T2 Corporation – Income Tax Guide – Before you start
On this page...
- References in this guide
- AgriStability and AgriInvest programs
- Our service pledge
- Who has to file a T2 return?
- How do you file your return?
- When do you have to file your return?
- Where do you file your paper return?
- When and how do corporations pay income tax?
- What happens if you file your return late?
- What happens if you do not comply with mandatory Internet filing?
- What happens if you do not report income?
- False statements or omissions
- Misrepresentation in tax matters by a third party
- Other penalties
- Cancel or waive penalties or interest
- Voluntary Disclosures Program
- Information reporting of tax avoidance transactions
- What happens after you have filed your return?
- When can we reassess your return?
- How to register a formal dispute
- Keeping records
References in this guide
When we mention parts, sections, subsections, paragraphs, and subparagraphs in this guide, we are referring to the Income Tax Act and Regulations of Canada, unless otherwise specified. This guide does not replace the Income Tax Act and its regulations.
We also refer to information circulars (ICs) and interpretation bulletins (ITs) that we publish to give you more technical information. A new series of technical publications, called the Income Tax Folios, is progressively replacing the IT Bulletins. This process is taking several years. To be notified of new or updated income tax folios, subscribe to our Electronic mailing list – Income Tax Technical Publications.
AgriStability and AgriInvest programs
Our service pledge
The CRA will process 90% of T2 corporation income tax returns within 45 days for the electronic version and 90 days for the paper version.
Who has to file a T2 return?
All corporations — including non-profit organizations, tax-exempt corporations, and inactive corporations — have to file a T2 return for every tax year, even if there is no tax payable. The only exceptions to this rule are tax-exempt Crown corporations, Hutterite colonies, and corporations that were registered charities throughout the year.
A non-resident corporation has to file a T2 return if, at any time in the year, one of the following situations applies:
- it carried on business in Canada;
- it had a taxable capital gain; or
- it disposed of taxable Canadian property, unless the disposition meets all the criteria listed below.
This requirement applies even if any profits or gain(s) realized are claimed by the corporation to be exempt from Canadian income tax due to the provisions of a tax treaty.
The meaning of "business" is defined in subsection 248(1) and the extended meaning of "carrying on business [in Canada]" is defined in section 253.
The references to taxable capital gain do not include any gain resulting from the disposition of shares that are listed on a designated stock exchange (other than taxable Canadian property).
A non-resident corporation also has to file a T2 return in a number of situations, including:
- when it has filed Form NR6, Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent from Real Property or Receiving a Timber Royalty, to pay Part I tax on the net amount of timber royalty income or rental income from real property under subsection 216(1) for the current year and we approved it; or
- when it has filed Form T1288, Application by a Non-Resident of Canada (Corporation) for a Reduction in the Amount of Non-Resident Tax Required to Be Withheld on Income Earned from Acting in a Film or Video Production, to pay Part I tax on the net amount of acting services under subsection 216.1(1) for the current year and we approved it.
Even if neither of these requirements applies, a non-resident corporation may still want to file a return if any of the following situations apply:
- when it wants to claim a refund;
- when it wants to elect to pay Part I tax on the net amount of timber royalty income or rental income from real property under subsection 216(1) for the current year; or
- when it wants to elect to pay Part I tax on the net amount of acting services under subsection 216.1(1) for the current year.
Non-resident corporations must file their T2 return, schedules, and the General Index of Financial Information in Canadian funds only. They are not eligible to file in a functional currency per section 261.
Dispositions of taxable Canadian property (certificates of compliance)
A non-resident corporation that disposes of taxable Canadian property must notify the CRA and may be required to get a certificate of compliance under section 116. For details, see Information Circular IC72-17, Procedures Concerning the Disposition of Taxable Canadian Property by Non-residents of Canada – Section 116.
A non-resident corporation that has a taxable capital gain or disposed of taxable Canadian property, including a corporation that may have received a certificate of compliance from the CRA, has to file a return, unless the disposition meets all the following criteria:
- no tax is payable under Part I for the tax year;
- the corporation is not liable to pay any amount under the Act for any previous tax year (other than an amount covered by adequate security under section 116 or 220); and
- each taxable Canadian property disposed of in the tax year is:
- excluded property under section 116; or
- property for which a certificate was issued under section 116.
Effective March 5, 2010, the definition of taxable Canadian property excludes shares of corporations, and certain other interests, that, during the 60-month period ending at the time of determination, do not derive their value mainly from real or immovable property situated in Canada (including Canadian resource property and timber resource property).
Non-resident corporations claiming treaty exemption
If you carried on a "treaty-protected business" in Canada, had a taxable capital gain, or disposed of a "taxable Canadian property" that was "treaty-protected property" during the year (as defined in section 248), you have to complete the following lines on your return:
- lines 001 to 082 of page 1;
- lines 164, 170, and 171 of page 2;
- lines 270 to 289 of page 3; and
- lines 780 to 990, if applicable, of page 8.
For each of the questions asked at lines 164, 170, and 171 on page 2 of the return to which your response is yes, complete the appropriate form or schedule and attach it to your return. In addition, you have to complete Schedule 91, Information Concerning Claims for Treaty-Based Exemptions.
