using the CRA’s electronic filing platform, there are no associated filing fees. Please refer to the following CRA link as a starting point:
http://www.cra-arc.gc.ca/esrvc-srvce/tx/bsnss/menu-eng.html
Hi Allan,
How to report Investment Income in T2? I had an company Investment (Mutual Funds) for 70k which was cashed this fiscal year at 78K. Should I report 8k as investment income GIFI code 8090 or there is a schedule if yes then how to fill the schedule?
Can you please advise??
Thanks
Hi Vikram,
Corporations report income on an accrual basis. This means that if your corporation earned investment income that you did not cash out during the year, it would still be reported as income (on GIFI box 8090 or wherever more appropriate). You will also report the income net of investment expenses on schedule 7 (typically Part 2A if it is Canadian investment income).
Typically, you will:
Debit Investment (asset)
Credit Investment income (revenue)
For your situation, if you earned the $8,000 in the same tax year in which you cashed the money out; you will report it in the same manner as above with $8,000 being the income. If you earned the $8,000 or a portion of it in previous years, you should go back and amend the corporate tax return for those years to report the accrued investment income.
Best Regards,
Hi Allan,
Thank you for your tutorial. My corporation holds shares in US publicly traded companies and received $700 in dividends from them and had $105 in tax withheld. I also sold some shares resulting in about $8,000 in cap gains Where do I report the dividend income and foreign tax paid on the T2? Sch3 says “Do not include dividends received from foreign non-affiliates” so should it be reported on Sch7? If so, which line do I report it on? What amounts should be reported in the Foreign and Aggregate columns on Sch7?
Thank you!
I’ve just set up a corporation for my son who is 16 and wanted to start a business.
I was enjoying your video
https://www.youtube.com/watch?v=jU4Td7652hs
I had a question, when I search the schedules such as 100, I end up with a very different looking form.
What am i doing wrong ?
Thanks,
Demetry
See this link on the CRA’s website for T2 schedules
http://www.cra-arc.gc.ca/menu/LEC-e.html?
How do you carry forward a non-capital loss on your corporate T2 or T2 short return, to reduce the taxable income?
Hi Crissy,
Complete Schedule 4, Corporation Loss Continuity & Application to carry-forward, carry-back or apply losses to the current year. See http://www.cra-arc.gc.ca/E/pbg/tf/t2sch4/t2sch4-14e.pdf
Hi Madan,
Great website. Thanks very much for posting all this info here.
As a shareholder of a company, I paid for many expenses and asset acquisitions for the company, which I recorded as “shareholder advances” to the company. How does this get reported onto Schedule 11 of the T2? Do I show each transaction separately? Or do I just report the sum of all transactions? Also, I presume the transaction(s) get recorded in Column 400 titled “Loans”?
Thank you for your help.
Jay
Hi Jay,
You can report it on Schedule 11 as one lump-sum on column 400 (loans)
Hi Madan,
Thanks for all you post on the Youtube, they are very educative and more grease to your elbow.
Please, I have a question for you. I have client who terminated her contract with an accounting firm and asked us to prepare the books of her company and file the taxes.
When filing for say 2008, does CRA allow us to enter the T2s of the company as our prior year even if we were not the firm that did their books?
The fixed assets balances of 2007 at cost were carried forward and entered on schedule 8, which calculated amortization as if the assets were purchased in 2008. Having entered the cost and accumulated amortization on Schedule 100, these differed from what was on schedule 8.
The carried forward numbers increased the amortization, which were already calculated using the declining balance method over the years. How, can I resolve this discrepancy? Doesn’t it matter if the summary on schedule 8 does not tally with the amounts already entered on schedule 100 for amortization and cost?
Please, advise.
Thanks,
Anthony
Hi Anthony,
Yes, you can and must enter the opening balances on Schedule 8 of the 2008 T2 Return, evening if your firm did not prepare the 2007 T2 Return. If you are using the same depreciation rates for tax and accounting purposes, then the cost and accumulated amortization amounts as per the GIFI should match with Schedule 8 of the T2 Return.
To reconcile changes in the net assets as per Schedule 8 to the changes in the net assets as per the GIFI / Financial Statements, please complete Schedule 8 – REC.
The half year rule for CCA only applies in the year of acquisition of the asset.
Allan Madan, CPA, CA
Hi Allan,
I am filing first year short T2. Only have Approximately $800.00 in expenses. This was all a shareholder loan. Where do I enter loan amount? Not clear on Common and preferred shares.
I have 100% of class A shares and my wife has Class B shares.
Thank you, Sisu
Hi Sisu,
Thanks for contacting me. Record the loan of $800 as a ‘shareholder loan’ on line 2780 of GIFI Schedule 100 (Balance Sheet). Record a nominal amount for Common Shares (e.g. $100) on line 3500 of GIFI Schedule 100, with an equal amount (e.g. $100) on line 1484 (prepaid expenses) of GIFI Schedule 100.
Hi. I recently filed a T2 and the CRA contacted me and asked for financial statement. What forms are they asking for? Or do I prepare a paper with the info from those forms printed and listed on it?
Hi Joanna,
The CRA will require a balance sheet (GIFI Schedule 100) and income statement (GIFI Schedule 125). If this is your first year of business, please prepare an opening balance sheet as well (GIFI Schedule 101). These schedules can be downloaded from the CRA’s website.
Hello. For the first time, I’m preparing a T2 Short. Have a small meal & entertainment expense. There does not seem to be provision for the 50% expense reduction in the T2 Short form. so do I make the adjustment “manually” on Schedule 125? Thanks very much
Hi Nicky,
You can include the 100% of the amount of meals and entertainment expenses paid on GIFI Schedule 125. Add back the non deductible portion (50%) of the meals and entertainment expenses on Schedule 1 of the T2 Return.
Hi Allan,
On a T2 tax return Sch 1 line 104 – is that the amortization for the current year? If yes then isn’t that the same as Capitol cost allowance on line 403?? I’m not an accountant.
Hi Yasu,
Lines 104 (Accounting Depreciation) and 403 (Capital cost Allowance) on Schedule 1 of the T2 Return are the same if you are using the same depreciation rates for tax and accounting purposes.
How I can determine Depreciation Rate for tax and Accounting purpose.
By Looking into Schedule 8, for CCA it is 55% .
How much generally we use Depreciation rate for tax and accounting purposes??
Hello Sau,
If you are preparing the financial statements for tax purposes only, then use the CCA rates for calculating accounting depreciation. For computers, this rate is 55% per annum. In the year of purchase, only 1/2 of CCA can be claimed.
Allan,
How much is same rate for computers for accounting purposes?
Hi, can a 51% shareholder of a corporation pay themselves an hourly rate and receive a t$ at the end of the year. Same questions but say its a partnership? I was told by CRA i’m not allowed to give me or my brother (we are in a partnership) a T4 at the end of the year and they told me the same goes for a corporation if the individual owns more than 40% share. I am stuck because my brother says he wants to be paid like an employee and deduct CPP and Tax from his cheques and so that he can receive a T4 at year end. and now he wants out because of what CRA told me.
Hi Paul,
A shareholder of a corporation can received a T4 slip at the end of the year, and can have CPP and income taxes deducted from his pay cheque.
Hello,
I’d like to post a thank you note to the folks at Madanca for their generous and very helpful advice.
Even at this very busy time of year (for accountants) you seem to find the time to help people like me who do their own taxes.
I hope you are rewarded for your generosity.
On a final note, I will probably give you a call this week to seek some advice (which I will happily pay for)
I would certainly move all my business to you if I lived in your area.
Best wishes from BC
Thank you very much for your kind words Bill
Hi Allan,
Does the depreciations over the years on a real estate property needs to be captured under Adjusted Cost Base (Col 4, Part 4, Schedule 6 Federal for T2 Corporation) or just the purchasing price including purchasing cost and the improvements??
Thanks,
Hi Jordana,
Depreciation does not affect the ACB. It reduces the UCC, which is reported on Schedule 8 of the T2 Corporate Tax Return.
Allan Madan, CPA, CA
Hi Allan,
Great Article and I admire the fact that you share your knowledge.
Quick questions – This will be our 4th year filing T2. Our company didn’t do any business last tax year so there was no income and no expenses.
Can I file T2 short return and mention company was Inactive?
I had approx. 4k of retained earnings in last tax year’s balance sheet so this tax year will I just carry forward that balance in my balance sheet (keeping the fact in mind that company didn’t do any business this tax year)?
Any other recommendations on what to file.
Hi Kanwal,
Yes, you can file the T2 Short return and it your balance sheet as the same as prior year.
We were shareholders in a company that has been shut down. The company accountant issues a t5 for the value of the shares which we later found out needed to be claimed and taxes paid on it. We tried to argue with CRa that we shld be except from capital gains as this is our first time but they insisted it be paid and we were not eligible for the exemption. First was there a way aroun this and secondly is there a way to
Claim the capital gains paid?
