Corporate Tax Returns

A T2 corporate income tax return is due six months after the corporation's fiscal year-end. However, payment of any balance owing is due earlier: two months after fiscal year-end for most corporations, and three months after year-end for Canadian-Controlled Private Corporations (CCPCs) eligible for the Small Business Deduction. Late filing triggers a 5% penalty plus 1% per month, and unpaid balances accrue prescribed-rate interest from the day after the payment deadline.

The SBD reduces the federal corporate tax rate on the first $500,000 of active business income for a CCPC, bringing the combined federal-plus-provincial rate to roughly 12% in most provinces (versus ~26-27% on income above the limit). The $500K limit is shared among associated corporations. The benefit phases out as a corporation's adjusted aggregate investment income (passive income) for the prior year exceeds $50,000, and is fully eliminated at $150,000 of passive income. Corporations that accumulate too much passive investment income inside the corporate structure can lose the SBD entirely.

There's no universal answer. It depends on your personal income needs, RRSP room, CPP strategy, and the corporation's profit level. Salary creates RRSP contribution room, generates CPP credits toward retirement, and is fully deductible to the corporation. Dividends don't create RRSP room or CPP credits but avoid payroll source deductions, and may produce a slightly lower combined tax bill at certain income levels thanks to the dividend tax credit. Most owner-managers end up with a blend, optimized each year based on their full picture. This is exactly the kind of analysis that benefits from a mid-year planning review, not a year-end scramble.

A corporation must register for HST/GST once its worldwide taxable revenue (its own plus that of associated corporations) exceeds $30,000 in a single calendar quarter or over the trailing four quarters. Below that, you're a "small supplier" and registration is optional. Voluntary early registration often makes sense if you have significant startup costs with HST you'd like to recover via Input Tax Credits, or if your customers are mostly other registered businesses (who can recover the HST you charge them, so it's not a real cost to them).