Rental income from Canada
Rental income from Canada is subject to a 25% withholding on the gross rental income under Part XIII, unless the rate is reduced by a reciprocal tax treaty. A non-resident corporation can elect to be taxed under Part I on its net rental income by filing a T2 return under subsection 216(1) within two years of the end of the tax year. If the non-resident corporation has filed Form NR6, Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent from Real Property or Receiving a Timber Royalty, it must file a T2 return under subsection 216(4) within six months of the tax year end. For more information, see IT393R2 – Election Re: Tax on Rents and Timber Royalties Non-Residents.
If you file a T2 return under section 216, include only rental income. If you have any other income, file a second T2 return.
Services rendered in Canada (withholding amount)
A non-resident corporation is subject to a 15% withholding under Regulation 105 on any fee or other amount paid to it for services rendered in Canada (regardless of whether the services are provided by an employee of the corporation or are sub-contracted to another party). This withholding is held on account of any potential tax liability that the corporation may have to Canada. The corporation's tax liability is determined upon the assessment of its Canadian income tax return.
A corporation related to a non-resident actor is subject to a 23% withholding tax under Part XIII on all amounts it receives for the acting services of the actor in a film or video production in Canada. This withholding tax represents the final tax liability for these acting services. The corporation may elect not to be taxed under Part XIII at the 23% rate by filing a return of income under Part I for the year. A non-resident corporation that has received a reduction (filed Form T1288) of this withholding tax from the CRA still has to file a return.
Send your election to file a Canadian return under section 216.1 to the tax services office that processed application Form T1288 and issued the reduction. Write “Actor's election” at the top of page 1 of the return.
How do you file your return?
Using tax preparation software
If you are preparing your return using tax preparation software, you must use CRA certified software. We certify commercial software to ensure that it meets our specifications. You can then file your return electronically using CRA's Corporation Internet Filing service; My Business Account, if you are a business owner; or Represent a Client, if you are an authorized representative or employee; or you can print the T2 Bar Code Return and mail it to the CRA.
If you file through an electronic transmitter, you have to authorize the transmitter by completing a T183 CORP, Information Return for Corporations Filing Electronically, for each tax year. Do not send this form to us, but keep it in case we ask for it later.
Mandatory Internet filing
All corporations with annual gross revenue of more than $1 million have to Internet file their T2 return, except for insurance corporations, non resident corporations, corporations reporting in functional currency and corporations that are exempt from tax payable under section 149 of the Income Tax Act. Corporations are subject to a penalty for non-compliant returns. For more information see What happens if you do not comply with mandatory Internet filing.
Corporation Internet filing
Most corporations, including non-resident corporations and corporations claiming an SR&ED amount, can file their return electronically using the Internet. You must use CRA-approved software that has been certified for Corporation Internet Filing. By filing electronically, you will receive immediate confirmation that the CRA has received your return, enjoy faster processing and refunds, save on mailing costs, and help the environment by reducing paper consumption.
If you are filing your T2 return electronically and you have to file a paper certificate or an election with your return, send the document(s) to your tax centre (see Where do you file your paper return), except certificates for film and media tax credits. Clearly identify your corporation's name, business number, and the applicable tax year end on the documents. If you are filing an election that does not have a prescribed form or prescribed manner, include it with the notes to your financial statements on the General Index of Financial Information (GIFI) to transmit the election electronically with your return, unless otherwise specified on a T2-related form.
For film and media credits, send a paper copy of the certificates to the appropriate Film Services Unit (FSU). The location of the production corporation’s books and records usually determines which FSU will handle the review of your claim. If the books and records are maintained outside Canada your claim will be reviewed by the Vancouver FSU.
For information on your eligibility, available software, and more, go to Corporation Internet Filing.
Filing without a web access code
You can file corporation returns online without a web access code using the “Transmit a return” service at:
- My Business Account, if you are the business owner; or
- Represent a Client, if you are an authorized representative or employee.
2D bar code
CRA-certified software produces two-dimensional (2D) bar codes that contain the information needed to assess your return. We use bar code scanners to capture the information on our processing systems.
CRA-certified software produces a T2 Bar Code Return that contains the corporation's identification information, a summary of the financial data, bar codes, and a certification area.
The paper quality and print legibility of your T2 Bar Code Return have to meet our standards and must be printed on one side only. Use paper that is as durable as the 32M paper we use to print our forms. The print quality has to be clear and dark enough to read and photocopy easily.
If the T2 Bar Code Return you file was not generated by software that we certified or does not meet our requirements, we will contact you to re-file the return, either in an approved format or using our preprinted forms.
Generally, in addition to the T2 Bar Code Return, certified software produces a client copy of the T2 return, which looks like a CRA pre-printed T2 return. Keep the client copy for your files and send the T2 Bar Code Return to us.
North American Industry Classification System (NAICS) codes
All certified tax preparation software for T2 returns uses self-identified NAICS codes.
NAICS codes are hierarchical numerical codes used by the member countries of the North American Free Trade Agreement designed to provide common definitions and descriptions of our industries and business activities. NAICS codes are up to six digits long. The Government of Canada as well as the governments of the provinces and territories use the data provided by NAICS codes for economic analysis and fiscal policy responses.
The integration of NAICS codes into T2 commercial tax preparation software packages means that corporations have to pick their main revenue generating business activity directly from a drop down list or a simple search. Active corporations that file their T2 returns either by Internet or on paper using 2D bar codes must choose the appropriate codes to describe their main revenue generating business activity.