Hi Cat
When a company shuts down, the shareholders are entitled to the company’s earnings as part of the liquidation. As such, the T5 slip was issued to you, which shows your share of the earnings that were paid out in the form of a dividend.
In your case, the shares were not disposed or sold by you and hence it cannot be classified as capital gains. The CRA is correct in disregarding your claims to a capital gains exemption. The amount on the T5 is not a capital gain; it is your share of the company’s earnings in the form of dividends.
We suggest that you claim the T5 as a dividend and pay the amount due to the CRA. Failure to do so will result in a penalty and interest from the CRA.
If you require further assistance, please feel free to contact us for a consultation. We will be more than happy to assist you.
Best Regards,
Hello,
I just started my company (corporation) in August 2014. I invested some money and assets in exchange for the corporation shares. Do I need to fill Schedule 11 – Transactions with Shareholders, Officers or Employees?
Thanks a lot for your great post.
Hi Ann,
Schedule 11 does not need to be completed for money you injected to your company (as a shareholder loan or as equity injection). However, if you transferred assets to the company in return for consideration (i.e. shares); you should report that on schedule 11. If you utilized section 85 of the Income Tax Act for the transfer of assets, you should check off the box that says ‘Does section 85 apply to assets sold or purchased?’
Hi Allan,
This has been a very helpful article. I do have a question on when to remit my tax payments. I am a CCPC with a december 31 fiscal year end. I know my returns are due six months after my fiscal year end, which is end of June. Am I also remitting any corp taxes payable when I file? I hardly made any money last fiscal year since it was our first year of business. Any info would be greatly appreciated.
Hi Paul,
For your situation, you need to make the corporate tax payments by March 31 (3 month after the year end). If you have not yet made the payment, you should do so as soon as possible. The CRA will charge interest on any tax payment that was not paid by the deadline of March 31.
Hi Allan, just a quick question, if you don’t mind:
We are an Alberta Corporation – did work in Alberta and Saskatchewan under Extra-Provincial registration. Am I correct to fill out form S5 – Tax Calculation Supplementary?
Hi Naveena,
Only complete Schedule 5 of the T2 return if you have a permanent establishment in more than 1 province. You must review the Province’s Corporations’ Tax Act to determine if a permanently establishment exists in that Province.
Hi Allan,
Great website, thanks for all the helpful information! This is my second year filing a T2 return and the first year I’m doing it myself. I received a GST/HST refund in October 2014 for my 2013-14 tax year. How do I account for it in my 2014-15 T2 return including financial statements? Any help would be greatly appreciated. Thank you, Jenny
Hi Jenny
When you filed your corporate tax return for the 2013 – 2014 tax year, you company’s balance sheet should have had a line item for GST/HST Recoverable (asset) equal to the GST/HST refund your company was eligible for. When the corporation receives a GST/HST refund, the amount received should be applied toward the GST/HST Recoverable (asset), reducing it to zero.
Please note that any GST/HST you collect as well as any GST/HST you pay is not an income or an expense to your business.
Best Regards,
I have clients in the UK billed in GBP. How do I account for changes in exchange rate between issuing an invoice and it being paid on the balance sheet, without re-writing history in my books?
For instance in my own little world I would like to use the exchange rate on the date the contract was signed and record against 8231 foreign exchange gain/loss for each intermediate invoice paid, but this doesn’t seem to be what the CRA want me to do.
Hi Rick,
To calculate the foreign exchange gain or loss on accounts receivable for tax purposes, follow these steps:
1. Enter the invoice into your accounting software as of the date the service was completed. Use the exchange rate in effect as of the invoice date to report the invoice amount in Canadian dollars.
2. Use the exchange rate in effect as of the payment date to report the payment amount in Canadian dollars. Apply the payment against the accounts receivable.
3. A positive accounts receivable should be offset against foreign exchange loss. However, a negative accounts receivable balance should be offset against foreign exchange gain.
Hi I got a quick question. I received a little dividend in the investment account associated with my corp account. Wondering how to report it. Should I report it on Schedule 3 and have to pay Part 4 tax ?33.33%?. Thanks.
Hi Evan,
Report the dividend on Schedule 3 of the T2 Tax Return. If the dividend is received from a Canadian corporation, then you can claim a deduction on the T2 return for the amount of the dividend. But, you will have to pay Part 4 tax on the dividend, if the payer is not a connected corporation. A corporation is connected to your corporation only if your corporation owns at least 10% of the other corporation’s shares.
Best Regards,
Thanks for the info on this site.
I’ve a question: my publising incorporation only transacts business with an American company and all sales a via this company. How would i report the
US income? since US and Canada have tax treaty no withholding tax has been taken by US government.
Thanks.
Hi Ben,
Report the US sales and related expenses on form G125 of the T2 Corporate Tax Return. Covert the revenues and expenses from US dollars into Canadian dollars using the average exchange rate for the year, which you can find on the Bank of Canada’s website.
Best Regards,
Where on the SCH100 can I enter a Directors’ Draw. TurboTax tells me that line 3540 cannot be negative. Which line should I use? Thank you!
Hi Brendon,
Directors fees are an expense to the corporation and should be recorded on GIFI code 8860 on GIFI Schedule 125. A T4 slip should be prepared for directors fees paid in the year.
Thank you for your valuable assistance.
My client has been profitable only once in the last 4 years. So far, no corporate taxes have been payable. As a result, the accountant has never booked CCA on the fixed assets, nor amortized $2K worth of incorporation costs on the books. Is this proper? Should the assets be amortized annually anyway, (and increase the losses) even if the firm is still in the red?
Thanks again!
Sal
My company was audited and I have been told they are disallowing my business losses from previous years. How do I remove those from my income tax statement. I know they show on my schedule 4 but not sure how to zero them out.
Hi Tabitha,
The tax preparation software that you are using should allow you to manually change non-capital losses from previous years.
Hi I have a company which has no assets, all assets were sold before. Total sales for the year is 90,000 and total expenses=92,000 , total profit(loss)=2,000.
Assets=0, liabilities=100,000 and total equity=40,100.
Where should I report the difference in the balance sheet (under Assets) and what are the consequences if no assets in the corporation. My bank balance at the of the fiscal year is zero.
If a corporation has 2 employees who are 50/50 shareholders, can the corporation make a loan in the amount 25000 to one of its employees for the purpose of purchasing a primary dwelling without this amount being included into income after one year? I appreciate your response!
Our CCPC sold most of its assets in our 2014/2015 fiscal year and have ceased doing active business, but have not closed the corporation. As part of the proceeds was for goodwill, i understand that this amount qualifies to be put into the CDA. How is that reported on the T2 and also is there anything other than the T2054 election to be filed upon withdrawal?
Hi Sandie,
In addition to completing form T2054, please have a director’s resolution prepared authorizing the payment of a capital dividend. Report the capital dividend paid on Schedule 3 of the T2 Return.
Best Regards,
How are funds received from a disability insurance plan paid to cover a corporate loan recorded on the T2 Do these funds have different tax implications?
Hi thanks for all the valuable info on this site. Do you know if there is a Quebec equivalent to the T2 short to file for an inactive federally incorporated corporation registered in quebec? Is it only CO-17?
Hi Mauricio,
Form C0-17 (Quebec Corporate Tax Return) must be completed for all corporations that are conducting business through a Permanent Establishment located in Quebec. A short-form is not available. See http://www.revenuquebec.ca/documents/en/formulaires/co/co-17-t(2014-12).pdf
Hello Allan, I have a question regarding how to do the schedule 50 shareholders information on T2
I have 50 Class A common voting shares and my wife has 50 Class A common voting shares. Another person (Person A) has 40 Class B non-voting common shares, and Person B has 10 Class B non-voting common shares.
My question is how to do the schedule 50? Do i need to account the class B non-voting common shares into schedule 50? Thank you
Stephy
Hi Stephy,
There are a total of 150 common shares outstanding. On Schedule 50, report the % ownership as follows:
Individual 1 – 33%
Individual 2 – 33%
Individual 3 – 27%
Individual 4 – Do Not Disclose
You are not required to report Individual 4’s shareholder information, as he/she owns less than 10% of the common stock of the company (i.e. 10 common shares / 150 common shares)
Good evening SuperAdmin:
This is wonderful information and a great learning tool. I am preparing a T2 Corporation Tax Return for an American company operating in Canada for the first time. One of the Shareholders is living in Canada. Am I only to report the Canadian income and expenses or the American as well? Please let me know when you have a moment.
Thank you,
Hi Cheryl,
Thanks for your question. On the T2 Corporate Tax Return report the income and expenses attributable to the Canadian operations / permanent establishment. Remember to complete Schedule 20 for Branch Tax.
Preparing a Corporate Tax Return for a Canadian branch of an American corporation is complex. Please let me know if you need my help.
Thanks,
Thank you for this great article and kuddos to you for putting this information online. I have a question.
