When you incorporate, your business becomes a separate taxpayer. It files its own return — the T2 Corporation Income Tax Return — every year, separate from your personal T1.
Here is what new owners usually want to know.
Every corporation files, every year
A corporation resident in Canada generally must file a T2 for every tax year, even if it had no income, no activity and no tax payable. A quiet first year still needs a return.
Choosing your year-end
Your corporation’s fiscal year-end doesn’t have to be December 31. A new corporation effectively chooses its year-end when it files its first return, and the first tax year can’t be longer than 53 weeks from the date of incorporation.
The choice matters: it sets the rhythm of your filings for years. Some owners choose a year-end that falls in a quieter season so the year-end work doesn’t collide with their busiest months.
Key dates
| What | Generally due |
|---|---|
| T2 return | 6 months after year-end |
| Balance of tax owing | 2 months after year-end (3 months for certain CCPCs) |
| Ontario annual return | Within 6 months of year-end, through the Ontario Business Registry |
Note that the payment date comes before the filing date. Interest can start running on unpaid balances even if the return isn’t late yet.
What to set up from day one
The first year is the easiest time to get records right:
- Open a business bank account in the corporation’s name. Keep personal spending out of it.
- Record how the company was funded. Money you put in is generally a shareholder loan or share capital — not revenue.
- Track expenses you paid personally on the company’s behalf. These are usually repaid to you or recorded in your shareholder loan account.
- Decide how you’ll pay yourself. Salary, dividends or a mix each have different consequences for your personal tax, CPP and RRSP room.
Common first-year surprises
- Treating owner deposits as sales, which overstates income
- Forgetting incorporation costs or pre-incorporation expenses
- Not issuing a T5 slip when dividends are paid
- Missing the HST registration threshold because sales grew quickly
Small business deduction
Canadian-controlled private corporations can generally access a lower rate of tax on active business income up to an annual limit. Whether and how much applies depends on your corporation’s situation, associated corporations and other factors.
A good first year
The simplest way to make your first T2 painless is to keep monthly books from the start. A year-end built on twelve reconciled months is a review. A year-end built on a shoebox is a reconstruction.
This article is general information, not tax advice for your specific situation. Confirm current rules with the CRA or a qualified advisor.