Can a business owner file his corporate taxes?

As a small business owner, you are probably wondering, “Can I prepare and file my corporate taxes in Canada?” Does it make sense to hire an accountant, or is filing your corporate tax return an easy task?

In short, YES, you can prepare your corporate tax return, and file it with the CRA. There is no requirement to have an accounting degree or experience to do it. So if you want to do it yourself for free, follow this article to get more details about preparing your T2 tax return and filing it with the CRA.

Before going into the details of preparing your corporate taxes, let’s try to understand why business owners would want to do so. The primary reason is to save money on accountancy fees.

While paying for tax services is not the most significant business expense, some business owners want to do it themselves. Nobody knows your business better than you, and you might even have some bookkeeping experience. Therefore, figuring out what forms you need to fill out to file with the CRA is possible. Still, you need to understand that corporate tax returns are much more complex than personal income tax, so the chances of you making mistakes are much higher.

Filing your T2 tax return also makes sense if you have an accounting degree and have experience doing it in the past. In this case, you are already familiar with the process, and it does not make sense to hire extra help.

Just make sure there is no conflict of interest here. You may know your business well enough to cut a few corners and try to avoid paying taxes where you should, which may result in an audit and paying fines to the CRA. On the other hand, once your business grows and you consider it your primary income source, you should hire a professional who can help with the taxes. A tax specialist not only minimizes the chance of errors, but a professional accountant knows what extra credits you can apply and all the expenses you can claim in your tax return.

Price is the primary factor when deciding whether to hire an accountant or prepare your corporate taxes yourself. So, how much does a corporate tax return cost?

There are two types of corporate tax returns:

• The first is called the “Nil tax return,” which is prepared when a company has no activity (no income, no expenses). You can learn more about nil tax returns from our blog post and find the nil return filing price on our pricing page.
• The second is a regular tax return for active companies with income and expenses. The price may vary depending on how many transactions you have, and you can find the latest price on our website. However, if you purchased one of our bookkeeping packages, the tax return preparation and filing are already included in the bookkeeping price.

If you are interested in our prices, please check it out here.

Once you know how much a tax return costs, it is much easier to decide what to do next. Although, if you can’t afford to hire a tax professional, your only option is to do it yourself.

However, if you’re still not confident you can file a return yourself accurately, my only advice would be to hire an accountant to do it for you.

Unlike the personal tax return, which is relatively simple and can be prepared by somebody without an accounting degree, corporate taxes are much more complex. If you try to file your taxes without prior corporate tax experience, this might result in costly mistakes such as tax overpayment, interests and penalties. But if you still want to do it yourself, at least purchase software that can do some basic checks for mistakes.

Instructions to prepare Corporate Tax Return T2

Once you decide to prepare your corporate tax return yourself, you will need some instructions on how to do it. The CRA already has a very detailed tutorial, called the T4012, or “T2 Corporation – Income Tax Guide 2020,” explaining every line and providing many examples of filling it out.

You can download this guide from our website.

What forms do you need to fill out?

You must submit your corporate income tax return (T2) to the Canada Revenue Agency (CRA) every year. The T2 form is an editable, nine pages long PDF document.

You can download the form from our website.

If a corporate income tax return is sent electronically by someone other than a company representative, an authorized signing officer of the corporation must complete and sign a Form T183CORP.

You will need to attach your corporation’s financial statements by filling out specific schedules required by the CRA. They all have names to help you understand them. Speaking of financial statements, you must also file a General Index of Financial Information (GIFI) with your tax return. The Index reports information from the corporation’s income statement, balance sheet, and retained earnings statement (your financial statements).

Depending on your corporation’s operations, you may also need to prepare other T2 Returns and Schedules. The actual list of schedules is very long, and you don’t need to file all of them. For example, if you didn’t make any charitable donations, you don’t need to complete the T2SCH2 Charitable Donations and Gifts schedule.

The most common schedules to fill out include:

• Schedule 24 – First-time Filer after Incorporation
• Schedule 100 – Balance Sheet Information
• Schedule 125 – Income Statement Summary
• Schedule 3 – Dividend Received, Taxable Dividend Paid, and Part IV Tax Calculation
• Schedule 50 – Shareholder Information
• Schedule 8 – Capital Cost Allowance
• Schedule 1 – Net Income for Tax Purposes
• Schedule 11 – Transactions with Shareholders, Officers or Employees
• Schedule 200 – T2 Corporation Income Tax Return
• Schedule 88 – Internet Business Activities: if your corporation has a website and earns money from it, you must fill out this form.