I incorporated a company in Alberta in Feb 2015 and as I did not have company credit card, I used my personal credit card to buy deskphone, Desk Computer and other related accessories. I got my first income in Sep 2015. How can I bill the asset purchase to the company ? Should i file an expense claim or is there any other way to achieve this ? Thank you.
Hi Amit,
Prepare an explain claim / employee-expense-report and have your company write you a cheque for these purchases.
Thanks,
Hello Allan, thank you for you answer. I would like to ask you an additional question: I am trying to complete the CO-17 form for an inactive corporation in Quebec, I found the following on the Revenu Quebec website: If the corporation has been inactive you have to add to the declaration a balance sheet indicating its financial situation at the end of the year. Is that balance sheet equivalent to Schedule 100? Do you know if there is form for that schedule or a balance sheet generated manually or by any software will suffice?
thank you for your time!
Hello,
I had read somewhere that in the startup year, monthly taxes are not required to be filed. Can you kindly confirm the same. In any case, our first year is a loss.
Thank for the great articles.
Hi Alex,
In the 1st year of incorporating your business, your corporation does not have to make monthly corporate income tax instalment payments to the CRA. However, it still has to file a T2 corporate tax return within 6 months of its year end.
Hi – I have a question on schedule 6 – T2 corporate tax return.
Do I need to complete Schedule 6 when I dispose of an asset from Class 8 and I incur a capital gain? After the asset disposal there is still ca. $55k in UCC?
Any guidance would be greatly appreciated.
And your articles have been a life saver 🙂
Hi Quin,
If there’s a capital gain, the gain must be reported on Schedule 6 of the T2 Return. Remember to also enter the capital gain on GIFI Schedule 125. The capital gain is equal to the difference between the selling price (net of selling costs) and the original cost of the property that was sold.
A terminal loss or recapture should be calculated on Schedule 8 if a depreciable asset is sold. Recapture is equal to the difference between the original cost and the UCC at the start of the year. A terminal loss is equal to the difference between the selling price (net of selling costs) and the UCC at the start of the year.
If all of the assets are sold in a particular CCA class, then the closing UCC balance should be $0.
Hi Mr. Allen I have a question:
I want to know the allowances paid to employees for example travel allowance worth $ 200 to 300 while telephone allowance worth $ 300 what is the tax treatment for both employer and employee… For example being an employer is this tax deductible for us and are we suppose to calculate cpp and EI on that?
And being an employee it is taxable benefit or?? Please brief and clarify me.
Thanks
Allan,
I am planning to do flipping houses, my target is just to flip most is 2 houses per year, which for sure income will not even exceed $100.000.. which taxes is the best way to go, corporate or just small business taxes.. . ? and how and where will I start,,.? how and where can I apply for corporate or small business number and what are the requirements needed?
thanks so much
find all your info.. help ablot of people…
lynne
Hi Lyn,
Whether or not to incorporate for tax savings purposes depends on how much money you plan to make each year from flipping houses, and how much your personal income is from other sources (e.g. from employment).
For example, assume that you are making $100,000 from your day job, and your marginal tax rate is 43%. You also plan on making a profit of $30,000 from flipping houses each year. In this case, you are better of to flip houses through a corporation, because your personal tax rate of 43% is higher than the corporate tax rate of 15.5%. Your corporation will only pay $4,650 of corporate taxes on $30,000 of taxable profit.
I have a corporate company which year ended in June 30,2015. The question is what amount should I included in the tax return(I paid T4 $12,000 from Jan 01′ 2014 to Dec 31,2014) I also paid T4A $18,000 for the period from Jan 01, 2014 to Dec 31,2014.
Is this the correct amount for declaring in T2 as: T4= $6,000 and T4 = $9,000
Thank you so much,
Thanks for your questions. You are correct. A total of $9,000 should be treated as an expense and reported on your company’s T2 return for the year-ended June 30, 2015.
Where to record T3 and T5 if a corporation invests in stocks and mutual funds and receives these tax slips with dividend income, capital gains, interest income, foreign non business income and foreign tax paid?
Are stock dividends and stock reinvestment plans also taxable to the corporation? If so, where are these recorded on the T2 return and how should they be reported?
I want to write off a loan between two related corporations of $ 50,000. I assume it is a capital loss of one corporation and a capital gain to the other. Where does it appear on the T2 Corporate return?
Thanks
Hi Dave,
Thanks for your question. When a loan becomes ‘bad’, debt forgiveness rules apply. For the company that received the loan, the unpaid loan balance is applied to reduce its:
(1) Un-depreciated capital cost (UCC) balance;
(2) Cumulative eligible capital (ECC) balance
(3) Non capital losses available for carry-forward
(4) The remainder of the unpaid balance is considered income (not a capital gain)
For the company that made the loan, a capital loss is recorded for the unpaid loan balance.
Hi
I am preparing a final T2 for a dissolved company. just wonder any specific form need to fill out?
all the retained earning had been declared as dividend and business have been inactive since last fiscal yearend.
Thank you!
Hi Winni,
On Schedule 200 of the T2 Corporate Tax Return answer “Yes” to the question “Is this the final return up to the date of dissolution”? Make sure that you have a certificate of dissolution before answering Yes.
Hi Allan,
How do I pay back a “Due from shareholders, line 1300 on GIFI” that I had since 2013 tax year? and where should I report it on the following years if I want to pay half in 2014 and the rest in 2015?
Thanks,
Hi Riab,
The balance receivable from loans made to shareholders should be reported on GIFI Schedule 100, line 1300. Repayments are not reported on any GIFI schedule but are reported on Schedule 11 of the T2 Return.
Hello Allan
Thank you for this great and informative site.
I am trying to file taxes for my small inc. But i am not clear on some issues. I have imported some goods from China, do I add the expenses incurred, like shipping, duties, inspection and the other expense for getting the goods into my company, to the factory’s price of goods and consider the total cost as the cost of goods acquired?
thank you
Hi Andy,
Thanks!
Record the expenses for bringing the goods into Canada to “transportation expenses”
Hi Allan,
I have a small corporation. I missed entering correctly the corporate tax paid – so therefore have not claimed any corporate tax paid as an expense (for 4 years).
I have been making a journal entry as follows:
Cr Corp Tax Payable
Debit Corp Tax Expense.
I made this entry as of the last day of the financial year. So I messed up showing the expense after I had filed the return. So nothing was ever claimed on any return.
The correct way of recording this is very confusing! Anyway, if I add the corporate tax paid to last year’s return as an expense it will be around $9000 plus this years around $2500 so it will be quite large. I don’t want to trigger an audit unnecessarily, if that’s a possibility. Would it go under Business taxes (code 8762)? There’s no way on TurboTax Incorporated to add a note of what it is.
What is the correct way to record corporate tax entries and the timing (dates on entries). Should there be an accrual account?
Many thanks,
Cliff
PS Great blog!
Hi Cliff,
Thank you for your question,
The correct procedure is to amend the prior years’ corporate tax returns. Current corporate tax expense should be recorded as follows:
(1) Debit Current Income Tax Expense
(2) Credit Current Income Tax Payable
When a corporate income tax payment is made to the CRA, the following entry is recorded:
(1) Debit Current Income Tax Payable
(2) Credit Cash
Rather than going back and amending the prior years’ filings, record an amount for current income tax expense so that the current income tax payable figure is correct on the balance sheet (GIFI Schedule 100). While your current income tax expense will be incorrect, it doesn’t affect your company’s actual taxes payable since current income tax expense entered on GIFI Schedule 125 is added-back when calculating Net Income For Tax Purposes on Schedule 1 of the T2 Return.
Hi Allan,
Thanks for providing very helpful information on corporate tax returns!
I have a question regarding capital loss carry forward.
I have an incorporated business for several years. In 2014 T2 return, we had a capital loss (investment stock trading) of $1,000. For 2015, we had a capital gain (stock trading) of $1,500.
My question is: In my 2015 T2 return, how to get the 2014 $1,000 capital loss carried forward?
Thanks in advance!
Hi There – thanks for detailed explanation. I have two questions on inactive corporations. The company has no income from operations for the last 4 years, but there were capital gains/losses from investment in stocks (which is not the primary operation of the company).
1. Can the company still claim to be inactive?
2. Since there is no income from operations, and the company has depreciating assets (car, furniture, etc.) on the balance sheet, can the company claim depreciation expenses for these assets, and no other income/expenses?
Thanks!
Hi Allan,
This will be the second year filing my corporations T2 return.
The first year I did the return, I did not report income taxes as an expense on the income statement (therefore making my profit after expenses incorrect). I now realize I was supposed to accrue the income taxes for the period and report it on the income statement as an expense.
What are my options now to fix this problem?
Should I add last years income tax paid (2015) plus the accrued amount owing this year (2016) and report it as an expense on this years income statement (2016)?
Or
Make an amendment to last years income statement and T2 return (2015) and report the accrued amount owing this year on T2 return for 2016?
