On this page:
- How does a corporation pay taxes?
- Filing GST/HST returns
- Are you responsible for your corporation's debts?
A corporation is a separate legal entity. It can enter into contracts and own property in its own name, separately and distinctly from its owners.
A corporation may have some of the following features:
- It is a separate legal entity with a perpetual existence;
- It can generally raise larger amounts of capital more easily than a sole proprietorship or partnership; or
- The shareholders cannot claim any loss the corporation sustains.
When forming a corporation, the owners transfer money, property, or services to the corporation in exchange for shares. The owners are referred to as shareholders.
You can buy and sell shares in a corporation without affecting the corporation's existence. A corporation continues to exist unless it winds up, amalgamates, or surrenders its charter for such reason as bankruptcy.
You set up a corporation by completing articles of incorporation, and filing them with the appropriate provincial, territorial, or federal authorities.
How does a corporation pay taxes?
A corporation has to file a T2 corporation income tax return no later than six months after the end of every tax year, even if it does not owe taxes. It also has to attach complete financial statements and the necessary schedules to the return.
The tax year for a corporation is its fiscal period. For more information, see Corporations.
A corporation usually pays its anticipated taxes for the year in monthly or quarterly instalments. For more information on instalment payments and the filing requirements for corporations, see Guide T4012, T2 Corporation - Income Tax Guide, or Guide T7B-Corp, Corporation Instalment Guide, or go to www.cra.gc.ca/payments.
Filing GST/HST returns
Corporations also have reporting periods for which they have to file their GST/HST return. For more information on these returns, including reporting periods, go to Goods and services tax/harmonized sales tax (GST/HST).
Are you responsible for your corporation's debts?
As a shareholder of your corporation, you have limited liability. This means that you and the other shareholders are not responsible for the corporation's debts. However, limited liability may not always protect you from creditors. For example, if a smaller, more closely held corporation wants to borrow money from a bank or other creditor, the creditor may ask for the shareholder's guarantee that the debt will be repaid. If you agree to this condition, you will be personally liable for that debt if the corporation does not pay it back.
This applies to taxes owing as well. If your corporation owes taxes and has obtained a loan or secured a line of credit, an advance under the loan or line of credit can be intercepted on account of the corporation's tax arrears. Notwithstanding that the proceeds of the advance have been paid to the receiver general for Canada, the corporation is deemed to have received the advance and is liable to the lender as such. When you have personally guaranteed the loan or the line of credit for the corporation, you would be liable jointly with the corporation for the amounts intercepted.
Directors may also be liable to pay amounts owed by the corporation if it has failed to deduct, withhold, remit or pay amounts as required by the Income Tax Act, the employment Insurance Act, the Canada Pension Plan, the Excise Act, 2001, and the Excise Tax Act. For more information on director's liability, see Information Circular IC89-2, Directors' Liability.
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