Who does this apply to?
This applies to the newly incorporated Canadian business owners outside of Quebec who want to understand what their corporate tax filing obligations are. Most of it probably applies to Quebec too, but I do not offer Quebec tax services, and the part about this being a guide and not tax advice goes double here.
What do I do first?
Assuming you’ve set up a bank account, and set up your CRA access, you’ll decide on a year end for the corporation. When it was just you, you filed your tax return based on a calendar year end. Now that you have a corporation, you have to file your corporate tax within 6 months of your year-end. And for your first year-end, you can choose any date you want within 372 days of your incorporation.
Ideally, this was decided when you discussed incorporation with your accountant or lawyer. But if you are self-incorporated, when you have an accountant, let them know what year end you want to use.
What year end should I pick?
December 31 is common because that lines up with the personal tax year as well as T4/T5s, but if you have an understanding of your business cycle, it may make sense to align with that. For myself, I chose the end of May which is a month after the end of personal tax season. Then I can make sure that I’ve collected any receivables and can pay the corporate tax. If you’re working with a large client, or as an incorporate consultant, you may want to align to their year end or a month after for, you know, the collection of receivables.
Once you’ve chosen your year end and filed your T2 Corporate Income Tax and Information return, you have to pay the balance owing within 3 months if you’re claiming the small business deduction, and 2 months if you’re not. You will pay interest if the balance isn't paid by these days.
And depending on the amount of tax you paid, you’ll need to start making installments towards next year. As a rule, the CRA expects you to pay in installments what your tax owing was in the prior year.
That’s not so bad. Just have to file the T2 and not worry about any tax.
Uh, no. If you’ve taken salary from the corporation (reported on a T4) or dividends (reported on a T5), you’ll still need to prepare and file your personal tax return. And if you were self employed in the year of incorporation, then the next year’s personal return will be due April 30, and not June 15. But the balance will still be due April 30 anyways.
I still just report the tax slips I get, right?
No, since the corporation is its own legal entity, you’ll need to create the necessary books and records to build the financial information which will be the basis of the tax return. The more care and timeliness you put into this task, the quicker your tax return will be ready, and you’ll be able to make better decisions about your business. Solid, regular bookkeeping is the basis of peace, order, and good governance. And I happen to know a guy who can help you achieve that and more for your business.
Standard Disclaimer: This is intended to be a guide and not binding tax advice. If you need that, call me.