Thanks,
Michael
Hi Michael,
I don’t recommend that you amend last year’s T2 Return as this could trigger an audit or inquiry from the CRA. The best option is to add together the corporate tax payment made for last year’s income tax bill plus the accrued corporate tax expense for the current year in order to calculate total current taxes. On Schedule 1 of the T2 Return, corporate income tax expense is added back for purposes of determining net income for tax purposes, so neither option will impact your net income for tax purposes.
Thanks for this great blog. I have a Canadian corporation call in Cancorp and the money I make from this corporation is used to set up other corporations in abroad called it Canforeign 1 and Canforeign 2. Both corporations are 100% owned by Cancorp. My questions are.
1. When I do my T2 for Cancorp, I am required to consolidate the financial for CanForeign1 and Canforeign 2?
2. How do I treat the money used from Cancorp to support the operations of foreign 1 and foreign 2?
3. Are there any other filing obligations I need to do?
Thank
Amin.
Hi Amin, thanks for your questions. You are not supposed to consolidate the financial statements of any of the corporations. In Canada, each corporation that is a resident of Canada must file a separate corporate tax return with unconsolidated financial statements. The best way to fund the foreign subsidiaries is through a loan. You may have to file form T1134 with the CRA for each foreign corporation if their assets and revenues are above a certain amount.
Thanks very much for this information, the other questions I have are:
1. If someone works abroad with international humanitarian agencies on contracts such UN, World Bank, etc. No income tax is deducted at source. I guess we have to declare this as foreign income? Does Canada have any agreements in place with these agencies for any tax exemption? Is there a guide on this.
2. Are there any foreign tax credits that I can benefit from?
Hi Amin,
Based on your post, I assume that you are working as an individual contractor and not though a corporation that you own. If you are ’employed’ with the UN, or an agency of the UN recognized by the CRA, then the income you earn must be reported on line 104 of your T1 return. BUT you can claim a tax deduction for the amount reported on line 104, making it a wash.
Hope that helps.
Thanks and very much appreciated.
Initially I was working as a self employed but decided to form a corporation. Some contracts are still under my name and others under a corporations. So i guess I am going to do a personal and a corporate tax return? Or is it different with a corporation?
1. Does this mean the income I earn can be potentially exempt if the institution is recognized by CRA?
2. Where do I have to claim the credit to off-set the income?
Thanks very much
Hi Amin,
You will have to file 2 tax returns – one as a sole proprietor (T1 tax return) and another for a corporation (T2 tax return).
Hello,
If a company was incorporated in Nov 2014, but didn’t do anything during 2015, no income, expenses or assets acquired or anything, do i still need to file a t2 for 2014 or can 2015 be the first t2 filed??
Thanks!
Alex
Hi Alex, If the year end is December 31, then a 2014 corporate tax return must be filed for the 2014 tax year. You can, however, select any year end that you want so long as it is within 371 days of the date of incorporation. So consider selecting a year-end that falls in 2015 (e.g. October 31, 2015) to avoid filing a 2014 corporate tax return. A corporate tax return for the 2015 tax year must be filed.
Oops i meant to say the company was inactive for the two months in 2014, but active during 2015.
Thanks for this post as well! A lot of helpful information
Hi. Do you need to have a designation to prepare the corporate tax return? Do you need a designation to prepare the notice to reader financial statements?
Hi Jacqueline,
You do not need a designation to prepare a corporate tax return or to compile financial statements. BUT, I highly recommend that you hire a designated accountant, because designated accounts are insured, regulated by CPA Ontario (or applicable province), and are experienced in handling tax and accounting matters for their clients.
Hi Allan,
Great blog with lots of great information!
I have a question regarding T3 “Statement of Trust Income Allocations and Designations” for my Incorporated business. Two years ago my business invested some money in various RBC stocks and mutual funds. Where will I enter the values for each of the boxes found on the T3 statements I received from RBC? They are mostly dividends. Also, can I claim T3 amounts from the previous year since I did not file the 2014 T3 in time (I misplaced the 2014 T3 statements and did not find them until after I submitted my T2)? Many thanks for your help! Nick
Thanks for your question and positive feedback!
You must first match the amounts reported on the T3 slip with your company’s financial statements. If you have been properly entering all of the transactions on your monthly investment statements from RBC into a bookkeeping software, then the amounts per the T3 slip should match with the financial statements.
Dividends are entered on Schedule 3 of the return. Remember to indicate that the dividends were received from a non connected company so that Part 4 tax will be triggered.
You will need to amend the 2014 T2 Return if you missed entering information from a T3 slip into your company’s 2014 T2 return.
Are non-eligible dividents paid by my corporation reported on a schedule in the T2 Return?
I own 100% of my shares for my corporation and pay myself a lump sum with the after tax profit. I am subject to the small business deduction so the dividends would be considered non-eligible. What needs to be filled on the T2 by the corporation?
Thanks.
Thanks for your question Michael,
Non eligible dividends paid to a shareholder should be reported on Schedule 3 of the T2 Corporate Tax Return. They should also be reported on GIFI Schedule 100.
Question about Schedule 100, 1180 Short Term Investments.
I have a mix of Canadian and US stocks in my CCPC under this category. For the US component, should I multiply the amount by the BOC exchange rate at my year-end date in order to arrive at an amount in Canadian dollars, i.e. does CRA expect this amount in Canadian dollars?
Thanks
Hi Allan,
Thank you for the amazing blog. My corporation qualifies for small business deduction. It has some interest income from C$ bank balances in a credit union in Canada. Please may I know what is the GIFI code to use. Do I just add the interest income to the active business income when computing the tax payable? Any help would be much appreciated. Thank you very much.
Hi Kristy,
If the interest income relates to cash kept in your company’s bank account to pay for ongoing expenses, then add the interest income to your company’s active business income, which is taxed at a lower rate. However, if the interest income relates to a cash surplus that your company maintains over and above what’s needed for paying for ongoing operating expenses, then it should be reported on Schedule 7 of the T2 Return (passive income), which is taxed at a higher rate.
Question Regarding T2 Corporate Tax
GIFI Schedule 100, Element 1180 – Short Term Investments
Which value should be recorded here – the cost (ACB) of the investments or the market value of the investments at year end as per my brokerage statements.
Thanks,
Dave
Hi Dave,
Report the ACB on this line.
Hi Dave, Report the ACB on this line.
Very good help site…My question is do I need to report the Loss Carryback (2014 against 2012 which received in 2015) in my T2 filing ?
I filed the Loss Carryback and I have received few Hundreds back from CRA. Not sure should I required to report that in my T2 filing. Also, as you mentioned Loss Carryback allows back 3 years which mean my 2015 is the last year that I can file the Loss Carryback against 2012…am I correct here ?
Thanks
The tax refund your company received in the 2015 year as a result of carrying back 2014 losses to the 2012 tax year is not taxable. From an accounting perspective, you should have made a journal entry in the 2014 year to record the Tax Receivable from the loss carry-back, so that when the refund was received in 2015 it could be applied to the Tax Receivable.
Losses incurred in 2015 can be carried-back 3 years, i.e. 2012.
Great site with helpful tips…
-Question is do I need to report the Loss Carryback claimed refund from previous year (2014) in my current filing year (2015) ? If so, where I should have in on T2 ?
-Is there only max. of 3 years back allow for Loss Carryback claim ?
Hi Sam,
The tax refund received in 2015 from a loss carry-back from a previous year is not reportable on the corporate tax return. But, you should have recorded a journal entry in the 2014 year for the Tax Receivable amount for the expected tax refund. When the refund was received in 2015, it would be applied to the Tax Receivable account.
How do I report foreign tax paid reported on a T3? What is the proper procedure for reporting this on the T2 corporate return?
Hi Colin,
Report foreign income and foreign tax paid on Schedule 21 of the T2 Return so that a foreign tax credit can be claimed.
Thanks Allan.
Do you also report on S125 as expense? If so then do you add back on S1 to compensate for the credit on the T2?
No, it’s not an expense. It should be recorded as an income tax recoverable item on the balance sheet.
I am also in same scenario as Michel ( above ).
Which line # of Sch 3 non-eligible dividend should be reported ? I asked one of accountant and he said dividend from ccpc ( non eligible) dont need to report on S3.
Hi Bobplumber,
Non-eligible and eligible dividends paid to an individual shareholder are reported on line 450 of Schedule 3.
I’m a bit confused about Schedule 8 for the following scenario:
I have an inactive company that has been carrying some computer equipment and accumulated depreciation on its books for many years that I want to clean up. Say the undepreciated capital cost is 1600 and the asset total capital cost was 5500. If I disposed of the asset for nothing, do I put (1600) in column 4 of schedule 8 bringing column 6 to 0? Then on my balance sheet I simply credit out the equipment and debit the depreciation plus debit loss on disposal of equipment as the difference between the equipment and the depreciation? And then do I also take that loss out from my retained earnings?