Corporations using the agency-printed return do not have to enter a NAICS code.
It is important that you select the most accurate business activity the first time, since the first year's code is carried forward to following years, allowing for a simple validation of the description when there is no change in the main business activity.
If you do not select the business activity, problems and errors will result when you prepare the T2 return to be transmitted electronically or printed in bar-coded format.
If you have any questions on selecting NAICS codes to describe your corporation's main revenue generating business activity when filing your T2 return, call the Business Enquiries line at 1-800-959-5525.
Using our preprinted returns
We print two different returns.
T2 Corporation Income Tax Return
The T2 Corporation Income Tax Return has eight pages. Any corporation can use it.
T2 Short Return
The T2 Short Return is two pages plus a Schedule 1, Net Income (Loss) for Income Tax Purposes, a Schedule 8, Capital Cost Allowance (CCA), and a Schedule 50, Shareholder Information. It is a simpler version of the T2 Corporation Income Tax Return.
Two categories of corporations are eligible to use this return:
- You can use this return if the corporation is a Canadian-controlled private corporation (CCPC) throughout the tax year and this year, it has either a nil net income or a loss for income tax purposes.
- You can also use this return if the corporation is exempt from tax under section 149 (such as a non-profit organization).
In addition, the corporation must meet all of the following conditions to use this return:
- it has a permanent establishment in only one province or territory;
- it is not claiming any refundable tax credits (other than a refund of instalments it paid);
- it did not receive or pay out any taxable dividends;
- it is reporting in Canadian currency;
- it does not have an Ontario transitional tax debit; and
- it does not have an amount calculated under section 34.2.
If the corporation does not fit into either of the above categories or does not meet all of the above conditions, file a regular T2 return.
When do you have to file your return?
File your return within six months of the end of each tax year. The tax year of a corporation is its fiscal period.
When the corporation's tax year ends on the last day of a month, file the return by the last day of the sixth month after the end of the tax year.
When the last day of the tax year is not the last day of a month, file the return by the same day of the sixth month after the end of the tax year.
|Tax year-end||Filing deadline|
|March 31||September 30|
|June 30||December 31|
|August 31||February 28|
|September 23||March 23|
|October 2||April 2|
When the T2 filing deadline falls on a Saturday, Sunday, or statutory holiday, we will consider the return filed on time if it is sent on the first business day after the filing deadline.
You must file your return on time. If you do not, we can charge penalties on any return that was not sent by the filing due date. See What happens if you file your return late? for details.
You must file a return no later than three years after the end of a tax year to receive a tax refund.
Re-appropriation of T2 statute-barred credits
Under subsection 221.2(1), the minister of National Revenue may use discretion to re-appropriate T2 statute-barred credits to an established debt on an account associated with the same business number and administered by the CRA.
To request the re-appropriation of a T2 statute-barred credit, send us a completed Form RC431, Request for Re-appropriation of T2 Statute-barred Credits, with all the supporting documents. Complete a separate form for each unique business number.
You can also use the Enquiries service at My Business Account. You will have to provide the same details requested on Form RC431 in your enquiry. Keep the requested documents in case we ask for them later.
For more information, see the form or go to Re-appropriation of T2 statute-barred credits.
Where do you file your paper return?
Where you file your paper return depends on where the corporation is located.
Mail your return to one of the following tax centres:
|Corporations served by tax services offices in:||Tax centre|
|British Columbia, Yukon and Regina||Surrey Tax Centre
9755 King George Boulevard
Surrey BC V3T 5E1
|Alberta, Manitoba, Northwest Territories, Saskatoon, London, Windsor, and Thunder Bay||Winnipeg Tax Centre
66 Stapon Road
Winnipeg MB R3C 3M2
|Sudbury/Nickel Belt, Toronto Centre, Toronto East, Toronto West, Toronto North, and Barrie||Sudbury Tax Services Office/Sudbury Tax Centre
1050 Notre Dame Avenue
Sudbury ON P3A 5C1
|Montréal, Laval, Ottawa, Sherbrooke, Rouyn-Noranda, North-Eastern Ontario, and Nunavut||Shawinigan-Sud Tax Centre
4695 12e Avenue
Shawinigan-Sud QC G9P 5H9
|Québec, Chicoutimi, Rimouski, Trois-Rivières, Outaouais, and Montérégie-Rive-Sud||Jonquière Tax Centre
2251 René-Lévesque Boulevard
Jonquière QC G7S 5J1
|Nova Scotia, New Brunswick, Newfoundland and Labrador, Kingston, Peterborough, and St. Catharines||St-John's Tax Centre
290 Empire Avenue
St. John's NL A1B 3Z1
|Prince Edward Island, Belleville, Hamilton, and Kitchener/Waterloo||Summerside Tax Centre
275 Pope Road
Summerside PE C1N 6A2
The International and Ottawa Tax Services Office assesses and reassesses returns that non-resident corporations file. If the corporation is non-resident, send the returns and related correspondence to:
International and Ottawa Tax Services Office
Post Office Box 9769, Station T
Ottawa ON K1G 3Y4
If you have questions about non-resident returns, go to Business – International and non-resident taxes or call one of the following numbers:
- Long distance from Canada and continental United States: 1-800-959-5525
- Long distance from outside Canada and continental United States: 613-940-8497 Footnote 1
- Fax number: 613-952-3845
Film and media tax credits
Film Services Units at the CRA provide services to corporations that may be entitled to receive the Canadian film or video production tax credit, the film or video production services tax credit, or other available provincial or media tax credits. For more information, including the location and contact numbers for the Film Services Unit serving your area, go to Film and Media Tax Credits.