There is also a “T2 Short Return,” which is a simpler version of the T2 return and can be used if your corporation does not have any activity.

You can learn more about a “Nil tax return” here.

Where to send your T2 return?

Once your tax return is ready, you need to send it to the CRA. The address you have to send your tax return depends on your location. Currently, three tax centers in Canada accept paper tax returns: Winnipeg, Sudbury and Summerside. For example, if you are in Toronto, your tax center is in Sudbury, ON, but if your business is registered in Kitchener, you must send it to Summerside, PEI.

You can find the exact address on the CRA website.

What software can you use to prepare a corporate tax return?

If you want a $0 investment in tax return preparation, you can use the calculator and fill out a paper version of the tax return, but that is not the best way to do it. There are professional software suites that can help you. Just make sure the software you will use is certified by the CRA.

You can find all accounting software certified by CRA on this page.

The software we use at Taxory to prepare corporate taxes

Most of our accountants use Intuit ProFile, a professional software (certified by CRA) designed specifically for accountants. If you hire an accountant from our company, that is the software we will use. It provides a lot of functionality and has all the forms required by the CRA, but it may be too complex for a small business owner. Intuit ProFile is also pretty expensive; the license costs $2,000+ per year. The more affordable options are Turbotax for business, which costs less, but you still have to pay at least $250 per return.

Is there free software that can file your corporate income taxes?

When filing your personal income taxes, there are many free or pay-as-you-want options. Unfortunately, there are limited software options to file corporate tax returns, all of which are paid versions. You can find out which software options the CRA accepts on the CRA website.

Should you purchase software to use once a year, or is it better to hire a professional accounting firm?

Most business owners prefer to hire a professional accounting firm to file their corporate income taxes because it is less expensive in the long run and saves you time. The corporate income tax return process is considerably more complicated than a personal income tax return, which is why hiring an accounting firm is recommended. Plus, you get peace of mind knowing it is done correctly and that you didn’t miss anything. If you are not a trained professional in taxes and don’t know the tax laws, your corporate income tax should be at least reviewed by a professional accountant. Professional tax and accounting experts know of additional tax credits your business can take advantage of, and you may save on your taxes much more than you would pay to your accountant.

Tax years are different for corporations than they are for individuals. The corporation’s tax year is its fiscal period, so you have to file and pay corporate income tax when your corporation’s fiscal period ends. Timing-wise, you need to file your corporate tax return no later than six months after the end of your tax year. However, if you end up owing taxes, you must pay them no later than three months after the end of your fiscal year. That means within the three months following your tax year-end, you should figure out if you have a net income or a net loss.

It’s also essential to file your return on time to avoid penalties. If you are late, you might have to pay an additional percentage of your unpaid tax as a penalty, which can add up quickly. It’s best to have a separate saving account to which you contribute funds to pay taxes later, so you always have the money on hand. If you didn’t submit your return on time, do so no later than three years after the end of the tax year if you want to receive your tax refund.

As you might know, record management is essential when running a business. A short list of items you might need include:

• Payroll information
• financial statements
• asset additions or disposals
• receipts for expenses and purchases

If you work from home, you might need to keep business-use-of-home details. You will need them for your tax return, whether you do it yourself or ask your accountant to do it.

You will also need:

• Invoices you received
• GST/HST return information
• previous year’s tax returns
• a copy of your incorporation papers
• accounts receivable and payable
• the latest notice of assessment
• a fixed asset continuity schedule
• employee deduction payable

If you are a corporation with gross revenue of more than $1M per year, the CRA made it mandatory to file the corporate income tax online for such corporations, so ensure you are doing that.

You also need to be very familiar with the General Index of Financial Information (GIFI), which helps collect and process financial information by assigning cash and deposits.

You can download the GIFI in PDF format from our website.

Whether you file the corporate tax yourself or through a firm, remember to keep your records for at least six years if CRA needs to verify the information provided. Also, if you incurred a loss, didn’t make a profit or made less than $5,000, you still need to file your corporate taxes.