Hi Al,
For accounting purposes, write-down the computer equipment as follows:
Debit – Accumulated Amortization $3,900
Debit – Loss on disposal of asset $1,600
Credit – Cost of computer $5,500
I have assumed that the book value = UCC for the purposes of this example. For tax purposes, put $0 in column 5 (proceeds of disposition, $1,600 in column 11 (terminal loss) and $0 in column 13 (UCC).
Great site with helpful tips…
Hi, my client incorporated a corporation which manages a plaza. The rental income is the income. Initial money invested in the corporation recorded as payable to the shareholder. Last year, the property was sold for capital gain. The proceeds were used to buy a larger property under a newly created corporation. Since all the proceeds from the sale of the property from the old corp were used to buy new property under new corp., the old corporation payable turned into shareholder owes money to the corporation, $400k. I think the loan to shareholder should be paid within one year, am I right?
The 50% of the capital gain should be paid to shareholder from capital dividend, and can you tell me the procedures surrounding the the capital dividend to shareholder?
Thank you.
Selva
Hi Selva,
Thanks for contacting me. Shareholder loans must be repaid within 1 year, otherwise the amount owing becomes taxable to the shareholder.
Capital dividend account is increased by 50% of the capital gain realized on the sale of the property. An election needs to be made in order to pay a capital dividend to a shareholder (form T2054). Also, complete Schedule 3 of the T2 return. Remember to correctly compute the corporation’s RDTOH balance dividend refund.
Hello,
I pay myself in dividends from my corporation. Do I have to complete Schedule 3? These are non-eligible dividends and my company did not receive any dividend income. The bottom line of schedule 3 indicates “Total taxable dividends paid in the tax year that qualify for a dividend refund” – however I don’t believe the corporation is eligible for a dividend refund? Am I wrong?
Thanks
Hi Paul,
Yes, you must report dividends paid to you from your corporation on Schedule 3 of the T2 Return. Specifically, report dividends paid to you on lines 450 and 460 of Schedule 3. This applies to both eligible and non-eligible dividends.
If your corporation has a balance in its Refundable Dividend Tax on Hand (RDTOH) account, it will receive a tax refund at a rate of $1 for every $3 of dividends paid to you.
Thanks Allan,
However, if I have no RDTOH (my corporation does not receive any dividends or investment income) and thus I will not receive a refund do I still need to complete schedule 3?
Yes, you still have to.
Hello Allan,
My business has a dissolution date of April 20, 2015. It has been inactive – no revenue, sales, expenses, purchases nor dispositions for all of tax years: 2014 and 2015. This April 2016, I am filing the Final Income Tax Return for this inactive and dissolved business for the tax yr ending on the dissolution date.
Kindly confirm or correct the following:
– The Final Schedule 100 – Balance Sheet, will be identical to last year`s?
– There will be no Schedule 125 – Income Statement, since all values for year end 2014 & 2015 are zero (0)?
– The CCA Allowance on Schedule 8 will still be calculated, using beginning of year values (Column 2) taken from Column 13 of the previous year`s CCA schedule? Is this correct or should the CCA schedule just be identical to last year`s?
Thank you.
Thanks
Hi Marie,
Thanks for contacting me. On Schedule 100, there should not be any assets or liabilities as the company has been dissolved. Prior to dissolution, the company’s assets and liabilities are disposed and/or distributed to the shareholders.
Likewise, on schedule 8 of the T2 Return, all assets listed should have been disposed, resulting in either recapture or a terminal loss.
I have a corporation that has sold its Goodwill which is its only asset.Commission Corp.Do I just put the sale on the the T2 S6 as a capital disposition or on the s10.My daughters sold their share to me so I can sell all the shares with the company.Please advise where to start with this one.
Hi Molly,
I presume that the assets of the corporation were sold and not shares. If this is true, then report the sale of goodwill on Schedule 10 of the T2 Return.
Hello. We have a small non-capital business loss this year (2015-2016 fiscal year – year end April 30th 2016), which we would like to carryback to a previous year. I am aware that I will need to enter the amount of the expected refund as a tax receivable to post the refund against when I receive it.
Is this entry made in the 2015-2016 financial statements, prior to filing my T2 return? If so, the company’s income on the just-ended tax year is increased by the amount of the non-taxable carryback refund. I do not see a place on Scheule 1 where I can deduct the carryback refund from the current year’s income — where in the T2 return, and how, is this done?
Is the corresponding credit entry (to go with the tax receivable debit entry) made to an Income account (eg, tax refund income, or whatever)? Or …?
Lastly, if the above is correct and it gets entered now, as a year-end adjusting entry that is included in the GIFI statements of the T2 return, what happens if the amount of the refund turns out to be different than what I’ve booked?
Thanks!
Hi Judy,
Thank you for your question. The expected tax refund arising from carrying-back the current year’s loss (i.e. year ended April 30, 2016) to a previous year, should be recorded as follows:
1. Debit Tax Refund Receivable (loss carry-back)
2. Credit Current Income Tax Expense
On Schedule 1 of the T2 Return, add back the current income tax expense to calculate net income for tax purposes. If the actual refund is slightly different the estimated amount recorded, then make an adjustment in the year the refund is received. This is accomplished by posting the difference to the tax receivable account and current income tax expense account.
Hi. In Canada can our corporate financial statements differ from our Corporate Income Tax Returns?
My corporation expensed meals & entertainment at 100% and car expenses at 100% in my accounting software and financial statements.
On my corporation income tax filing, meals & entertainments were claimed at 50% and car expenses at 80%.
As a result, my corporation financial statements show different numbers than the corporate tax filing/return. What do I have to do now? Do I have to make journal entries in my accounting software to show and adjust for the differences? If so, what journal entries would I have to make? Debit what and credit what?
Thank you very much!!!!
Hi Charles,
It’s very normal for the company’s financial statements to differ from the figures entered in the tax return. That’s because certain expenses have a different treatment for accounting purposes (GAAP) and tax purposes.
Remember to enter your company’s accounting financial statements onto GIFI schedules 100 and 125. Non-deductible expenses should be entered on Schedule 1 of of the T2 Return.
Thanks for all the work you put into this site. I’m curious… I want to shut down my incorporated company, of which I am the sole owner. I am carrying assets of $100 of capital stock, $450 of incorporation costs, $8,000 of accounts receivable (long term loans) given to me, and $300 of capital assets after depreciation. There is no cash or any other assets in the company. I’d like to take all the remaining assets (AR and capital) out of the company, take it as income on my personal tax return, and close the whole thing. Should I declare a cash dividend and a capital asset dividend and minus out those lines on the balance sheet (so then, indicate a “dividend income” of $8,850 on my personal return)? I’m not worried about personal taxes as my income was very low last year, and I don’t mind just outright declaring this asset transfer – just want to get rid of the corporation to make my life easier.
Hi Jason,
To clear the remaining assets on the balance sheet, please do the following:
1. For A/R that you cannot collect, write-off the balance to bad debt expense
2. On Schedule 10, put “$0” for the proceeds of disposition for the incorporation costs, resulting in a loss
3. On Schedule 8, put “0” for the proceeds of disposition for the remaining capital assets that have no value, resulting in a loss
A dividend should not be declared, because there are no assets of value that can be distributed from the corporation to you.
Thank you very much for the reply – greatly appreciated. Is it reasonable to the CRA to write off $8K of AR to a director as bad loans? Should I instead pay the company and immediately take it back out? I guess the amount is small in the grand scheme of things, so most likely they wouldn’t care either way.
Thanks for the detailed article. I have also subscribed to your youtube channel.
My questions is as follows :
This is my first year filing . There is been no business however I am hoping that I can claim my laptop and petrol expenses . Can you please tell me which form should use for these expenses ?
Also, I had a cheque in my name which I deposited in my corporate account . Should I mentioned the amount while filing the returns ?
Thanks
Frank
Hi Frank,
Report your company’s income and expenses on form G125 and assets and liabilities on form G100. Also complete Schedule 200 (T2 Return), plus schedule 50 (information about shareholders).
How the deposit should be reported depends on what it relates to – sales, a loan, etc.
T2 tax returns,
This is our first year of actually filing a T2 long tax
we are a small electrical contractor just starting up in business.
we have sales of $15,600
wholesaler costs of $5500
fuel costs of $$1200
liability insurance costs of $750 plus tax
truck insurance of $1250 a year
plus misc cost to Electrical Safety Authority and College of Trades ect.
we treat the wholesale costs as a deduction at face value against the actual billable cost to our customers.?
same for the other cost at face value or a percentage?
can we claim trade licenses and contractors Licenses.
how do you claim fuel costs and maintenance cost of work vehicle.
also unpaid credit card debt for the company on a personnel credit card?
what forms do we use.
Thank You
Susan
We do not pay Gst but collect Gst to pay what we paid to our wholesalers.
i believe you don’t need a Gst number if your under a certain dollar threshold for income earned
Hi Susan,
Thanks for your questions. Your company can claim a tax deduction for all of the costs that you indicated below. Complete the T2 Return (Schedule 200), Schedule 125 (income statement), Schedule 100 (balance sheet), Schedule 50 (shareholder information) and Schedule 24 (first time filers).