When and how do corporations pay income tax?
Corporations have to pay income tax in monthly or quarterly instalments when the total of Part I, Part VI, Part VI.1, and Part XIII.1 taxes payable for either the previous year or the current year is more than $3,000.
The balance of tax the corporation owes for a tax year is due within either two or three months of the end of that tax year, depending on the circumstances of the corporation.
Interest and penalties apply to late payments. To be on time, you have to make instalment payments and other payments on or before the due date by using one of the several methods of making online payments:
- Pay online by using your financial institution’s online banking or telephone banking services.
- Pay online by using CRA’s My Payment service at My Payment.
- Pay by setting up a pre-authorized debit agreement using the My Business Account service.
You can also pay in person at your financial institution in Canada. To do so, you have to use a remittance form, which you can request at My Business Account.
For more information, go to Make a payment or contact your financial institution.
We consider the payment to have been made on the day we receive it, and not on the day you send it.
Your payment due date may fall on a Saturday, Sunday, or a statutory holiday. If so, we will consider the payment as being received on time for calculating instalment interest and penalty if we receive the payment on the first business day after the due date.
Sometimes, penalties and interest on late payments can be cancelled or waived. For more information, see Cancel or waive penalties or interest.
Instalment due dates
Instalment payments for Parts I, VI, VI.1, and XIII.1 taxes are due on the last day of every complete month of a corporation's tax year. The first payment is due one month minus a day from the starting date of the corporation's tax year. The rest of the payments are due on the same day of each month that follows.
Eligible small-CCPCs can make quarterly instalment payments, instead of monthly ones. For more information, see Guide T7B-Corp, Corporation Instalment Guide.
You can view your instalment due dates by using the "Instalment payment calculator" service at:
- My Business Account, if you are the business owner; or
- Represent a Client, if you are an authorized representative or employee.
Generally, all corporation taxes (with the exception of Part III and Part XII.6) are due two months after the end of the tax year. However, the tax is due three months after the end of the tax year if the following conditions apply:
- the corporation is a CCPC throughout the tax year;
- the corporation is claiming the small business deduction for the tax year, or was allowed the small business deduction in the previous tax year; and either
- the corporation's taxable income for the previous tax year does not exceed its business limit for that tax year (if the corporation is not associated with any other corporation during the tax year); or
- the total of the taxable incomes of all the associated corporations for their last tax year ending in the previous calendar year does not exceed the total of their business limits for those tax years (if the corporation is associated with any other corporation during the tax year).
For determining balance-due days, the taxable income for the previous year of corporations and associated, subsidiary, and predecessor corporations means taxable income before applying loss carrybacks.
Special rules apply to determine the balance-due day of a new corporation formed after an amalgamation, or of a parent corporation after it receives the assets of a subsidiary corporation that is winding-up. For more information, go to Payments or see Guide T7B-Corp, Corporation Instalment Guide.
Sections 125 and 157
Partnerships – Deferral of corporation tax
Under subsection 96(1), income earned by a corporation as a member of a partnership is included in the corporation’s income for the corporation’s tax year in which the fiscal period of the partnership ends. If the partnership has a fiscal period that ends after the end of the corporation’s tax year, taxation of the partnership earnings can be deferred by up to one year. The rules in sections 34.2, 34.3 and amended section 249.1 were introduced to limit the deferral of tax that arises because of this misalignment. The two main aspects of section 34.2 are the rules related to the adjusted stub period accrual and those related to the transitional relief. These rules do not affect a corporation’s capital dividend account which is to be determined without reference to section 34.2.
Adjusted stub period accrual (ASPA)
For tax years of a corporation that end after March 22, 2011, some corporations may have to accrue additional income in respect of the partnership (other than dividends for which a deduction is available under section 112 or 113), when the fiscal period of the partnership begins in the tax year and ends in a following tax year. The corporation will be required to accrue income (ASPA) for the portion of the partnership's fiscal period that falls in the corporation's tax year (the stub period).
As the ASPA income inclusion in a tax year is an estimate of the stub period income, the corporation is entitled to claim that same amount in the immediately following tax year. Both the ASPA income inclusion and the treatment of that same amount in the following year are subject to the characterization rules under subsection 34.2(5). As such, the claim in the immediately following tax year may be a deduction or a deemed allowable capital loss, whichever applies. A corporation may have ASPA in respect of more than one partnership and, in such cases, the ASPA rules apply to the corporation on a partnership by partnership basis.
In general, a corporation (other than a professional corporation) has to include in its income for a tax year its ASPA in respect of a partnership if:
- the corporation has a significant interest in the partnership at the end of the last fiscal period of the partnership that ends in the tax year;
- another fiscal period of the partnership begins in the tax year and ends after the tax year of the corporation; and
- at the end of the tax year, the corporation is entitled to a share of an income, loss, taxable capital gain, or allowable capital loss of the partnership for the fiscal period referred to in the preceding bullet.
