Corporate T2 Income Tax Services
How to define a business? It is a commercial activity to earn a profit.
Any legal activity to make a profit is called business. It could be trading, manufacturing, services, or production. A business includes personal professional services, self-employed or a corporate by hiring others as your employee to run your business operations.
All the sales of the operational activity you make to earn a profit are called business incomes. You would deduct all the expenses and expenditure from the sales to calculate business net income and it is taxable income as per the Canadian tax system. Unreported income is subject to hefty penalties by the Canada Revenue Agency (CRA) starting from 10% to 50% of unreported income with the understanding the omission is unintentional. A different penalty will be imposed in case the mistake is intentional or you made a false statement to reduce your taxable income.
You are only allowed to deduct expenses that you made to earn business sales and the expenses you made before starting the business activity such as research are not business deductible expenses. Capital asset expenditures are not deductible all in the year of purchase but can be amortized over the period of useful life.
VanTax Accounting is a professional company to assists you make a financial statement at year-end and calculates your taxable income for income tax purposes. We are professional guiding you to file correct income tax balances and claim all the eligible business credits and will end up reducing your taxes.
Who has to file a corporation income tax return T2, per the Canadian tax system?
All registered businesses in Canada (resident corporations) or foreign corporations (non-resident corporations) earned taxable incomes (only Crown corporations, registered charities, and Hutterite colonies are exempts) have to submit corporate T2 income tax returns yearly. It does not matter if you do not owe taxes or no active business during this year.
For Canadian-controlled private corporations, the basic rate in Canada of Part1 tax is 38% and the net federal corporate income tax rate is15% (after netting 10% federal tax abatement and the general tax deduction). And the small business deduction rate is:
10.5% before 2018
And the rate is 9% effective January 1, 2019
10% before January 1, 2018
Your corporations’ tax year is the fiscal year of the company and less than 53 weeks. In the first year of the incorporation choose any date after the incorporation as the fiscal year-end; subsequently, it will be after 365 days every year. However, at any later time, you can change the fiscal year-end date, subject to the approval of the tax service office with a valid reason.
You need to file a corporate T2 income tax return yearly of your incorporation within six months (or 180 days) assuming the last day of the period is not ending on a public day off, in that case, the next business day will be marked as the due date.
Keeping records
All the businesses must maintain a record of financial information and other non-financial documents in the form of paper or electronic. It includes business type, accounting records, transactions, sale invoices, and payment receipts.
These records are important to keep track of the source of income and deductible expenses. It might be asked during the CRA auditor to verify your GST/HST charged against on your business invoices or claimed on business-related expense and payments. You would have numerous benefits of keeping an organized record to avoid penalties or prove your balances per income tax purpose; you will save cost and time to retrieve such documents and information. You can watch your business trends, following budgets, and analyzing financial information to track growth, and comparing yearly profitability ratios.
WHO AND HOW TO FILE PARTNERSHIP INCOME TAX – T5013 PARTNERSHIP INFORMATION RETURNS FILING:
Partnership business needs to file T5013 Partnership information return (except a farm partnership made up of a single partner) and all the partners are required to file an income tax return to report shares in the partnership income or loss.
In case a partnership has reported a loss, the carry-over losses rules apply as per each partner instead of the partnership. Individual partners will report in their own income tax return the capital gain or losses, taxable income as per share in the partnership. The carry forwarded non-capital losses, fishing, and farming losses are for 20 years.
However, the partnership can claim its own Capital cost allowance (CCA) similarly as incorporation, on the capital expenditure of depreciable properties, and avail any investment tax credits including government assistance. It can report profit or loss on the sale of capital assets.
HOW A SOLE PROPRIETORSHIP (SELF-EMPLOYED) REPORT ITS TAXABLE INCOME AND FILE INCOME TAX RETURN
An individual’s self-employment income is needed to report on its personal income tax return line 13500 to line 14300. The self-employed income includes professional income, commission income, Fishing income, and Farming income.
The individual can opt to Accrued Accounting method or Cash Accounting method.