I recommend that you use a tax return preparation software to automate the process for you.
I have a situation where a shareholder wholly owns two corporations. One corporation owes money to other corporation at December 31, 3015 (year-end). The amount is around 170k. Since the borrowing corporation did not make enough money to pay the expenses, some expenses were funded by other corporation bank account. What are the tax consequences of this payable/receivable? 2015 was the first year of operation for borrowing corporation. If things are going well, this payable receivable should be settled within two years.
Please comment on this.
Thank you in advance.
Hi Sitham,
Based on what you have told me, the loan should be documented and the terms of repayment established. The loan is not taxable to the recipient corporation.
Hello, On this page it says we also need to file 141 if we file ourselves. Is this really necessary?
Found on CRA’s site:
“GIFI schedules include:
Schedule 100, Balance Sheet Information;
Schedule 125, Income Statement Information, and, if necessary, Schedule 140, Summary Income Statement; and
Schedule 141, Notes Checklist. Schedule 141 is a set of questions designed to determine who prepared the financial statements and the extent of their involvement, and to identify the type of information contained in the notes to the financial statements.”
Hi Mark,
GIFI schedule 141 must be filed.
Hi wondering where would you enter any refund you received as no line that refers to refund on t2
would this be on your income statement thx
Hi Rajini,
Enter the refund as a reduction to professional fees expense on GIFI code 8860.
“Hi,
I am a new corporation. Is the 3 month deadline for paying balance still applicable after my year-end. I understand I am exempt from installments in 1st year and my tax return is not due until 6 months after year-end.
Gaurav”
Hi Gaurav,
”
Yes, corporate taxes payable for the year are due within 3 months of the corporation’s year end.”
This is the first year for my corporation. There will be a loss since little income was made but higher expenses. Can I pay myself a salary for the work during the year and this will result in even bigger loss?
Hi Carol,
”
Yes, you can pay yourself a reasonable salary in the year and this will result in a bigger loss. However, you will have to pay personal taxes on the salary paid to you.”
“Hi,
I had a corporation (retail store) but closed after 6 months due to illness. I managed to transfer my business into an online format, but since the retail outlet closed, I had leasehold improvement and signage losses. I’m not sure if these where to put these losses on the Schedule 8 – would these be terminal losses? I also have a bunch of equipment (shelving etc)that is no longer in use but is in storage as I have been unable to find a buyer for it. Can I claim depreciation on this equipment?
Any help would be great!!”
Hi George,
Claim a terminal loss on Schedule 8 for these assets.
“Hi there,
On my last year notice of assessment, CRA said they have revised the non capital loss closing balance on Schedule 4 to agree with their records, does it meah i have to change my return or i just have to input that amount in this year returns?
Thank you very much!
Julia from BC.”
Hi Julia,
Input the revised amount on this year’s return.
Thanks for all the good information.
We are a group of five investors considering setting up a Canadian investment company that will Invest abroad. What will be the best structure for setting up the companies abroad! Should it be a subsidiary, a branch, or just an extension of operations of the Canadian investment company? Also how can we finance the foreign companies ( by loan from Canadian company or the Canadian company buy shares of the foreign company) Thank you.
Hi Amin,
Thanks for your question. You should consult with a local accountant and lawyer in those foreign jurisdictions.
Hi Amin
You can finance a foreign company by making a loan from your Canadian company to your foreign company or by having your Canadian company purchase share capital in your foreign company.
You should speak with a local tax accountant in the foreign country where you are setting up the corporation for advice.
Hi, in the first year incorporation earned $15000 and HST collected $1950. Can the $1950 pay for dividend to shareholders in the first year? Is the $1950 extra revenue? How to treat it properly?
Another question, are the dividends paid to shareholder taxable dividends? Which line# on the tax form should be for that dividends?
Hi Joy,
HST collected is a liability and must be paid back to the CRA by filing a HST return. However, you can claim input tax credits, which reduce HST owing, for HST paid on business purchases. ITCs are also reported on a HST return.
Report dividends paid on Schedule 3 of the Corporate Tax Return.
For tech contract corporation, are the Schedule 5 and schedule 546 also needed to be filled for the tax return?
Hi Jane,
Schedule 5 should be completed if you have branch offices in multiple provinces, or if you are claiming specific tax credits that are offered by a province(s). If you are only based in Ontario, and aren’t claiming any special tax credits, then schedule 5 is not required.
You have to complete Schedule 546.
Hi,
I am running a small IT consultant corporation Inc. . Can I deduct the corporation income tax I paid in 2016 March for the tax year of 2015 as expense – under business taxes Line 8760 ?
Mandy thanks.
Hi Mandy,
For the 2015 tax year, you should have recorded an income tax expense on line 9990 (GIFI Schedule 125) and an income tax payable for the same amount on line 2680 (GIFI Schedule 100).
Now, you have two options:
(1) Amend last year’s tax filing to correct the mistake
(2) Record an income tax expense for the 2015 and 2016 years online 9990.
I recommend that you select option 2 as it’s easier and will achieve the desired result.
Hello Allan,
I have started a sole proprietor business last year but didn’t get any revenue. However, I have employment and rental incomes. Can I still deduct my business expenses from my employment and rental income?
Hi Kumar,
If you are a sole proprietor, then your business is not incorporated. Any losses incurred or profits realized must be reported on your personal tax return. Your business will have a loss, because the expenses are more than the revenues for the year. This loss is deducted on line 135 of your T1 General Return.
Hi Alan,
I would be very grateful if you could explain how to fill schedule 4 to report losses. In my case I have expenses, assets and my annual revenue is zero.
Your help is highly appreciated,
Ali
Hi Ali,
You will have to complete the GIFI first, schedules 100 and 125. If there is a loss as per Schedule 125, it should automatically flow to Schedule 4 (non-capital losses). I recommend that you use tax preparation software so that this process is automated.
Hi Allan,
First of all, let me congratulate you on running such a wonderful informative website for new and fresh finance ideas.
I am US Citizen and formed a BC corporation in late 2016. Year 2016 did not have any revenue and was inactive most of the period. (1) Can we file T2 short return. (2) And as we directors are not Canadian, do I write resident or non-resident corporation in box 080. BC corporation was registered in Canada though. (3) And in box 040, we write CCPC or other private corp or other corp. (4) Can I take salary from the corporation for 2016 now. Whether T4 would need to be issued. Feb 28 is already passed though.
Thanks for your help.
Hi Krish,
Thank you for your positive feedback. My answers are as follows:
1) Yes, you can prepare a T2 short return for your company
2) The corporation is a resident of Canada
3) Choose other private corporation in box 40
4) You can accrue a salary payable in the 2016 financial statements / T2 return, but I don’t see the point of this since the company has no income.
Hi Allan,
Thanks for the information posted on your website, it is quite helpful. Could you answer this equation please.
I calculated my business Capital Assets (Balance Sheet 2016) by adding the Undepreciated Capital Cost 2015 (as this is still considered as an asset in 2016) to the Capital Assets 2016? Is this correct?
I really appreciate your time,
Thank you
Hi Ali,
Yes, this is correct.
I had little revenue on my corporation in the last couple of years and accumulated some non-capital losses. Can I use schedule 4 to carry back these losses to previous third year back when I had net income and paid a significant tax amount? Would this result in a reassessment and a tax refund?
Hi Peter,
Yes, you can carry the loss back to any of the three preceding tax years. The CRA will issue a notice of reassessment along with the refund.
Hi Madan, Thanks for all your time and efforts to educate people on the tax issues. I have a client who has a few rental properties on those my client never claimed any CCA until 2016 tax filing. My client sold one property in 2016 and decided to offset the gain by claiming CCA from one property. My client has sold one more rental property in 2017 where he has a gain. Can I offset this rental property gain against the losses from a publicly traded stocks of my client? If yes, how should I do it? As usual, your feedback will be very much appreciated.
Hi, Prashant. Yes, you can offset capital losses arising from the sale of marketable securities with capital gains arising from the sale of a rental property / real estate investment. Complete Schedules 6 and 4 of the T2 corporate tax return.
Hi Allan,
Please disregard my previous message (this is the right one)
Last year my company was inactive (although my company bank account had some deposit and withdraws to pay the 2015 taxes and cover the bank charges, but final Balance was 2 CAD). So, I am wondering what Schedules and other documents do I need to attached with the T2 Form and which fields/GIFIs? Also, I downloaded the PDF fillable T2 and schedules forms from the CRA website, but I do not know if I can file them online (how) or if I need to send it by email.
I will appreciate your help. Thank you,
Julian
Hi, Julian. I recommend that your purchase a tax preparation software, such as Turbo Tax or Ufile. This will be much easier than preparing the returns by hand. The following schedules should be completed: T2 Return (Schedule 200), Balance Sheet (G100), Income Statement (G125), and Shareholder Information (Schedule 50).