A corporation has a significant interest in a partnership if the corporation, or the corporation, together with affiliated or related parties, is entitled to more than 10% of the partnership’s income or loss (or assets, net of liabilities, if the partnership were to cease to exist).
These rules apply to any corporation (as described above), that is a member of a partnership, even if the partnership has as a member an individual or a professional corporation that is subject to the 1995 rules limiting deferral for unincorporated businesses.
The definition of adjusted stub period accrual in subsection 34.2(1) gives the formulas for calculating a corporation’s ASPA in respect of a partnership.The ASPA formula allows the corporation to designate two reductions. The first designation concerns qualified resource expenses incurred by the partnership during the corporation's stub period. The second allows a corporate partner to make a discretionary designation to reduce its ASPA to reflect its knowledge of the actual partnership income for the stub period. Once filed, the designations cannot be amended or revoked. If the amount of the discretionary designation is too high, creating an income shortfall, the corporation may be subject to an additional income inclusion. The additional income inclusion may increase if the shortfall is above a 25% threshold.
If the corporation is a member of a partnership subject to a multi-tier alignment (see below), the ASPA inclusion does not apply to the corporation in respect of the partnership for tax years before the tax year that includes the end of the first fiscal period of the partnership that is aligned under the multi-tier alignment.
Under certain conditions, a corporation (other than a professional corporation) that becomes a member of a partnership in a tax year may make a designation to apportion its income from the partnership between two tax years – the tax year in which the fiscal period of the partnership began and the tax year in which the fiscal period of the partnership ends.
The ASPA rules generally apply to tax years of a corporation that end after March 22, 2011. In many cases, these rules could result in an income inclusion of a significant incremental amount of partnership income for a corporation’s first tax year ending after March 22, 2011. The rules providing transitional relief will generally result in no additional taxes being payable for that first tax year. Instead, the additional income will generally be brought into the corporation’s income over the five following tax years.
Qualifying transitional income
Whether a corporate partner is eligible for transitional relief depends initially on whether the corporation is a member of the partnership on March 22, 2011 and whether it has qualifying transitional income (QTI) in respect of the partnership. A corporation’s qualifying transitional relief in respect of a partnership could be made up of:
- ASPA arising in the corporation’s first tax year ending after March 22, 2011;
- eligible alignment income, which can result from a single-tier alignment or a multi-tier alignment of the fiscal period of a partnership; or
- both ASPA and eligible alignment income (in other words, the fiscal period of a partnership may be aligned, but that alignment may not coincide with the tax year end of all its corporate members).
Alignment elections and eligible alignment income
Under certain conditions, a single-tier partnership was allowed a one time election to change its fiscal period, for example to align with the tax year of one or more corporate partners. For partnerships in a multi-tier partnership structure that would otherwise be forced to have a December 31st fiscal period end, a one-time election allowed them to align to a common fiscal period if certain conditions were met. The eligible period to make an election has ended.
A corporate partner may have additional income as a result of single-tier or multi-tier alignment election that may represent eligible alignment income, which qualifies for transitional relief. Unlike adjusted stub period accrual, a corporation may have eligible alignment income in respect of a partnership even though its interest in the partnership is not a significant interest.
Generally, corporations will have up to five calendar years to report the QTI following the tax year in which the QTI initially arose. For example, if the first tax year in which the QTI arose ended in 2011, the effective QTI inclusion is: 0% in 2011, 15% in 2012, 20% in each of 2013, 2014 and 2015, and 25% in 2016.
This is done by claiming an amount, as a reserve, for a declining specified percentage of the QTI each year (subject to certain limits). Like other reserves, the amount claimed in a tax year is brought into income in the following tax year. Both of these amounts are subject to the characterization rules under subsection 34.2(5). The QTI amount that is initially calculated may be required to be adjusted in the second or subsequent tax year to accurately prorate the income for the stub period.
There is no adjustment to QTI if it includes only eligible alignment income. If the QTI is adjusted, it is a one-time adjustment. Although this adjustment to QTI does not affect a corporation’s reserve for the first tax year (or the amount included in its income for the following tax year in respect of the reserve), it does change the QTI in respect of the partnership for the purpose of claiming a specified percentage of that QTI for the year in which it is adjusted and each following tax year in which a reserve is claimed in respect of QTI.
The first tax year the transitional reserve can be claimed may end in 2011, 2012, or 2013. The first tax year in which the QTI arises may be 2013 only if a multi-tier alignment occurs and the corporation's first tax year that includes the aligned fiscal period of the partnerships ends in 2013. Then the corporation has only up to four calendar years to report the QTI following the tax year in which the QTI initially arose.
This transitional relief applies on a partnership-by-partnership basis if a corporation is a member of two or more partnerships.
The availability of transitional relief depends on certain conditions being met. For example, a corporation generally must be a member of a partnership for which the corporation has QTI continuously since before March 22, 2011 until the end of the tax year in which the corporation is claiming a reserve in respect of QTI. A continuation rule is provided for cases where a corporation transfers its partnership interest to, and which is held by, another corporation that is related to, or affiliated with, the corporation.
Generally, the ASPA and related amounts are deemed to have the same character and be in the same proportions as the partnership income that they relate to.