If my Corporation has a bank balance, and had no income or expense for the year. Can I withdraw from the Corporation without any personal tax liability? If so, how would I do that.
Thanks
Hi, Sude. The only way that you can withdraw your corporation’s cash balance without paying personal tax, is if the cash is withdrawn to repay an existing shareholder debt that the corporation owes to you. Otherwise, the corporation’s cash that is withdrawn by you will be treated as a taxable dividend to you.
Thank you for this detailed summary. This is my second year for the corporation and in the first year return filed by an accountant, there were loans from the shareholder. How are these loans carried over to the new tax return and where are they reflected ? Thanks indeed.
Hi, Amit. Thanks for your question. I’m assuming that you are referring to a shareholder payable, whereby the corporation owes you money. This should be carried-over onto schedule G100, code 3260.
How to remove an asset from its class on the schedule 100 when calculating accumulated amortization
Hi, Victoria. Has the asset been sold or disposed of? If yes, then you should record a gain/loss on Schedule 125 and remove the cost and accumulated amortization through the following journal entry:
Debit Cash received from Sale
Debit (Credit) Gain/Loss
Debit Accumulated Amortization
Credit Cost of Asset
Hi Allan,
I am trying to prepare my corporation tax return for the last year. As I didn’t have any sales or profit, could you tell me please which forms should I attach to T-2 short form (it is fully applies to me)
Thank you
Hi Rafayel, attach the following schedules to the T2 short return:
– Schedule 100
– Schedule 125
– Schedule 141
– Schedule 50
Hi Allan,
I am dissolving my corporation before the end of this year. The company has no revenue but it did incur some expenses during the year. There is no cash or fixed asset left. Kindly confirm that there is no need to include Schedule 4 when filing the final T2 although there are losses incurred. Thank you.
Hi Jim, Schedule 4 should be included with the final T2 since there are losses.
As for the rental income-passive income, if the cost of building is entered in S8 as class 1, does it has to be entered in S7R to calculate the passive income? Thanks a lot.
Hi Aileen, yes, the net income from the property (passive) must be entered on Schedule 7R.
Hi Allan,
I have UCC (Class 50) of say $400 at the beginning of this year and the asset was completely written off in end Aug 2017. For accounting purposes, do I perform the following entries:
Debit – Depreciation (Expense) for $146.47 (ie. $400*0.55*243/365 days)
Credit – Fixed Asset
Debit – Terminal Loss on disposal of fixed asset for $253.53 (ie. $400 -$146.47)
Credit – Fixed Asset
And for tax purposes, how should the Schedule 8 be filled up, please? I would be grateful if you can provide some advise on this.
Our corporation’s occupancy costs and a couple of other home office expenses were overstated by a total of $700 last year due to misallocation of % use. Should we file an amended return or just reduce the corresponding categories this year? Thanks.
Hi Gautam, you should file an amended return.
1)Doing IT work under incorporated company with owning 100% shares. This is consider Personal service worker I believe. If I am eligible for Small business deduction?
2) I did IT contract work also in USA for couple of months and no slips received from States. How to report this income in my corporation?
Hi Kuhan, a corporation could be operating a personal services business if it has only one customer, does not pay for any expenses or equipment, and follows orders given by an employer. I would need to know more about your business, to make a determination on whether or not it is operating a PSB.
The income your corporation received from its US customer should be included in its total revenues, expressed in Canadian dollars. Canadian corporate income tax will be payable on this amount. Furthermore, it does not appear that your corporation maintained a fixed place of business in the US, and as such, it will not be liable for US corporate income taxes.
This site is great – thank you!
It’s my first year as a small incorporated business – working as a consultant, and with only basic operating expenses. Three T2 questions for you please.
1. I used HST Quick Method, so I claimed the “rebate”/ extra income on GIFI as Other revenue 8230, and the payable HST as Liabilities on Schd 1 under Taxes payable 2680. Do I need to enter anything else for HST?
2. I claimed meals/gifts that qualify for 50% deductible. Per this blog, I also want to enter non-deductible personal expenses for clothing and individual meals that need to be added back on Schd 1 – what line number(s) do I use on Schd 1 and GIFI for this? Particularly the clothing.
3. I did not deposit any personal money into my business account. Should or can I put a nominal amount (say $1) in Schd 1 Equity for Common Shares 3500? If so, to balance the Assets, can I include the $1 as a Due from individual shareholder 1301 (i.e.: and then deposit $1 into business account)?
Thank you!
Hi Lidia, the ‘rebate portion’ under the Quick Method should be equal to the difference between the HST paid and the HST payable recorded in the financial statements. Record the rebate portion on line 8230, Other Revenue, of Schedule 125. Then, on Schedule 1, line 395 (other deductions) claim a deduction for the HST rebate included in income.
Add-back expenses for personal clothing and non-deductible meals on line 290, Other Additions, of Schedule 1.
Record $100 on line 1484 (prepaid expenses) and $100 on line 3500 (Common shares) of Schedule 100.
This is a great article. Very easy to follow. I wonder if you could offered advice on filling out a T2 Short form for a condominium corporation. In particular line 300 is asking for Net Income. I am submitting as a non-profit and our only revenue is our condo fees. Do the condo fees less expenses get entered as a Net income?
Hi Dan, condo fees less expenses get reported on line 300, Net income for tax purposes.
Disposition of 1 item in a CCA class
I have 2 computers in class 50 per below:
Computer-1: UCC at start of year = $800
Computer-2: UCC at start of year = $200
Computer-2 is damaged and I have junked it. No compensation was received for it (i.e., no insurance claim etc.).
How do I fill T2 Schedule-8 ?
What are the accounting entries ?
Thanks in advance.
Hi Anil, since there are still assets remaining in Class 50, the Class cannot be closed and a terminal loss cannot be claimed. Continue to claim CCA as normal on Class 50 assets, even though you got rid of one computer for $0 proceeds.
For accounting purposes, record a capital loss for the disposal of the asset and remove the asset from the books. The capital loss = to the book value of the computer disposed of.
Hi. I have a question on income tax installments. I made income tax installment monthly in 2017. How should I properly record the income tax expense? I debited Income Tax Expense, and credited Cash under the income statement. Is this the proper way to record it? Also, how should I report it under T2? Should this be included under Net Income? Thank you for your help.
Hi Chris, the first entry you should make is for current income tax expense. Generally speaking, current income tax expense = 15% of (net income + non-deductible items – deductible items). To record this entry, debit income tax expense and credit income tax payable.
Installments paid during the year should be recorded as a reduction to cash (i.e. credit) and a reduction to income tax payable (i.e. debit).
This blog is really informative. This is very helpful especially for those who are just starting a business.
My three Aunties formed a corporation to have a coffee shop. They bought the assets of the existing coffee shop and renovated the leased space. My Aunties hired an Appraisers to value the assets of existing coffee shop. Based on the appraiser’s findings the Fair market value of assets of existing coffee shop was 75k. My Aunties closed the deal and paid the previous owner the amount of 20k.
The breakdown of 75k per Appraiser are: 50K for leasehold improvements and 25k for the coffee shop’s equipments & furnitures. My Aunties actually tear down the old space and constructed a new one so basically the value of 50K for old leasehold improvements is gone.
My questions are:
How do I enter this in my Aunties books?
Should I just ignore the 50k and just account for the value of old assets of 25K that my Aunties can still use with their new coffee shop since they only paid the previous owner of 20k?
Also how do I show this in the T2 form.
Your response is highly appreciated.
Hi Adam, it appears that your aunties only paid $20,000 for $75,000 worth of business assets, which is a good deal. The $20,000 paid must be allocated between the leasehold improvements and equipment as follows:
1) Leasehold Improvements – $13,333 ($50,000 / $75,000 x $20,000)
2) Equipment – $6,667 ($25,000 / $75,000 x $25,000).
I understand that the existing leasehold improvements were destroyed soon after they were purchased, and new leasehold improvements were made. As a result, the CCA Class for leasehold improvements was not closed, and so the $13,333 spent must continue to be depreciated for tax purposes.
For accounting purposes, a loss on disposal of assets for $13,333 can be claimed, since the leasehold improvements were demolished. The accounting treatment, in this case, is different that the tax treatment.
Hi Allan,
Very helpful resources – thanks for doing this.
I am preparing T2 short return for a company that incurred loss in 2017. Also the company has loss carried over from previous years 2016.
In 2017, one overseas customer withheld taxes from our invoice. It’s shown as asset – withholding tax in the Balance Sheet.
Question:
How do I report the withholding taxes that were deducted by the customers overseas?
Do we get the money back from CRA so deducted?
Your reply and guidance is much appreciated.
Thanks.
Paul
Hi Paul, complete Schedule 21 along with the T2 corporate tax return to claim a foreign tax credit for the foreign taxes paid.
Hi Allan:
Can a Specified Investment Business which is a CCPC claim the Federal tax abatement on Line 608 of the T2 return?
Appreciate your guidance.
Thanks.