To calculate the income inclusion under 34.2 and, if applicable, the income shortfall adjustment and additional amount under 34.3, use Schedule 71, Income Inclusion for Corporations that are Members of Single-Tier Partnerships, or Schedule 72, Income Inclusion for Corporations that are Members of Multi-Tier Partnerships. These are worksheets and you do not have to file them with your return. To report the amounts, file a completed Schedule 73, Income Inclusion Summary for Corporations that are Members of Partnerships, with your return.
Schedules 1, 6, and 7 are affected by the various rules in section 34.2 and the amounts reported on Schedule 73 (as applicable). For example, the amount entered on line 275 of Schedule 73 reporting the total taxable capital gains under section 34.2 must also be entered on Schedule 6.
Sections 34.2, 34.3, and 249.1
What happens if you file your return late?
If you file your return late, a penalty applies. The penalty is 5% of the unpaid tax that is due on the filing deadline, plus 1% of this unpaid tax for each complete month that the return is late, up to a maximum of 12 months.
The corporation will be charged an even larger penalty if we issued a demand to file the return under subsection 150(2), and if we assessed a failure to file penalty for the corporation in any of the three previous tax years. The penalty is 10% of the unpaid tax when the return was due, plus 2% of this unpaid tax for each complete month that the return is late, up to a maximum of 20 months.
Subsections 162(1) and 162(2)
A non-resident corporation will be subject to a failure to file penalty equal to the greater of:
- $100; and
- $25 for each complete day that the return is late, up to a maximum of 100 days.
This penalty applies if the amount calculated is more than the amount of penalty usually applied under subsections 162(1) and (2), as discussed above.
A large corporation has to file the T2 Corporation Income Tax Return and, if applicable, a Schedule 38, Part VI Tax on Capital of Financial Institutions. If a corporation fails to file these returns, a penalty will be charged for each complete month that the forms are late, up to a maximum of 40 months. The penalty will be calculated as follows:
- 0.0005% of the corporation's taxable capital employed in Canada at the end of tax year; and
- 0.25% of the Part VI tax payable by the corporation [before the deductions in subsection 190.1(3)].
A corporation has to identify itself as a large corporation by answering yes to the question at line 233 on page 2 of the return.
A corporation is a large corporation if the total taxable capital employed in Canada at the end of the tax year by it and its related corporations is over $10 million.
To determine if the total taxable capital employed in Canada of the corporation and its related corporations is greater than $10 million you can use whichever one of the following schedules that applies:
- Schedule 33, Taxable Capital Employed in Canada – Large Corporations;
- Schedule 34, Taxable Capital Employed in Canada – Financial Institutions; or
- Schedule 35, Taxable Capital Employed in Canada – Large Insurance Corporations.
A corporation with a permanent establishment in Newfoundland and Labrador that is a financial institution as defined under provincial legislation, has to file Schedule 305, Newfoundland and Labrador Capital Tax on Financial Institutions. See Newfoundland and Labrador capital tax on financial institutions.
What happens if you do not comply with mandatory Internet filing?
We will charge a $1,000 penalty for non compliance if a corporation that is required to Internet file does not comply with the requirement.
What happens if you do not report income?
We will charge a penalty if a corporation does not report an amount of income on its return for a tax year, and if it failed to report income in any of the three previous tax years. The penalty is 10% of the amount of unreported income in the year.
For tax years that begin after 2014, this repeated failure to report income penalty can only apply where the amount of unreported income for a tax year is $500 or more.
As a result of the proposed changes, the penalty is equal to the lesser of:
- 10% of the amount you failed to report on your return for the tax year; and
- 50% of the difference between the understated tax (and/or overstated credits) related to the amount you failed to report and the amount of tax withheld related to the amount you failed to report.
False statements or omissions
We will charge a penalty if a corporation, either knowingly or under circumstances of gross negligence, makes a false statement or omission on a return. The penalty is the greater of either $100 or 50% of the amount of understated tax.
If a corporation is charged a penalty for making a false statement or omission under subsection 163(2), the corporation cannot be charged a penalty on the same amount for failing to report income under subsection 163(1).
Misrepresentation in tax matters by a third party
We will charge a penalty if a person counsels or assists another person in filing a false return or knowingly allows a taxpayer to submit false tax information.
IC01-1, Third-Party Civil Penalties
We can also charge penalties for late or incomplete instalment payments and for not providing information on an authorized or prescribed form.
The most common forms are:
- Form T106, Information Return of Non-Arm's Length Transactions With Non-Residents (read the details);
- T5013 FIN, Partnership Financial Return and T5013 SUM, Information Slips Summary (read the details);
- T5018 Summary, Summary of Contract Payments; and
- Form T1134, Information Return Relating to Controlled and Not-Controlled Foreign Affiliates, Form T1135, Foreign Income Verification Statement, Form T1141, Information Return in Respect of Transfers or Loans to a Non-Resident Trust, and Form T1142, Information Return in Respect of Distributions From and Indebtedness to a Non-Resident Trust (see Foreign Property).
Sections 162 and 163.1
Cancel or waive penalties or interest
The CRA administers legislation, commonly called the taxpayer relief provisions, that gives the CRA discretion to cancel or waive penalties or interest when taxpayers are unable to meet their tax obligations due to circumstances beyond their control.
The CRA’s discretion to grant relief is limited to any period that ended within 10 years of the calendar year in which a request is submitted.