Hi Anita,
Yes, you can claim the federal tax abatement for a specified investment business. However, you cannot claim the small business deduction and you cannot claim the general tax reduction.
Hello,
I found your posts very informative. I have one question too.
I purchased a corporation from a friend of mine in Feb 2018. The corporation year end was Sep 2017. My friend had filed the tax return till Sep 2017. Now I have to file the tax return for Sep 2018. DO I need to file corporate taxes only from Feb 2018 to Sep 2018? If I need to file from Oct 2017 to Sep 2018, how would I know if the information provided to me by my friend for Oct 2017 to Jan 2018 is accurate or not. Please advise. Your response will be highly appreciated.
Hi Randeep,
Since you took control of the corporation from your friend in February 2018, there will be an ‘acquisition of control’ for tax purposes. As a result, the corporation will have a deemed year-end in February 2018 (i.e. the day prior to the closing date). You will have to file a corporate tax return for the period October 2017 to February 2018 and another corporate tax return for the period March 2018 to September 2018.
You will have to review the bookkeeping completed by your friend to make sure it’s okay.
Thanks for your quick response Allan.
So for the second corporate tax return for March 2018 to Sep 2018, my opening balance sheet will be basically the closing balance sheet as of Feb 2018 for the company or something else. I am confused.
The opening balance sheet for March 2018 will be equal to the closing balance sheet for February 2018.
My corporation is in partnership with another corporation where I pay them a licensing fee with HST. Is it possible to claim a HST rebate with my T2 return? If so, which form do I have to fill out?
Hi William,
Yes, your corporation can claim an input tax credit for the HST paid on licensing fees. To do so, have your corporation register for a HST number and file a HST return separately from the corporate tax return.
My corporation is inactive with Some money in Bank and short term investment. How do I write off small expenses like inactive tax return filing expense every year in balance sheet.
Hi Vishnu,
Report business expenses on GIFI Schedule 100 – Income Statement.
Hi, when a corporation is considered an associated to other corporations?, I have to prepare 10 T2s for almost the same partners. The corporations are restaurants (franchise) 6 corporations are own for 2 partners A and B, 3 corporations are own for A, B, and an additional partner C, and the last corporation is own for only one partner A. All of them are considered associates? Where are the parameters to consider a corporation associated with other? Thanks in advance for your help. 🙂
Hi Sara,
Generally speaking, two or more corporations are associated where they are controlled by the same person or same group of persons. For example, if individuals A & B control 6 corporations together, than those 6 corporations are associated with each other. Likewise, if individuals A, B and C control 3 corporations together, than those 3 corporations are associated with each other.
Hi Allan
My corporation has paid service fees and issued T4A .box 48. I would appreciate if you can please advise on Sch 125 which line this need to be reported.
Hi Bharat,
Enter the amount on line 8860, Professional Fees, of GIFI Schedule 125.
Hi Allan,
I’m a little confused whether to include dividend income from Canadian corporations as income in S125 or S3 or both. Since both affect the resulting tax separately.
Not including it on S125 affects the balance sheet which will no longer balance.
Same deal with investment gain/loss from stock trades and S6.
Stan
Hi Stan,
Dividends received from Canadian corporations should be reported on both Schedule 125 and Schedule 3. When completing Schedule 3, enter the code for “deductible under Section 112” of the Canadian Income Tax Act, so that Part 1 income tax does not apply to the amount of the dividend received. Note that where your ownership in the Payer Corporation is less than 10%, the Payer Corporation is ‘non-connected’ and so Part 4 tax (38%) will apply.
I’m dissolving my corporation and the only assets on Schedule 8 are a computer, which I am going to dispose of for $1 and Goodwill of 20,000. Can I also dispose of that for $1 and have a terminal loss or do I have to do something else?
Hi Jocelyne,
Record $0 for proceeds from the disposition of the assets and close each CCA Class. The balance of the UCC remaining can be claimed as a terminal loss.
Hi Allan,
I’ve really enjoyed your site and blog – thank you for helping the community.
My accountant retired and as I’m competing the T2 Corporation returns myself I noticed that last year’s return was missing some payable amounts (for operating expenses income taxes). Am I allowed to reflect them in this year’s return under GIFI line 3720 (as prior period adjustments to retained earnings)?
Many thanks in advance!
Hi Diana,
No, you should not do that. It could trigger a tax audit. I suggest that you amend the prior year’s return with the correct information.
Hello Allan,
my friend and I open a corporation company. For T2 tax return,how can I fill out schedule50 i I put name my friend and me both individual, sin number, how can I put common share, can I put 50% each? or 100% each?It’s just small business no share issued. Thank you much!
Hi Joyce,
For there to be shareholders, shares in the capital stock of the company must be issued. If you are a 50/50 owner with your friend, then enter 50% common shares for you and 50% common shares for your partner on Schedule 50.
Hello,
how account for the tax installment in T2?
I paid around 5000 in tax installment for the last year, now I’m preparing my income tax. I recorded in my qb as: dr. tax installation and cr cash.
I’m not sure how to include this amount in the income tax t2, which GIFI in the balancesheet.
please help
Hi Loudy,
Installment payments should be recorded as a debit to the income tax payable account.
for Schedule 125 – Income Sheet Summary, when providing the total sales, should i include the gst portion? like if the sales is 100,000 and the gst is 13,0000, should i enter 100,000 or 113,000?
Hi Russell,
Do not include GST/HST when reporting the total sales on Schedule 125. In your example, the total sales amount to be reported is $100,000 and not $113,000.
Hi Madan,
We have a incorporated company. We opened a self directed investment account in its name. The investments are in stocks and mutual funds. The corporation was issued T3 an T5 income slips. Under which Schedule do the amounts shown under different boxes (in T3/T5) get reported while filing a T2 Return ?
Thanks,
Mak
Hi Mak,
Report the actual amount of dividends received (not the taxable amount, which is grossed-up) on Schedule 3 and 7 of the T2 Return. Interest income should be reported on Schedule 7. Capital gains should be reported on Schedule 6 and Schedule 7.
which line do I put my draws from my corporate business on my T1
So long as the draws are a repayment of shareholder debt, the amount drawn is not reported on your T1 return. Otherwise, a T5 slip needs to be prepared for the dividends paid to you by your corporation in the calendar year, which gets reported on your personal tax return.
Hi,
I understand that a loss carry back can go back 3 years. I want to carry back a 2020 non-capital loss (CCPC with 0 income, but had expenses), and have a few questions please:
1. Is the loss 100% refundable (eg: $1000 loss = $1000 refund)?
2. Is a carry back applied only to previous federal tax paid, or to both federal and provincial (Ontario) tax paid?
3. Can a loss be split between 2 carry back years (eg: my 2020 loss is bigger than my federal tax paid in 2017, so I’d like to claim max possible in 2017, and the remainder in 2018)?
4. Can a previous year be used for carry back more than once? (eg: in 2020 I carry back $1000 loss to previous year 2019, when I had paid $3000 tax – is the remaining $2000 of 2019 tax paid available for a loss carry back next year, in 2021)
No, the loss is not 100% refundable, meaning a $1,000 loss does not equate to a $1,000 tax refund. Instead, losses reduce taxable income. For example, assume that the company earned $1,000 of income in 2019 on which is made $120 of corporate tax, and in 2020 the company sustained a loss of $1,000. If the company carries back the 2020 loss to the 2019 year, then the company will receive a tax refund of $120.
A loss carry-back is applied to both federal and provincial taxable income. Furthermore, a loss can be split between 2 carry-back years. Lastly, a loss carry-back can be used more than once, so long as the total amount carried back does not exceed the total of the available loss carry-back.
Hi,
Thank you for this great site! I need to claim a carry back on Schedule 4, but it’s unclear which line applies to which year. For a 2020 non-capital loss that I want to carry back to 2017, on S4 is it line 901 (first previous year) or line 903 (third previous year) that I would use for 2017?
Thank you so much!
It’s line 903, third previous year.
Hello. I use Wave Accounting and I am also filing my own T2 Corporate tax return for the first time. I’m sure you don’t like to hear that because you would rather do it for me but…My question is: How do I fill out the Notes Checlist (Schedule 141) if I am not an accountant (which I am not). A
How do I figure out my Taxable Capital for the Smal Business Deduction. Can I find what it was last year and the year before on my previous corporate Tax returns which were filed by an accountant? I am a super teeny small business with sales between 30,000 to $100,000 a year. It hardly matters but I have to fill something in.
Hi Pamela,
You can fill out the notes checklist (Schedule 141) even if you are not an accountant. Furthermore, in general terms, the Taxable Capital is equal to retained earnings + liabilities.
HI,
for a corporation, the owner (president) withdrew from the corporation a certain amount of money. What is the best way for this, as a withdrawal or as a loan from the corporation, or paid out as dividends? Hope you are still in business.
Hi, Mariette, Dividends if the owner has no intention of paying back the company. This is assuming the corporation has sufficient retained earnings to pay a dividend in the first place.