For penalties, the CRA will consider your request only if it relates to a tax year ending in any of the 10 calendar years before the year in which you make your request. For example, your request made in 2016 must relate to a penalty for a tax year ending in 2006 or later.
For interest on a balance owing for any tax year, the CRA will consider only the amounts that accrued during the 10 calendar years before the year in which you make your request. For example, your request made in 2016 must relate to interest that accrued in 2006 or later.
For more information about relief from penalties or interest, go to Taxpayer Relief Provisions. To submit your request, use Form RC4288, Request for Taxpayer Relief – Cancel or Waive Penalties or Interest.
IC07-1, Taxpayer Relief Provisions
Voluntary Disclosures Program
Under the Voluntary Disclosures Program, you can correct inaccurate information or disclose previously omitted information. You will not be penalized or prosecuted if you make a full disclosure before we start any enforcement action or investigation against you. You will only have to pay the taxes owing plus interest.
For more details get Information Circular IC00-1, Voluntary Disclosures Program (Income Tax Act), or call the Voluntary Disclosures officer in the Individual and Returns Compliance Division of your regional tax centre (TC). If you wish, you can discuss your situation first on a no-name or hypothetical basis. Your regional TC is based on your operating address and is one of these three: Shawinigan-Sud TC, Winnipeg TC, and Surrey TC.
For more information about the Voluntary Disclosures Program, go to Voluntary Disclosure Programs.
Information reporting of tax avoidance transactions
Taxpayers, advisors and promoters who engage in or who are entitled to certain fees in relation to certain tax avoidance transactions are subject to new reporting requirements.
The measures apply to certain avoidance transactions entered into after 2010, and avoidance transactions that are part of a series of transactions that started before 2011 and was completed after 2010.
Under provincial legislation, Ontario corporations are subject to the same requirements for reportable transactions entered into after May 1, 2014, or reportable transactions that are part of a series of transactions completed after May 1, 2014.
A transaction will be reportable if it is an avoidance transaction as defined in subsection 245(3) of the Income Tax Act for purposes of the general anti-avoidance rule (GAAR) and has at least two of the following three characteristics:
- the advisor or promoter has or had an entitlement to certain types of fees;
- the advisor or promoter has or had confidential protection with respect to the transaction; and/or
- the taxpayer or the advisor or promoter (including any non-arm's length parties) has or had contractual protection for the transaction (otherwise than as a result of certain types of fees).
A reportable transaction does not include a transaction that is, or is part of a series of transactions that includes the acquisition of a tax shelter or issuance of a flow-through share for which an information return has been filed with the minister under subsection 237.1(7) or 66(12.68) respectively.
Information return RC312, Reportable Transaction Information Return, must be filed on or before June 30 of the calendar year following the calendar year in which the transaction first became a reportable transaction for the person.
If the RC312 is not filed as and when required, the reassessment period will be extended by three years after the date, if any, that the information return will have been filed. A waiver in respect of this extended reassessment period may be filed with the CRA within this additional three year period. The scope of an assessment, reassessment, or additional assessment during the extended reassessment period in respect of a taxpayer’s tax year is limited to the extent that it can reasonably be regarded as relating to the deduction, claim, or tax benefit.
Failure to report could result in suspension of the tax benefit and/or a penalty for failure to report.
File this return separately from your tax return. Before you file it, make a copy for your records. Mail the original return, or amended return, and any related information to:
Other Programs Unit
Validation and Verification Section
Ottawa Technology Centre
875 Heron Road
Ottawa ON K1A 1A2
What happens after you have filed your return?
After we receive your return, we send it to Corporation Services of the responsible tax centre for processing. See the list of the tax centres.
When we assess the return, we:
- send an email notification that there is mail for you to view in your secure online account, if you registered to receive online mail by using the “Manage online mail” service at My Business Account or
- mail a notice of assessment.
As soon as you view or receive the notice of assessment, compare it to your copy of the corporation's return. Contact us if you need us to clarify or explain any part of the assessment.
You can ask an account-related question online and we will provide an answer online. You can also view answers to common enquiries online.
We will try to respond within 10 business days, depending on the complexity of the question. To view the response, select the “View mail (correspondence)” service.
With the “Enquiries service”, you can also make various online requests (for example, to order additional remittance vouchers).
To access these online services, go to:
- My Business Account, if you are a business owner; or
- Representatives, if you are an authorized representative or employee.
When can we reassess your return?
Within certain time limits, we can reassess your return or make additional assessments of tax, interest, and penalties. These time limits vary, depending on the type of corporation and the nature of the reassessment.
Normal reassessment period
We can usually reassess a return for a tax year:
- within three years of the date we sent the original notice of assessment for the tax year, if the corporation was a CCPC at the end of the year; or
- within four years of the date we sent the original notice of assessment for the tax year, if the corporation was not a CCPC at the end of the year.
Extended reassessment period
The normal reassessment period can be extended for an extra three years for any of the following reasons:
- if you want to carry back a loss or credit from a later tax year;
- when a non-arm's length transaction involving the corporation and a non-resident affects the corporation's tax;
- if the corporation pays an amount or receives a refund of foreign income or profits tax;
- when a reassessment of another taxpayer's tax for any of the above reasons affects the corporation's tax;
- if a reassessment of another tax year (it must be a prior tax year if the reassessment relates to a loss or credit carryback) for any of the above reasons affects the corporation's tax;
- if the reassessment results from a non-resident corporation's allocation of revenue or expenses for the Canadian business or from a notional transaction, such as "branch advance", between the non-resident corporation and its Canadian business; or
- to give effect to the application of the non-resident trust rules in section 94 or to the application of the foreign investment rules under sections 94.1 and 94.2.
If the reassessment results from a provincial income reallocation, the normal reassessment period can be extended for one year from the later of:
- the day on which the CRA is advised of the provincial reassessment; and
- 90 days after the notice of the provincial reassessment was mailed.
Unlimited reassessment period
We can reassess a return at any time if:
- the corporation has made a misrepresentation because of neglect, carelessness, wilful default, or fraud in either filing the return or supplying information required by the Income Tax Act;
- the corporation filed Form T2029, Waiver in Respect of the Normal Reassessment Period or Extended Reassessment Period, with a tax services office before the normal reassessment period expires. The waiver can be filed up to three more years after the end of the normal reassessment period if the waiver applies to one of the situations previously described under Extended reassessment period;
- the reassessment is to carry back losses or certain tax credits and deductions where a prescribed form requesting the amendment has been filed on time; or
- a court instructs us to reassess.
If you want to revoke a waiver that was previously filed to extend the normal reassessment period for a certain tax year, file Form T652, Notice of Revocation of Waiver, at your tax services office. The revocation will take effect six months after you file Form T652.
Subsections 152(3.1), 152(4), and 152(4.1)
IC75-7, Reassessment of a Return of Income
How to request a reassessment
You can electronically transmit a request for a reassessment to your corporation income tax return using the latest commercial tax preparation software packages, or send a letter to the tax centre that serves the corporation. If you send a letter, state the name of the corporation, the business number, the tax year, and any details that apply. With your letter, include any relevant supporting information, such as revised financial statements and schedules. If you are preparing your return using tax preparation software, submit the bar codes that contain the information needed to reassess your return. Do not send the entire T2 return.
To ask to carry back a loss or tax credit to a prior tax year, file whichever of the following schedules apply:
- Schedule 4, Corporation Loss Continuity and Application, to ask to carry back a loss;
- Schedule 21, Federal and Provincial or Territorial Foreign Income Tax Credits and Federal Logging Tax Credit, to ask to carry back foreign tax credits on business income;
- Schedule 31, Investment Tax Credit – Corporations, to ask to carry back an investment tax credit; and
- Schedule 42, Calculation of Unused Part I Tax Credit, to ask to carry back a Part I tax credit.
You can file these schedules with the return on which you report the loss or earned the credit, or you can forward them separately to the tax centre that serves the corporation.
How to register a formal dispute
If you disagree with an assessment or a determination, you can make a formal objection.
Filing an objection is the first step in the formal process of resolving your dispute. You have 90 days after the date of the notice assessment or determination to file an objection.
You can file an objection:
- online at My Business Account or Represent a Client by selecting "Register a formal dispute (Notice of Objection)” for “Corporations”; or
- by mail, using Form T400A, Objection – Income Tax Act; or writing to the chief of appeals at your Appeals Intake Centre (see appendix B of pamphlet P148).
In all cases, you have to explain why you disagree and include all relevant facts and supporting documents.
For large corporations, your objection must::
- reasonably describe each issue;
- specify for each issue the relief you are seeking, expressed as the amount of a change in the income, taxable income, loss, taxes payable, refundable amounts, and overpayments or balance of unclaimed outlays, expenses, or other amounts of the corporation; and
- provide facts and reasons the corporation relied on for each issue.
A large corporation that objects to an assessment will have to pay 50% of the disputed amount. A corporation is a large corporation if the total taxable capital employed in Canada at the end of the tax year by the corporation and its related corporations is over $10 million. The corporation also has to pay the full amount of taxes not in dispute.
For more information about objections and appeals, see Pamphlet P148, Resolving your dispute: Objection and appeal rights under the Income Tax Act, or go to Complaints and disputes.
Disputing loss determinations
The formal process of resolving a dispute does not usually apply to loss amounts under dispute, because there is no tax, interest, or penalty involved.
However, a corporation may request a loss determination if it does not agree with the amount of the losses assessed by the CRA. The CRA will determine the amount of the loss and confirm in writing by issuing Form T67AM, Notice of Determination/Redetermination of a Loss.
Once the corporation has received the notice of determination, it can file an objection within 90 days after the date of the notice.
You cannot request a loss determination if the CRA assessed your loss to be the same as what you reported.
If the corporation asks, we will make determinations of the following amounts:
- a non-capital loss;
- a net capital loss;
- a restricted farm loss;
- a farm loss; or
- a limited partnership loss.
Send any requests for loss determinations to your tax services office or tax centre.
Subsections 152(1.1) and 152(1.2)
Keep your paper and electronic records for a period of six years from the end of the last tax year to which they relate. If you file your income tax return late, keep your records for six years from the date you file your return.
Certain records must be kept longer. These include minute books, which have to be kept until sometime after dissolution. However, if you want to destroy your records early, complete Form T137, Request for Destruction of Records.
For more information, go to Keeping records.
Subsections 230(4), 230(4.1), 230(5), and 230(6)
IC78-10, Books and Records Retention/Destruction
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